7 Outdated Money Rules That Don’t Make Sense Anymore — And What to Do Instead

published Aug 12, 2021
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Whether you’re just trying to get by, pay rent or your mortgage, or save a little cash each month, it’s likely you’ve heard your fair share of financial tips. They’re often things like “If you skip buying coffee each morning, you’ll be able to save $X per year,” or “You should have this much in your savings account at this age.”

While it’s never a bad idea to save more than you think you need or to examine impulse spending habits, it’s also important to enjoy your life. Certain financial rules you’ve heard time and time again should be banished to the history books. It’s 2021, after all, and we live in a much different world than we did even 20 years ago. Here’s what financial experts say are outdated money tips you should abandon — and what to do instead.

The rule: “Set it and forget it.”

The truth: If you have a 401(k) set up, it’s worth revisiting it from time to time to adjust your savings goals. “In the past 10 years, we’ve seen so many amazing advancements to 401(k) plans. Not only is this to make things more accessible to employers, but there are new benefits offered to make managing your plan much easier,” says Andrew Meadows, Senior Vice President at Ubiquity Retirement + Savings. “Your retirement plan is no longer a place to just check your balance. Rather than follow the advice of ‘Set it and forget it,’ now there’s more reason than ever to check in on your account regularly.” He advises updating your savings when you get a raise, a bonus, or a promotion to keep it current with how much cash you’re currently making. Future you will thank you.

The rule: “Have a $1,000 emergency fund available at all times.”

The truth: It’s great to have cash stashed away for unexpected circumstances, whether that’s an illness, being laid off, or replacing a broken fridge, but $1,000 may not be enough to keep you afloat these days. “At one point in time, $1,000 may have been an okay amount for an emergency fund but nowadays, most people should save more than that before they start focusing on other financial goals,” says Jen Smith, the founder of Modern Frugality. Instead, you should aim a bit higher to pad out your emergency fund (though the total amount will vary based on your cost of living). “Renters should have at least their health insurance deductible saved and homeowners should add [the] amount it’ll take to replace their oldest home appliance,” Smith advises. Of course, everyone’s finances are different, so anything you can save for the future is a step in the right direction.

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The rule: “Credit cards are a bad idea.”

The truth: “While credit cards are not for everyone, there are positives of credit cards that many people take advantage of today,” says Michelle Schroeder-Gardner, the founder of Making Sense of Cents. “Rewards credit cards can help you to earn cash back, go on nearly free vacations, and more, all just for spending like you normally would.” If you’re a frequent traveler, for example, an American Express card may be a good choice, as it allows you priority boarding, a free checked bag, and pay-with-miles options; certain cards even allow you a free companion pass per year. Just be sure to spend what you can afford and work toward paying off the balance each month if possible. 

The rule: Get “a guy” to manage your money.

The truth: You don’t need a fancy financial planner to invest your cash. “Technology has made it so easy to invest that you may never need to work with a financial planner. You can invest in anything you want through online brokerages or investing apps,” says Smith. “If you don’t want to choose your investments, you can use a robo-advisor to essentially have your portfolio managed by a super-computer. When you near the $1 million net worth mark it may be worth getting ‘a guy,’ but many people are fine without one until then.”

The rule: You should spend two or three months’ salary on an engagement ring.

The truth: Did you know this financial “rule” was actually created by a diamond company? As noted by The Knot, DeBeers is credited with bringing this idea to market in the 1930s, saying one month’s salary was the recommended amount you should spend on a ring for your betrothed. The amount went up from there as times changed, but today there’s no “rule” dictating what you should spend on a ring — or any other piece of engagement jewelry for that matter! If you want to splurge, go for it, but you can also consider resetting a family ring, finding a vintage piece, or buying a less-expensive gemstone. A good jeweler will work with your budget, whatever it is.

The rule: Keep your living expenses to 30 percent of your take-home pay.

The truth: This is a good rule, but it definitely depends on where you live and how much you earn. “If you have a six-figure income in a low-cost-of-living area, there’s no reason to spend that much,” explains Smith. “But if you love living in the city and decide you don’t need a car, you can afford to spend more on housing. If you’re in control of your discretionary spending and making progress toward financial goals like saving, paying off debt, and investing, then the amount you pay on housing is irrelevant.”

The rule: If you stop buying avocado toast at restaurants, you could afford a down payment on a home.

The truth: If the average cost of a down payment on a home in the United States is between $10,000 and $15,000, and you (generously) assume the average cost of avocado toast is anywhere from $6 to $18 a slice, then it would take you skipping over 1,000 brunch sessions to save that much money. Go ahead and order the avocado toast. Your strong financial habits will more than make up for it.