Ask the Experts: What Financial Rule Do You Break

In the RealtyShares Ask the Experts series, we ask finance experts and influencers to share the lessons they’ve learned with the RealtyShares community.

Is there a fail-safe rule for every financial decision? We think not. There are times when the conventional wisdom can be invaluable, but it isn’t always that simple. With time and experience, the nuance of the rules of the game can become more complex.

In this installment of the Ask the Experts series, we posed the question:

“What personal finance rule do you like to break?”

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Lance Cothern, MoneyManifesto

Research by Promothesh Chatterjee and Randall L. Rose shows using cash can result in less spending than spending with credit cards. However, I refuse to spend cash whenever possible. Instead, I use a rewards credit card and try to earn at least 2% cashback on all of my purchases. If you’re disciplined and don’t spend more than you would with cash, that 2% cash back can quickly add up over the course of a year.

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R.J. Weiss, The Ways to Wealth

The one personal finance rule I break is carrying a three to six month emergency fund. I myself hover between one to two months of expenses. As I’m out of non-mortgage debt, I prefer to put as much cash to work as possible. This means I’m either investing or paying off my mortgage with anything over and above this amount. It also helps that I’m in a very stable career, have diversified income sources, and have a good credit score. In other words, this strategy isn’t for everyone.

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Amanda, Centsibly Rich

I don’t know if this is a “rule” per se, but my family hasn’t focused as much attention on the “earning more” side of the personal finance equation. We’ve chosen to live on one income and my husband has declined promotions at work. Both of these decisions were based on the desire to have more control over our time. This has allowed us to spend more time with family and friends, pursue interests outside of work, and hone our creativity (DIY, gardening, writing, etc).

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Doug Nordman The Military Guide

I’m breaking this rule: “Pay off the mortgage before you retire.” Wealthier retirees with reliable annuitized income can stay invested in real estate or even the stock market.

As a military retiree I’m 13 years into a 30-year 5.375% loan, and I’ve kept a passive index fund of small-cap value stocks. Despite the Great Recession, my compound after-tax return has been 8%/year.

It’s an aggressive tactic, and people have to be comfortable with volatility. It’s best for those who do not invest in bonds and don’t keep a lot in CDs or cash.

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Kristina Wallender, Senior Vice President of Marketing at RealtyShares

I’ve been told that I’m throwing my money away by renting instead of buying a home. While it’s true that I’m not building equity, renting frees me up to put my money to work where it gets the highest return. I’m generally bullish on real estate as an asset class, but I often see higher returns outside of my home market and I can diversify by investing in lots of different property types, including commercial. This is all becoming easier as real estate investment opportunities become more accessible online. However keep in mind there are risks to investing including loss of capital.

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Of course, to say that the rules don’t always apply does not suggest that they should be ignored. Lawrence Fassler, Corporate Counsel at RealtyShares shared his view:

The long-held rules typically should not be broken, because they represent years of accumulated experience. In the past I’ve occasionally veered away from the principle of being as diversified as possible, my theory having been that it can be okay to put a lot of eggs in one basket if you really watch that basket. But this often doesn’t really work, so the joke that ‘rules are made to be broken’ probably doesn’t apply to the tried-and-true rules of personal investing.

Do you play by the book, or follow a different set of rule? Let us know what personal finance rules you’re most likely to break in the comments.

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