Money rules guide how to earn, save, and spend, but not every rule is appropriate for everyone’s financial goals and needs. Some rules might be outdated, while others are too general and don’t consider a person’s needs.
Ultimately, some rules can lead to financial mayhem rather than intended stability. Thus, each piece of advice needs to be taken with a grain of salt and considered whether its actually useful to you in your current situation. It’s time to potentially ditch these 19 bad money rules now!
1. Save Up No Matter What
We all have heard to save money for emergencies since our childhood. Well, saving is helpful, but according to research from the Federal Reserve Bank of St. Louis, cash loses its value over time due to inflation. It means that the longer you hold money as cash, the more value it loses. So, instead of saving and keeping all your money idle, you might try investing and making your money grow over time (only what you can afford to lose, of course) to build a brighter future for the next generation.
2. Investing is for the Wealthy
This huge misconception should be outright debunked for future generations. It holds people from increasing their wealth in a much more efficient way. In reality, anyone can start investing, irrespective of their income level. A report from Vanguard supports the notion that investing is not limited to the wealthy, but everyone should start investing early to accumulate more money for their financial goals.
3. Keep One Credit Card
This rule suggests that keeping more than one credit card will lead you to financial trouble. It can be true, but only if managed irresponsibly. Credit card companies offer sign-up bonuses, different reward programs, cashback, and other benefits according to your spending. Plus, having multiple credit cards can boost your overall credit scores if the payments are made on time and utilization is kept low.
4. Buying in Bulk Saves Money
Buying in bulk costs you the lowest price per unit. While bulk purchasing can be cost-saving, it can also have hidden fees for storing the excess items or dealing with product spoilage if they are not used before expiration or you didn’t need them in the first place.
5. Renting is Bad
If you think renting is like throwing away money, you should stop now. Owning a house comes with not only upfront costs of a down payment but also additional costs of property taxes, maintenance, and repairs, which snatches the charm of homeownership from you. On the other hand, renting saves you from these costs and allows you to save money until you can afford your own house when the time is right.
6. Save a Fixed Amount and Leave It Until Retirement
According to Charles Schwab, it’s important to save for retirement and prepare for how you’ll spend your money once you retire. But it’s not as simple as saving a certain set amount. You should regularly review your retirement plan savings to adjust it to your desired lifestyle and goals. Research says that even small increases in savings can make a big difference, especially when placed in retirement savings vehicles.
7. You Shouldn’t Discuss Money with Friends
Money is considered a taboo topic that we hesitate to discuss even now. However, a recent study showed that money impacts our lives to a greater extent. People should have money conversations with their close relations to avoid money-related misunderstandings. Not just that, talking about money with friends and colleagues can increase your financial knowledge.
8. Stick to the 50 30 20 Rule
This rule only works for some. Covering necessities with 50% of income will be difficult for someone with a high living cost. Moreover, spending more on your wants than saving can create problems if something unexpected happens. So, you should assess your goals and needs and organize your money accordingly rather than rigidly sticking to this rule of thumb.
9. Have 6 Months of Savings in Your Emergency Fund
Research shows that half of the participants felt distracted from work because of the lack of emergency savings and would be completely overwhelmed if an unexpected financial challenge arose. Six months of savings can be enough for everyone in any financial emergency. However, the stress of this rule can be a tough pill to swallow for many.
10. Investing in Mutual Funds is the Best Option
While mutual funds provide diversification and less risk, they come with high fees and low control over your investments. Investors are usually advised to invest in mutual funds, but investing in mutual funds only can be a huge miss out on many other high-yielding and low-fee investments like individual stocks and ETFs. According to Forbes, ETFs are a more passive strategy providing greater liquidity at cheaper rates.
11. Don’t Switch Jobs Frequently
Switching jobs frequently is perceived to be a negative phenomenon that results in lost money and experience. Still, according to a study by Tilburg University, there aren’t many negative consequences for a job-hopping individual. Instead, it gives them more benefits regarding their career, like career advancements and salary increases. Job hopping is no longer a stain on your resume, but it means taking charge of your career and giving yourself the things your current job is not offering.
12. A Higher Income Automatically Results in Wealth
Earning more is awesome, but wealth isn’t about what you make. It’s about what you keep. Lifestyle inflation can eat away at any salary increase. The key is to pair earning potential with smart spending and saving habits.
13. Pay High-Interest Debts First
High-interest debts can cost you more and more if kept longer. But you’ll feel discouraged if these debts are substantial and take longer. On the other hand, starting with paying small debts can create momentum and motivate you to keep going. Moreover, prioritizing big debts based on their interest rates means ignoring other financial factors. For example, focusing solely on interest rates overlooks the emotional burden of credit card balances that should be paid first to remove financial stress.
14. Always Keep a Balance in Your Savings Account
While it’s important to keep some money in a savings account for emergencies, and it can also reduce the temptation to use it- holding it in a low-interest savings account is not a good option. The national average yield for savings accounts is 0.58 percent APY. This rate should be kept as a benchmark while finding the banks offering an APY multiple times higher than the national average. Most online banks offer better APY with zero monthly fees and low minimum balances.
15. There’s No Need for Student Loans
Education is the best investment, but college tuition fees have increased from $4,160 to $10,740 at private nonprofit institutions in just 4 years, making it unaffordable for many students. Thinking that student loans are a waste of money is a misfortune for those who feel like this.
Student loans provide a way to invest in yourself and your future- as long as you choose a degree with a clear career path in mind.
16. Cut Out Everyday Luxuries Completely
Knowing the difference between your “needs” and “wants” is crucial, but cutting back on everything that brings you joy and fulfillment will only lead you to unhappiness and deprivation. Learn to balance enjoying your life and saving for the future.
17. Always Follow the Rules
Money rules should be used as guidelines, not strict orders, because they are based on general principles. Not everyone shares the same financial situation; therefore, not everyone can follow all the rules. Instead, you should make rules that align with your goals and needs so you can easily adapt if the circumstances change.
Following these rules without enough research can prevent you from making the most of your money and organizing it according to your needs.
18. Buying a New Car is a Smart Investment
Cars are not investments; they’re depreciating assets. A new car loses value the minute you drive it off the lot. If you must buy a car, consider a slightly used car or one you can buy in cash to avoid the initial depreciation hit.
19. Always Trust Financial Advisors
Not all financial advisors are equally competent or have your best interests. Always try to find and work with certified advisors legally bound to act in your best interest (known as fiduciary financial advisors) rather than those who operate under a ‘suitability’ standard that often has a secret ulterior motive.
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20 Things Poor People Waste Money on, According to Suze Orman
If you’ve ever watched her show, you know Suze Orman pulls no punches. She’s all about calling out bad money choices, urging people to take control of their financial destinies and ditch those pesky spending habits that derail progress. While her advice can be blunt, she aims to empower folks to build wealth and protect their financial futures.
It’s important to note, Suze Orman gets flak sometimes for being too harsh. She’s not shaming people, but highlighting how certain expenses can sabotage big goals like homeownership or a comfortable retirement.
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The average American household carries over $103,000 in debt, including mortgages, credit cards, and car loans. While there are various factors that contribute to this staggering number, there are also certain culturally acceptable habits that have played a major role in leaving America drowning in debt.
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JayDee Vykoukal is a writer, author, mom, and Doctor of Physical Therapy. She has been writing about everything motherhood and health-related since 2018 when her first daughter was born, and she wanted to stay home. She loves to research new topics and fun facts with her kids to teach them about the world.
