5 Personal Finance Rules You Might Need to Break

To improve your personal finances, you can talk with a financial planner, read money blogs or get advice from financially savvy friends. And as you read or speak with individuals, you might recognize some common money beliefs — in fact, you might get the same basic advice.

The truth of the matter is there are many general personal finance rules shared by many well-known money experts. And many will say follow these rules no matter what. But sometimes, you have to tweak general rules and do what’s best for your pocket.

With that said, here are five personal finance rules you might have to break, depending on your situation. When you’re progressing on the road to financial wellness, there are some basic rules you might have to reconsider following to achieve your goals.

1. Save at least 10% of Your Income

It’s a personal finance rule that money experts preach — and personally, I think it’s an effective way to plan for a rainy day and save for retirement. Paying yourself first builds your finances to a comfortable level, whether you’re putting this 10% into a retirement account, increasing your liquid savings or a combination of both. But given the higher cost of living and difficulties making ends meet, 10% just isn’t a reality for some.

It’s an excellent goal; but if you can’t hit this mark, this is one personal finance rule that’s okay to break. Any amount you’re able to set aside is better than saving nothing. Evaluate your budget and determine how much of your salary you can realistically — and comfortably — save each month. Even if it’s only 2% or 3% of your income, start here and gradually work your way to a higher percentage.

2. Max Out Your 401(k) Contributions

Maxing out 401(k) contributions through your employer gets retirement planning off to a good start. You can choose how much of your income to contribute. Some people contribute 2% or 3%, and others contribute the max allowed by their employer, which might be 6%. The more you contribute to your 401(k) plan, the quicker you can grow your money — especially if your employer offers a match program.

If you can afford to have this extra money taken from your income, it makes good financial sense to max out 401(k) contributions. But this isn’t the right move for everyone, and there are sound reasons to contribute less and use this money for other purposes.

Do you have an emergency fund? Are you carrying credit card debt? Money experts recommend a 3 to 6-month cash reserve just in case you lose your job or have to stop working for other reasons. And just about everyone knows the costly consequences of high-rate credit card debt. It’s good that you’re thinking about retirement, but if you temporarily reduced your 401(k) contributions from 6% to 3%, you can use the savings to boost your emergency fund or pay off debt.

3. Pay Off Debt Before Saving Money

Whether to pay off debt before focusing on saving money is a hot topic in the personal finance world; and depending on who you speak with, opinions differ. Some experts recommend paying off debt first, which opens up more opportunities to save money. However, others like Dave Ramsey feel we shouldn’t pay off the debt at the expense of an emergency fund, and the logic makes pretty good sense. As a matter of fact, saving a $1,000 emergency fund is listed among his “baby steps to getting out of debt.”

If you focus all your efforts on paying off a credit card over the next months or year, you might make a lot of headway. But with nothing in savings, one emergency can put you back into debt and undo all your hard work. According to a survey by the National Foundation for Credit Counseling, 64% of Americans don’t have enough cash on hand to handle a $1,000 emergency. “The lack of an emergency fund not only creates financial stress, but it drives the consumer into debt,” says Cathy Pareto, a financial advisor in Coral Gables, Florida.

Debt repayment is important, but so is saving. In a perfect world, you’ll be able to save and pay off debt simultaneously. But if you can only focus on one goal at a time, make sure you have a cushion for emergencies before attacking debt. Once your debts are gone, you can regroup and put your energy into saving money.

4. Avoid Credit Card Debt

Between high-interest rates and the risk of defaulting and damaging your credit score, you may take the advice of others and avoid credit card debt. But a credit card isn’t bad in itself — it’s all about responsible use. A credit card can build or rebuild your credit history, and being a cardmember can come with many perks that can actually save money. If you set limits, exercise self-control and pay off balances in full each month, a credit card can be a very useful tool. Have too many credit cards and a growing balance? Consider consolidating the credit card balances to save money.

5. Buying is Better Than Renting

I never bought into the hype that buying was better. But if you speak with financial experts, they might tell you to stop wasting money on rent and start building equity. Buying, however, isn’t the answer for everyone. You have to take your lifestyle into account, and truly consider whether you want to deal with a headache, I mean the responsibility of ownership.

If you enjoy moving and don’t like staying in one place for too long, renting might be up your alley. You won’t be able to write off home interest or earn equity, but at the same time, you’re not responsible for maintenance or repair costs. Homeownership is costly no matter how you look at it. Items are going to break, and there’s the ongoing cost of repairing or replacing these. And when you purchase, you’ll have to go into your pocket for a down payment and closing costs, which might wipe out your savings and take years to recoup. After assessing your needs and considering what’s most important to you, renting might be a better option.

Following basic rules of personal finance helps improve your money, but these rules aren’t written in stone. Everyone’s situation is unique, and what works for one doesn’t always work for another. So the answer to your financial questions from me will always start with “it depends.”