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Lifestyle rules, debt repayment rules, earning and spending rules, investment rules – there are a lot of dos and don’ts in the world of personal finance, and in general, they can be very useful in providing a bit of direction for our financial lives. But sometimes, the rules just get in the way of our progress. There are lots of ways we can bend or even break these financial rules to our benefit, in much the same way that we might safely break the speed limit. Do we actually need to achieve financial independence before we start a family? Does everyone really need to go to college to secure a high-paying job? Is it true that all debt is bad? On this episode of How To Money, Matt and Joel go over these rules – even some of their own! – to show us what to keep, what to bend, and what to ignore completely to reach our financial goals faster.
One of the “rules” people are often told is that they should have six to twelve months’ worth of expenses saved up in their emergency fund. Matt and Joel love a healthy emergency fund, but they feel that this number can be demoralizing to most people. Plus, some people who might be in fairly stable situations are likely prioritizing this hefty emergency fund over investing in their retirement accounts. They recommend three months as a hard and fast rule, but outside of that, make sure you’re exploring your options; there are lots of ways to provide yourself with an buffer to your liquid emergency fund, like having unspent dollars in your health savings account accruing interest, or taking out a home equity line of credit.
Another rule they think is getting in the way of good progress is the rule that if you take out a life insurance policy, it must cover ten times your income. Likely, an insurance agent will strongly encourage this level of life insurance, but you may have other sources of reliable income, like a rental property, that would supplement that insurance payout. Some people, when confronted with that number, might shy away from a policy because it’s too expensive for their monthly budget. “But having some life insurance coverage is better than having none at all,” Joel says. You can always get a smaller policy today and add a larger one down the line, a practice called “laddering,” or look into term life insurance, which is usually affordable. They tackle plenty of other rules, too, from when you should start a family to how best to pay off debt to how to safely speculate in the market; get all this great advice and much more on this episode of How To Money.
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