I have been following basic money rules for the past decade, but not to the letter of the law. I find most rules are made to be broken. Although I like to be prudent when it comes to my money, I have discovered there are exceptions to some of the traditional rules about personal finances. My situation often changes and I have to roll with the changes.
Leaving money in stocks for long term
I used to believe the money rule that it's best to invest in individual stocks as a long-term investor. However, I have broken that money rule simply because there are so many baby boomers retiring and dipping into their retirement accounts. I would rather pull my money out of stocks before a major stock market crash, which could last for decades. After the baby boomers are gone, the economic landscape in our country should dramatically shift. At that time, some of the old money rules may begin to pay off again.
Paying off a house before retirement
I used to think I needed to be completely mortgage free by the time I retire. However, I would break my rule if I was able to obtain a mortgage with an interest rate that is less than 3 percent. I have rarely had a year when I couldn't make more than a 3 percent return on my money, even with extremely conservative investments. Although I won't owe any money on my current home by the time I retire, I may turn it into a rental property and purchase a newer home if interest rates remain low.
Saving 10 percent of my income
One of the first money rules I learned about in my 20s was to save 10 percent of any income I receive. Sometimes I have a tough time living up to the 10 percent saving rule, and I fall closer to the national saving rate which often hovers around 5 or 6 percent. However, I know that in this case, I need to break the rule by saving more than 10 percent. The problem for me is that I didn't really start saving enough money until I was close to 30 years old. At this stage in my life, I really need to save 15 percent of all the income I receive.
Contributing to my 401(k)
I have always heard that it makes sense to take advantage of any company-sponsored retirement plans such as a 401(k). I used to contribute up to the amount my company matched. However, the new company I work for does not mach any of my contributions. For me, it only makes sense to contribute to a 401(k) after exhausting more attractive retirement accounts such as the Roth IRA. After contributing $5,000 a year to my Roth, I consider making a contribution to my 401(k). I broke my money rule because the situation changed.
Although some money rules make a lot of sense, they don't apply to everyone. I know people in my generation always believed it paid to receive a bachelor's degree in any subject. In today's economy, some graduates with bachelor's degrees are returning to community colleges to receive a technical degree that can lead to a real job. A lot of younger people rather rent than purchase a home after the housing bubble. It pays to use common sense and not fall into the trap of thinking money rules will always remain the same.
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