How many times have you heard the same rigid advice about money? But they don’t know you or what your unique situation is, especially if they were your age 30 years ago as the world is entirely different.
You can’t follow outdated advice and expect the same results.
I’m going to go through 5 common rules of personal finance and explain why you should rethink them. It’s easy to blindly follow advice to your loss. I hope I can challenge your thoughts but do not make a decision based on this one story. Reflect, talk to others, and make your own decisions.
Which of these rules could you break and live a better life?
Do everything yourself
Some people know the price of everything but the value of nothing. You can save lots of money by doing everything yourself, but it doesn’t mean you should. Your time is your most important commodity.
It leads some people to do tasks they are unqualified for. My family did our garden patio ourselves many years ago. It was embarrassing to look at, and eventually, we paid a professional redo it. You think you can do your job better than an amateur could, right? Quality is worth it.
Don’t feel guilted into cooking and cleaning if you don’t enjoy it. It could be worth outsourcing if you can afford it. Life is for living, not proving you can do chores. How many people on their death bed wished they had cleaned more? The exception is building IKEA furniture. That’s pure joy.
General admin is something else worth paying for to free up time. I know many writers who hire virtual assistants and allow them to focus on what they do best. If you’re an entrepreneur, it’s something to consider seriously. Did you seek freedom from the corporate world to sort through emails?
When you’re working long hours, the extra spending can be a good trade for more rest. Who wants to work for 12 hours, with an hour commute each side, go to the gym, then come home and spend an hour cooking? This is exactly what some of my investment banking friends did. Yet they were surprised they always felt burned out and ill. Don’t risk your health to save a few dollars when you can easily afford it.
Buy a house as soon as possible
It made sense for boomers to buy houses; they were going to work in one job for 40 years. But for a market where people switch it up as much as now, it’s not so obvious.
At the age of 26, I bought my first property, and it’s been awesome. Yet what I crave from life might not match your desires. I’m happy in a stable job and don’t have a weak spot for flashy things. While I enjoy traveling, I don’t expect to be moving away from London for a long period any time soon.
Not everyone is like me, and that’s ok. Some people want to change jobs often and live in different cities. Being tied to a mortgage might not be right for them. The amount of money they would spend on a deposit can go to other things to add value to their life. I could have sustained traveling for up to 5 years with my savings. What sounds better to you?
People forget to advertise all the extra costs of buying. The greatness of getting on the housing ladder is a myth if you want to keep moving. You’ll lose thousands in commission and legal fees for starters. It’s hard to profit when hope around as you’re mainly paying off the interest of the mortgage in the early years.
In the long term, western population growth is slowing. The US population grew 33% from 1990 to 2020 but is only expected to grow by 20% until 2050. There is no certainty the seeming neverending demand for real estate will keep increasing. Unless you’re a professional, think of a house as somewhere you want to live rather than a surefire investment.
Max out your pension
People graduating now will draw their pensions in maybe 2070. How different will the world be then?
Yuval Noah Hariri thinks extremely different in his bestseller 21 Lessons for the 21st Century. He explains humans have two abilities, cognitive and physical and machines can already do most of our physical work. In the coming decades, he expects they’ll be able to do more of our cognitive tasks too. When most people are economically useless, how will pensions work?
In 2070 we may need a universal basic income or have a different economic system. Most of our decisions are based on things staying the same as now, but everything is variable in this timespan. Even if the great AI revolution doesn’t happen, income tax could be way higher, wiping out the tax benefits of pensions. We have little control over how our money is invested. What if a new fund manager in 20 years makes a bad bet and loses half of our pot?
I can afford to pay into a pension scheme without making major lifestyle sacrifices. If you can’t, then it’s a question worth pondering. Alternative investments such a Roth IRA (US) or ISA (UK) may better suit your needs. You can have greater access for emergencies or when you decide to make big changes.
Pausing payments may be right for you in emergencies, if you’re struggling to pay your mortgage or debts spiraling out of control, for instance. Some extra disposable income could make all the difference, so you live a better life on the way to retirement.
Pay student debt as early as you can
I’ve read so many stories of people working crazy hours to pay off their student debts early. This isn’t a privilege thing as many people from modest backgrounds have made drastic lifestyle changes too. Some wear it as a badge of pride. Yet stop and consider if the sacrifices are worth it.
Would you rather pay back the debt slower but still have time to enjoy life too? I can’t tell you the answer to this question; you have to decide for yourself.
The interest rate on student debt might be higher than you would like. It doesn’t mean there aren’t better uses for your money. The avalanche method is paying down the debt with the highest interest rate first. Even if you don’t have other debts, can you reliably make a better return elsewhere? Let’s say you are investing in a business where you estimate high-profit margins. Using your money here could leave you in greater financial health.
In the US, Bernie Sanders and Elizabeth Warren had ambitious plans for student loan forgiveness. Joe Biden then took on the platform and came up with a proposal for anyone earning under $125k per year. Let’s face it; if you earn more than that, then you can handle it. But for those under, it may be worth hanging on and checking updates. We don’t know if this will be backdated if it came into power. Imagine killing yourself doing 100 hour weeks, and it is written off anyway.
Never use credit cards
Credit cards themselves are not evil. It all depends on how you use them. You can read a book or bash people over the head one. It’s bad to use it like it’s extra money in your bank. Set up automatic payments, so you pay off in full every month, and you should be ok.
It’s your responsibility to check you aren’t spending too much regardless of whether you use a credit card. Lots of credit cards have great apps and send notifications for every use. You can easily check how much money you’ve spent. Don’t make excuses.
I have several credit cards to use in different scenarios. My main one gives me 1% cashback on everything I buy. It’s not much, but over time it adds up through compounding. Let’s say I spend $10k a year on the card then I have another $100 to invest each year for doing nothing. Other cards give travel points or discounts on bills and can allow people to afford vacations they couldn’t otherwise.
Credit card companies want people who will overspend as this how they make their money. They target young people because they think we’ll be more likely to make impulsive decisions. Prove them wrong and laugh as you lay on the beach in Costa Rica on a vacation they paid for.
What you need to take with you
The world isn’t the same as 30 years ago, and it won’t be the same after another 30. We have less certainty yet more flexibility. You don’t have to follow prescriptive financial rules if they don’t work for you, and you understand the risks.
- Do everything yourself — Is this the best use of your time?
- Buy a house as soon as possible — Do you have the stability in your life for a mortgage?
- Max out your pension — Do you have immediate concerns more important than an uncertain future?
- Pay student debt as early as you can — Can you use the extra repayment money better elsewhere?
- Never use credit cards — Can you take advantage of all the benefits?
Remember, the answers to these questions are personal. I am not telling you what to do; you must take responsibility and talk to professionals.
Thank you for reading, and have a wonderful day!