As if you weren’t in enough of a frenzy over filing your taxes this month, April is Financial Literacy Month. You know, the time of year when you’re reminded of all the things you should do with your money. Things like setting up automatic savings deposits, lowering bank fees, and planning for the future.
For the most part, following money rules will help you achieve your financial goals. But, not all of the time. There are exceptions.
Here are seven financial rules you might consider breaking.
1. “There’s only one way to budget”
When you boil it down, having a budget just means adding up your expenses and subtracting them from your income to see what’s left. If you’re short on money, that’s a sign you’re spending too much. If you have money leftover, then you’re living within your means. But one rule you shouldn’t necessarily adhere to: Having the same type of budget as everyone else.
“There’s no one-size-fits-all approach to budgeting,” says Brian Brandow, founder of personal finance site Debt Discipline.
“Everyone’s situation is different, from their income and expenses to their wants and needs.”
Brandow says it’s important to create a budget that fits your values and gives you some flexibility with spending. This way you won’t feel guilty if you splurge on the occasional latte or a vacation with friends.
“The key remains to spend less than you make or balance the budget each month, but with values-based budgeting, you can cheat and make what’s most important to you the priority without going into debt.”
2. “You have to max out your 401(k)”
Your employer’s retirement plan can be a great way to plan for the future, but do you really need to max it out?
“At the end of every year, advisors tell you to put as much money as you can into your 401(k),” says Kurt Hemry, president of Ironwood Wealth Consultants in Portland, Oregon.
“My advice: Don’t do it.”
Instead, Hemry says to focus on contributing enough of your income to get the maximum matching contribution if your employer offers one.
“Beyond that, put the money into an individual retirement account or a non-IRA investment account, which allows many more investment options than a 401(k),” he says.
3. “Don’t use credit; only pay cash”
Credit cards often get a bad rap.
“The number one financial literacy rule that people are always told to follow is not to use credit cards because of the (usually high interest rates),” says Jacqueline Gilchrist, founder of Mom Money Map.
But, “this rule is worth breaking if you pay your credit card bills on time.”
Gilchrist says that in addition to convenience, credit cards can be a good tool for saving money if you’re earning cash back or points that can be converted to cash. Just be sure to watch out for annual fees and be aware of the card’s annual percentage rate if there’s any chance you’ll carry a balance. And when it comes to rewards, pick a card that offers rewards that match your spending style.
4. “You have to save at least 10% of your paycheck”
You’ve probably heard at some point that you should save at least 10% of your paycheck. But there are two reasons to break this rule.
“For one, 10% may be too much for you at this point in your life,” says Kevin Panitch, founder of personal finance site Just Start Investing.
“If you have a lot of student loan debt, for example, that may take priority over saving.”
On the other hand, Panitch says, you might be able to save more than 10%, in which case you shouldn’t limit your savings horizons.
“It could be worth taking advantage of saving more to get yourself to financial freedom sooner, rather than just spending money to spend money,” he says.
5. “Buy a home and stop wasting money on rent”
One of the most often-repeated financial rules is to buy a home because it’s the best investment you can make. But owning a house doesn’t always make sense for everyone.
“Owning a home is expensive,” says Michael Kern, a certified public accountant and founder of Talent Financial.
Kern says that when you add up the mortgage, repairs, closing costs and insurance, it could end up being more than what you pay in rent. His advice?
“Rather than locking up hundreds of thousands of dollars into a house that will probably appreciate at the rate of inflation, you could rent and invest your extra cash into the stock market.”
6. “Paying off debt should be your only financial priority”
Paying off debt can free up more money in your budget to save, but it could cost you opportunities to get ahead in other ways.
“People are always told to pay off their debts first, which is vitally important, but what’s more important is investing in themselves and using their skill set and talents to increase their ability to earn,” says finance and business strategist LaKeisha Mallett.
“Nearly a third of self-made millionaires have at least five sources of income. It’s easier to not be stressed about money when you have multiple ways of earning it.”
The takeaway? If you’ve only got one income stream, find a way to diversify so you can pay off debt and save. If you need ideas, try freelancing, starting a side hustle or working a part-time job.
7. “You need at least six months’ of savings for emergencies”
Having an emergency fund is important because it can keep you from going into debt if you have an unexpected expense. But saving six to 12 month’s worth of income just for emergencies? Think again, says Brian Davis, co-founder of SparkRental.
“For most people, that amount of cash just represents too high of an opportunity cost,” he says.
“The money would be better utilized earning a return, invested in stocks or bonds or some other easily liquidated investment.”
Davis says there are exceptions. If you’re quitting your full-time job so you can build your side hustle into a business, for example, you may need a bigger cushion to fall back on due to irregular income.
But, “for the average person with a stable income and expenses, one to three months’ expenses in cash is adequate,” Davis says.
Which financial literacy rule will you break?
Toeing the line financially has its benefits, but sometimes, you’ve just got to go against the grain. According to these experts, being a financial rule-breaker can help you get ahead.
And here’s a parting tip: If your savings is growing as a result of bending the rules, make sure you have the right bank account to stash your cash.