It’s almost too easy to find financial advice: It’s all over the web, on television and radio programming, in news publications and books. Financial advisors, columnists and entrepreneurs are lined up to tell you exactly what to do with your money. Sometimes unique perspectives emerge, but often, beliefs get repeated so many times that they appear to become rules — when, really, they’re just loose guidelines.
There’s no one-size-fits-all approach to finances, as we all have different priorities, lifestyles and goals that dictate what we do with our money. While some rules of thumb, like the 50-30-20 budget, can help you get off the ground with your finances, it’s often beneficial to tweak them once you come to understand the products you’re using, your available options and your goals.
Here are seven financial rules that should be broken — once you’ve begun to learn how to manage your money.
1. Save for a 529 Plan Early
A 529 savings account is a great tool to help save up for your child’s college education. It’s a noble endeavor and could keep your kid out of a mountain of student loan debt. However, this is only a good use of your money if your own retirement and long-term financial goals are being met. Unlike your child, who will have options when it comes to paying for college, from obtaining a loan to working through school, you’ll only be left with one option if money is short upon retirement: Keep working.
Start a 529 plan only when other priorities have been met, like establishing an emergency fund and an on-track retirement savings plan.
2. Pay Off Your Mortgage ASAP
A 20 percent down payment is fairly standard when buying a home, and smaller down payments often necessitate the purchase of private mortgage insurance. However, you shouldn’t always opt for a smaller loan term. The liquidity of your money is crucial should an unexpected event occur.
Tying up too much in a home early on in the loan can put you in a financial bind. It’s better to opt for the longer-term loan that you can comfortably afford monthly and not over-invest in the down payment. It’s a preemptive move, but life can change course at any time and leave your hands tied should you need access to money you just invested in your home.
Keep reading: 15- vs. 30-Year Mortgage Rates: Which Is Best?
3. Purchase a Home Worth 2.5 Times Your Annual Salary
This is a common rule of thumb when shopping for a home. Yes, it’s good to have some guide to determine how much house is reasonable to buy; however, it’s better to consider monthly costs when closing on a home.
Your interest rate, loan term and regional factors like property taxes will all affect the total amount of your purchase. Again, because priorities vary so much for people, figuring out how much you want to be spending each month (rather than each year) is a better barometer for affordability, especially if you’d rather spend money on vacations and investing in your retirement than whatever 2.5 times your salary dictates.
4. Refrain From Credit Card Use
This rule is being preached less often now, especially since credit is such a fundamental factor of our financial freedom. You might be scared that running plastic through a machine won’t feel like spending money, but using a card could actually help you track your spending better; credit card statements are a simpler alternative to carrying receipts for every little cash purchase you make.
If you’re not entirely comfortable with a traditional credit card — or if you don’t have great credit — opt for a secured card with a low credit limit. This will help you establish the credit you’ll need to obtain other financial products, while ensuring you don’t blow your budget.
5. Cut Spending to Save Money
Yes, to save up money you might have to cut some expenses, like those premium cable channels you hardly watch or the gym membership you aren’t using. Over time, these small budget cuts can add up to big savings; however, there is such a thing as frugal fatigue and you can abate it by not completely cutting yourself off from spending.
It might seem counterintuitive, but just like how starving yourself isn’t a sustainable way to lose weight, denying yourself from all purchases isn’t a sustainable way to save money. Instead, cut expenses that you aren’t benefiting from and maintain the occasional shoe purchase, Starbucks latte and trip to the movies — your wallet and willpower will thank you for it.
6. Buy a Car Rather Than Lease
According to Daily Finance, the average age of cars on the road is 11.4 years. While some people prefer buying new and keeping the same car for a decade, not everyone’s needs remain the same long term, nor is it wise for someone to put down $20,000 on a car if he lacks rainy day funds.
A growing family, new technological innovations and more fuel-efficient models can all impact the vehicle that suits your needs; therefore, a lease might be a more financially sound option should you anticipate needing, or wanting, a new car after a couple of years — so long as lease payments remain below the cost of outright ownership.
7. Never Take Out a 401(k) Loan
For obvious reasons, retirement accounts aren’t exactly designed to be liquid. Yes, there are penalties for withdrawing funds early, but if you’re strapped for cash, a 401(k) loan could actually be a better option than a credit card, personal loan or home equity loan. Interest rates on credit cards average 21%, personal loans average 11% and home equity loans are just under 6%. In comparison, 401(k) loans charge the prime rate, currently at 3.25%, plus one to two points — meaning, at most, your rate would be 5.25% APR.
The best part? Rather than paying a bank money on the loan, you essentially pay it to yourself — 401(k) loan payments go back into the account they were withdrawn from. So long as retirement is a little ways off, you can take out a 401(k) loan and rest assured knowing that you’ll make up for lost ground as you pay the loan back.
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