Key Takeaways
- Some money rules can be broken strategically to achieve bigger financial goals, such as prioritizing retirement contributions over aggressive saving.
- Certain rules should never be broken, including maintaining financial discipline and understanding your financial goals.
- Millennials need practical rules like checking credit reports regularly and avoiding minimum credit card payments.
- Distinguishing needs from wants and building emergency funds are essential for financial stability.
It might seem contradictory if you hear that you can break certain money rules which you have been learning from childhood. No, this doesn't mean that those rules are wrong or you don't have to follow them anymore; just that you might feel the need to amend them from time to time for your own financial gain.
Understanding which money rules are flexible and which ones are absolute can help you make better financial decisions. While some guidelines can be adapted to your specific situation, others form the foundation of financial security and should never be compromised.
In this comprehensive guide, we'll explore which money rules you're allowed to break, which you should never compromise on, and practical strategies for millennials and anyone looking to improve their financial life.
Money Rules - What You Can Break and What You Should Not
Know which money rules you are allowed to break and which you shouldn't, no matter what comes your way.
Rules You Can Break at Times
Here are 3 situations wherein you can think of breaking your money rules in order to attain a bigger monetary goal.
1. Saving 10% of Your Income is Mandatory
It is a common notion that you should always try to save at least worth six months of your living expense. Financial experts say that you should save at least $1 per $10 you earn, or in other words, 10% of your monthly income.
However, you should also start contributing towards your retirement account when you are in your early 30's; otherwise you'll never be able to accumulate the required amount. Therefore, you can save less in order to contribute the required amount into your retirement fund.
2. You Should Build Emergency Fund and Repay Debt
Paying off debt and building an emergency fund is really important. However, if you have low-rate debt, then perhaps contributing towards your company's retirement plan is a wise decision; since, then you'll also receive full company match.
But, this doesn't mean that you will pile on debt. You should also repay the debt and build an emergency fund though it may take a few more months to pay off the debt completely.
3. Buying House Not More Than 2.5 Times of Annual Income
It is usually a guideline to follow that you shouldn't buy a property which is more than 2.5 times of your annual income. However, what actually matters is whether or not you can afford the monthly mortgage payment along with the associated costs of buying the property.
Also, you should consider how long you plan to live in the house. If it is only for a few years, then renting a house is perhaps a better decision.
Rules You Should Not Break Anytime
Here are 2 money rules which you should not break anytime.
1. Be Financially Disciplined
You need to be disciplined enough in order to attain your financial goals and aspirations. You should save the desired amount every month and try to not incur much debt.
Along with it, you should check your credit reports at regular intervals to check whether or not there is any inaccuracy in your reports. This will help you have a good score, which in turn, will help you take out loans at suitable terms and conditions.
2. Understand Your Financial Goals
You need to figure out where exactly you want to see yourself 5 years or 10 years from now; that is, you need to set your financial goals. According to that, you can plan your actions to attain your financial success.
You can plan your monthly budget in order to save the required amount. Planning an annual budget is also important since a bigger picture will help you plan your financial moves and on the basis of that, you can plan what you need to do monthly in order to make your annual budget successful.
Millennials - Practical Money Rules for a Sound Financial Life
Money management seems to be the most challenging task for generation Y. Millennials grew up in a vastly changed economic situation where they were highly affected by modernization. Most of them are either dying to start their own family or are crazy to move into a foreign country.
Many of them aren't even aware of the fact that budgeting and frugal living can help them manage money in a much better way. However, there are certain money-savvy young people who handle finances responsibly in their day-to-day lives by following 4 practical money rules.
Check Your Credit Reports at Regular Intervals
Whenever you apply for a loan, lenders/creditors check your credit scores in order to determine your creditworthiness. A good score helps you in taking out a loan at favorable terms and conditions.
Apart from that, an impressive credit profile also helps you in securing a good job or buying insurance policies at reasonable rates. So, never make a mistake of not checking your credit reports at regular intervals. Always check your reports for errors and dispute them, which in turn, will help you improve your score.
Do Homework While Making Investments
Do not hurry while planning for investment. Young generation often make investments without doing the necessary homework. Do not ever buy an investment product simply because someone has asked you to do it.
Make sure you gather knowledge about the investment product and check whether or not it is compatible with your risk tolerance and best suits your investment portfolio.
Don't Over Stretch Your Budget While Making Big Purchases
Those who think that they can afford a big purchase (such as a car, home) simply because they can make the monthly loan payments on time are on the wrong path. Don't think that you can afford everything simply because you can manage monthly payments.
The cost of maintaining a car and home is much more if you consider the necessary repair work, insurance premium, fuels and what you have to pay for its maintenance. It is also advisable that before making a large purchase, ask yourself whether or not you really need it or wait for a while when maintaining cost doesn't cost your other necessary expenses.
Make More Than Minimum Payments on Credit Card Bills
It is a big mistake to make only minimum payments on your credit cards. When you make only the minimum monthly payments, a lot of interests get added to your total payments over the entire life of the loans. As a result, you end up paying much more.
So, try to pay at least a few dollars more than the minimum amount.
Important reminder: Do not ever forget to keep track of your money. There are many young people who either don't keep track or maintain inadequate records of their monthly/annual income and expenditure. They don't feel the need of planning a budget in order to manage their personal finance. However, it is advisable that you plan a budget that in turn would help you in improving your financial position and attaining your short and long term monetary goals.
Improving Your Financial Life - 4 Rules to Follow
Everyone wants to improve his/her financial life but fails to take the necessary actions. Here are 4 rules which you can follow in order to improve your financial life and build a secured future.
Identify Your Present Needs from Wants
In order to make a wiser spending choice, at first you need to distinguish your 'needs' from your 'wants'. Your 'needs' should be your daily necessities (such as, food, shelter, clothing, etc.), along with saving 10% of your monthly income. On the other hand, 'wants' are what you want to have, which you can do without.
Often it might be difficult to draw the line between the two; however, you need to distinguish as otherwise you will land yourself into debt problems.
For example, having a house is surely a necessity; however, you can choose a house with the basic amenities instead of going for a property which is undoubtedly a better one but might be difficult for you to afford at present. In this situation, what you can do is buy a comparatively low cost home and save money in order to buy a better one after a few years when your financial condition will improve.
Plan Suitable Budgets and Your Financial Moves
Planning suitable budgets – monthly and yearly budgets, are prerequisites of improving your financial life. Before planning a monthly budget, at first, evaluate where you are financially and where you want to see yourself after a certain time period – say about 5 or 10 years down the lane.
To do so, calculate your assets and your savings; then, set your financial goals. While doing so, remember to set achievable goals as otherwise, you will not be motivated.
After you do this, start planning a monthly budget considering your income and expenditure (your necessities) along with how much you want to save in order to meet your goals in the mentioned time period. It is equally important to plan an annual budget and planning your weekly budget as well, so that you can calculate your progress every month. It will help you stay motivated.
Save Money for the Rainy Days
Saving money for the rainy days or building an emergency fund is another building block of achieving a financially secured future. As the name suggests, an emergency fund can save you from falling into debt. You should use this fund only for unexpected expenses such as, a medical emergency, sudden repair work, etc.
This fund will help you if you are laid off or your usual flow of income is interrupted for some months. Financial experts say that you should save about 3-6 months' worth of your living expense, though the amount can vary from person to person.
To save this amount, the best attempt is to include a certain amount in your monthly budget allowance.
Learn to Manage Lifestyle Inflation
It is quite natural to increase spending with the increase in monthly income. However, you need to know where to strike the balance so as to not restrict your ability to build the required wealth, which you might need during and after retirement.
You may have to embrace certain lifestyle changes but do not live paycheck to paycheck in order to match your friends' lifestyle. You never know, they may not be saving the required amount or might be inviting debt problems.
Improving your quality of life is not harmful; however, you should do so without hampering your required savings in order to meet your financial goals.
Along with following these rules, you should also start saving for retirement right from when you start earning. Though it is never late to start saving, yet you will be able to plan your financial life better if you start from an early age.
Remember if you save now, it will give you the opportunity to spend more in future, when required, without having to worry much. Therefore, carefully plan your financial moves today in order to improve your financial life in the coming years.
The Bottom Line
Understanding which money rules are flexible and which are absolute is crucial for financial success. While some guidelines can be adapted to achieve bigger financial goals—such as prioritizing retirement contributions over aggressive saving—certain fundamental rules should never be compromised.
Financial discipline and clear goal-setting form the foundation of any successful financial plan. Whether you're a millennial just starting out or looking to improve your current financial situation, these practical rules provide a roadmap for building wealth and achieving financial security.
Remember to distinguish your needs from wants, plan suitable budgets, save for emergencies, and manage lifestyle inflation carefully. By following these proven strategies and maintaining consistent financial discipline, you can build the secure financial future you deserve.
Start implementing these money rules today—your future self will thank you for the financial stability and freedom you create.
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Loretta Kilday
Financial Planning Expert & Senior Editor
Loretta Kilday is a Certified Financial Planner with over 20 years of experience helping individuals and families understand and implement effective money management strategies. She specializes in personal finance education and has guided thousands of people through the complexities of financial decision-making, helping them distinguish between flexible guidelines and unbreakable rules. Loretta believes that financial success comes from understanding which rules to follow strictly and which can be adapted to your unique situation.