Financial rules I like to bend or break

There are many financial rules we hear over and over again, and that we blindly follow. But before following any rule, we need to see if it is actually adapted to our own situation. The key word in personal finances is personal.

1. Live within your means. Sure, this rule makes sense at first, when you try to get a grip on your money. But once you have done that, you actually need to live below your means in order to save. If you spend all your paycheque, how will you achieve this?

2. Cut expenses drastically. You can only go so far in terms of cuts. I am a proponent of earning more instead.

3. Have 3 to 6 months of living expenses or a minimum of 10K in an emergency fund. Who decreed these numbers were an absolute must? I personally don’t like the concept of an “emergency fund”. I have this theory that, if you focus and obsess on “emergencies”, it is exactly what you are going to get. I prefer using the term “back-up fund” instead. It is just semantics though. I am not saying you shouldn’t save, but the amount you decide to put aside is entirely up to you. If you have a good cushion, it shouldn’t be sitting in a plain savings account earning 0.5%. Consider investing a portion of it in a low risk product.

4. Buying (a house or a car) is the only way to go. Do the math before abiding by this rule. Review your personal situation as well.

5. Always max out your RRSP contributions. In a perfect Canada, we would all contribute the full amount to our RRSPs each year. But it is pointless to set money aside for retirement if you can’t pay your bills, or if you don’t have a back-up fund. An RRSP might also not be the right investment tool for you.

What about you? What financial rules have you broken or bent?