10 Out-Dated Money Rules That Just Aren't True Anymore

Consider this your unofficial de-programming.

The times they are a-changin'. I mean, just look at how much has changed between 2019 and 2020 alone — and the world of finance was no exception.

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The year 2020 poured water on our faces and screamed at us until we woke up, smelled the $6 iced coffee, and realized that there are just some financial rules that just don't make sense anymore. So here are some outdated "money rules" that just no longer hold true:

1. "You should have an emergency fund with three months' worth of living expenses saved up."

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An emergency fund is a safety net of money that you can use for unexpected expenses or unforeseen circumstances. Having this fund will help you avoid going into debt when life's little ~surprises~ happen, and it might give you some peace of mind too. So, let's say your beloved puppy gets hurt and needs surgery — you can use money from your emergency fund to cover that operation. (Touch wood that never actually happens, but the point is: yes, you absolutely should have an emergency fund!)

However, in 2020, the coronavirus pandemic left many people jobless for extended periods of time. Unfortunately, a fund with just three months' worth of living expenses wouldn't have been enough to cover the costs of just the basics, like housing and food.

Ideally, a sufficient emergency fund would be able to cover closer to six months' worth of expenses to really be on the safe side. So if you spend $3,000 per month on essentials, a fund of $18,000 should be able to keep you afloat for six months. But if you're just starting out, getting your emergency fund to just $500–$1,000 is an impactful goal that could really come in handy if any expenses creep up on you. Here are some handy emergency fund-building tips that can help get you on your way!

2. "You're wasting money by paying rent."

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Raise your hand if you've ever been told that you're throwing money away by renting an apartment. 🙋🏽‍♀️This comes from the idea that your monthly payment goes into the pocket of a landlord instead of toward building equity in property that you own. But saving enough money to make a down payment can take a long time — and that's just the beginning of the costs of homeownership.

You'll also need money for closing costs and a home inspection. Oh, and don't forget about saving another chunk of cash for any repairs. This increases the amount you'll need to save up front.

Plus, in some cities, buying a home can cost you significantly more than renting thanks to property taxes, insurance, HOA fees, and utility bills. Going on Zillow and searching for homes for sale can help you figure out if this is the case near you. When searching homes for sale, scroll down to the "monthly cost" breakdown to get an idea of what it could cost you per month if you buy (you can even put in numbers that more closely match your circumstances).

AND on top of all that, you'll also need to consider whether or not owning property is the right lifestyle decision for you. Maybe you don't have the time or energy to maintain a backyard. Or maybe a home in the suburbs might allow you to escape exorbitant rent prices...but you'll also end up spending a ton of money on commuting.

TL;DR: You don't have to be in a rush to buy a home. If renting is the most economical decision for you right now, don't let anyone — your parents, a financial advisor, etc. — guilt you for it. Renting until you're really ready to buy can save you from burning cash you don't have.

3. "Rent should cost just 30% of your monthly income."

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This rule of thumb sounds like the product of smart budgeting, but with the rising cost of living, it's just not doable anymore for the average person. And when you're starting the next chapter of your life, it can feel discouraging when the rent price for every apartment you look at is, like, way more than 30% of your salary. It might even feel like you're doing something wrong. For the record, no, you aren't.

Instead of focusing on this outdated 30% rule, just create a budget with your financial goals in mind. Doing this can also help you identify areas where you can cut your spending and places where you can move some funds around in order to afford more of what you want or need. Sure, rent might take a bigger bite out of your budget, but you'll be able to clearly see how much you're able to save and spend, too.

4. "Max out the yearly contribution limit on your retirement accounts."

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Retirement accounts, like an IRA, Roth IRA, 403(b), or 401(k) plan, can help you get started investing for retirement. A common piece of advice — especially when dealing with the employer-sponsored 401(k) account — has been to max out your contributions. While it's well-intentioned advice, it's actually pretty difficult to max out some of these yearly contribution limits — unless, of course, you're raking in upwards of $200K per year.

Let's take the 401(k) account, for instance. The yearly contribution limit is $19,500. Stashing away close to $20K per year for retirement sounds like responsible planning. But that's way more than someone would be able to contribute if they're earning the federal minimum wage, which works out to about $15K a year. Even on a $40K salary that means saving about half of your income — and that's practically impossible when you're paying for rent, food, and other living costs.

Some contribution is better than no contribution. Just keep in mind that even if you can only afford to contribute a little this year, you might be in a position to contribute more down the line.

5. "Don't invest until you're debt-free."

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Just like the pyramids weren't built in a day, investing can take time to pay off. When you wait until you're debt-free to start investing, you're losing that valuable time to grow your money. Your earnings over time are probably more powerful than the amount you invest to begin with — thanks to the power of compound interest earning you gains on top of gains. And, investing as early as you can allows you to take on more risk with the potential for more reward in the long-run.

Let's take student loan debt for a quick example. Under income-driven repayment plans, borrowers qualify for loan forgiveness after 20–25 years of continuous payments. That's up to 25 years of missed growth if you decide to wait until you've wiped out your loan to start investing.

With a balanced, well-thought-out budget, you can aggressively tackle debt and grow your money through investments. It doesn't matter how much you start with, it just matters that you start!

6. "Pay the minimum amount on your student loans."

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Some financial planners may tell you that it's okay to just make minimum payments on student debt because it's "good" debt with an interest rate lower than 7%. But the longer you maintain the debt, the more interest you're going to be responsible for over the lifetime of the loan. And if you aren't eligible for eventual student loan forgiveness, this extra money owed in interest can shape up to be a real thorn in your side.

Paying more than just the minimum each month can lower your overall balance faster, which can then lower the interest amount you're charged. You don't have to stockpile money and throw it at your debt each month, but even paying a little more than the minimum can make a difference. You'll also want to consider the interest rates of your other debt balances to figure out the best way to allocate your funds. Just be sure to chat with your loan servicer to make sure the extra money goes toward your principal and not next month's interest!

7. "Credit cards are bad."

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Some people may avoid credit cards like stinky cheese because they're afraid that they'll spend money they don't have. Or, they think that no credit card means they won't have a bad credit score (which we debunked in our post on credit score myths).

However, credit cards can be advantageous when used responsibly. They can help you build up credit history, which can lead to a healthy credit score if you've been doing all the right things (like making on-time payments consistently and keeping your credit utilization low). And, a healthy credit score is important since this can affect whether or not you're approved for a car loan, mortgage, new credit card, and other types of loans.

8. "If you can't afford it, it's because you're bad at saving and spending."

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This is not always true. Sure, spending exorbitant amounts of money on one thing can mean you won't be able to afford another thing. But sometimes, you can do your best to create balance, follow your budget to a T, and save intentionally, but you'll still find that your resources are finite — you'll hit this income wall. If you only have so much per month to save and spend, you can't magically create an extra $300 out of thin air. Plus, the cost of living has a way of eating more and more of your money as the years go by.

But there are things you could try to make extra money, like picking up a side hustle (perhaps something on this list of profitable side jobs). Or you can try selling some stuff you no longer need to rack up some spare cash. Or, ask for a raise, if and when the time comes and you're in an appropriate position to do so.

9. "Save, save, save!"

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Saving money is a good thing. It's important to save for emergencies, big purchases, and other future goals. But nowadays, it's equally important to create a healthy balance between saving and investing. Over time, the cost of goods and services has increased. But the value of money hasn't. Your parents might've reminisced about "the good 'ol days" when $50 could get you enough groceries to last a month. Now, $50 is barely enough to get through the meat and dairy section of the grocery store. This is called inflation. So over time, your money affords you less.

But when you invest your money into an account that earns you a return, your money grows despite the increasing cost of goods. Think of it this way: If you keep $500 in a piggy bank, in 10 years, it's still going to be $500. You haven't accrued interest or invested it in anything to make it grow. But let's say you put that $500 into an account that earns you a 5% return every year. In 10 years — without ever adding to your initial amount — $500 will become $814. Try this handy, dandy investment calculator to play around with the numbers and see for yourself how much you can earn through investing.

There are several ways to invest money. You can pick individual stocks, invest in index funds, mutual funds, target date funds for retirement, and more. Even some high-yield savings accounts allow you to earn more than the average interest rate. Just keep in mind that different investments carry different levels of risk; you can alway ask a financial advisor to help you figure out which investments appropriately suit your comfort level and goals.

Bottom line: yes, you should save but don't totally ignore investing.

10. "Buy low, sell high."

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Buying low and selling high is an investing term that refers to buying a stock, fund, or other security at a low price and selling it at a high price. This difference produces a profit. But how do you know when something is priced low enough to buy and high enough to sell? Well, it's easy to determine these points with 100% accuracy after they've already occurred (welcome to what's known as the hindsight bias). But panicking and buying or selling based on what everyone else is doing can actually cause you to buy high and sell low — the exact opposite of what you meant to do. When a stock rallies, by the time you've already made the decision to join the crowd and buy some shares, the price has already gone up, and up, and up, and up.

Instead, many investors opt for a "buy and hold" strategy where they invest in a stock or fund and plan to wait several years before selling it. This way, they can reap the benefits of price surges without stressing out over whether or not they should sell. Before making any investment, educate yourself about it and figure out what strategy makes the most sense for you.

If this sounds like music to your ears (and bank account), check out more of our personal finance posts.