3 Money Rules You Can Break If You Really Have To
It seems that almost everyone has an opinion on what you should and shouldn’t do with your money when you’re looking for financial advice. More likely than not, some of that advice has been peppered with a set of rules you should follow. While these rules may help some people, there are situations where it’s not realistic to follow them. Abiding by these rules could actually do more harm than good if you don’t make necessary adjustments.
If you’re desperately trying to get back on track with your finances, you may be attempting to follow a strict set of money rules. However, what you may not know is that you don’t have to be so rigid when it comes to certain financial advice. Here are some money rules you can break.
1. Save 10% of your income
How much you save depends on several factors. Depending on your situation, 10% might not be your lucky number. Your best bet is to save what you can and then figure out your plan from there. Saving what you can afford is the way to go until you can pay off some of your outstanding debt. After your debt is taken care of, you can apply the extra money used for your debt repayment toward savings. Another situation where you’ll want to ignore the 10% rule is if you’ve put off saving for a long time. You may need to go beyond 10% (for example, 20%) so you can reach your savings goals quicker.
2. Don’t withdraw from your 401(k)
We can hear the horrified gasps now. Yes, a retirement account is vital for ensuring your financial future. Without adequate retirement savings, you’ll be in a position where you may have to work longer or take on a part-time job. However, if you encounter a severe financial hardship and you’ve already tapped your emergency savings fund, you may have no other choice but to request a hardship withdrawal. For example, if you are having trouble paying for groceries or you can’t afford your medication, you’ll need to seriously consider a hardship distribution (check first to see if your company allows it).
First, make sure you’ve exhausted all your options. Look at all of your resources before turning to your retirement account; this should be your last resort. For example, if affording medication is a problem, see if you qualify for a prescription assistance program. When facing financial hardship, also consider other options such as a home equity line of credit or even borrowing cash from a close friend or relative. And while you won’t be struck down by lighting as soon as you request a hardship distribution, be aware that you will have to pay regular taxes on the money you receive. You might also face tax penalties if you are not age 59 ½ or older (however, this penalty is waived under certain circumstances, such as total and permanent disability).
3. Stay away from credit cards
Credit cards are not evil. When they are used responsibly, they can actually help you save money. No one knows this better than consumers who pay for goods and services with rewards credit cards. When credit cards are used appropriately, you can enjoy tons of perks (such as price protection, purchase protection, and statement credits) that you may not get if you only use cash. In addition, credit is often necessary, such as when you want to book a hotel room. Credit cards are also a good tool for building a credit history.