7 money ‘rules’ you can actually break, according to financial experts – MarketWatch

April is National Financial Literacy Month. To mark the occasion, MarketWatch will publish a series of Financial Fitness articles to help readers improve their fiscal health, and offer advice on how to save, invest and spend their money wisely. Read more here.

Financial Literacy Month puts a spotlight on the financial knowledge Americans are supposed to know and often dont. But what about financial knowledge that we think we know, but should reconsider?

When it comes to money, we pick up lessons from a mish-mash of sources ranging from parents to TikTok videos to high school classes. Along the way we can form strong opinions about the best ways to manage our finances. People can hold tight to these ideas, and even come to regard them as financial commandments that must never be broken. But sometimes these so-called rules are based on outdated thinking or incorrect assumptions.

Theres a whole lot of people that have made what they call cardinal rules of financial planning, and they really arent rules, said Jack White, a certified financial planner with Fidelis Financial Planning in St. Charles, Mo. The only cardinal rule that you cant break is that you cant spend more than you make.

Even that one can be broken for a little while, he noted, but if you do it consistently, the results arent pretty.

In honor of National Financial Literacy Month (or Financial Fitness month, as MarketWatch has dubbed it) we have talked to financial planners about personal-finance commandments that people sometimes blindly follow, and why it can be OK to bend or even break them.

People sometimes have a knee-jerk rejection of credit cards because theyre convinced theyre a path to financial ruin. I think thats the No. 1 myth out there, said Jeff Brown, president of BWM Financial, part of Stratos Wealth Partners, in San Diego, Calif. Obviously theyre viewed negatively due to the potential for debt accumulation and the high rates, however theres a lot that credit cards can offer.

If you can afford to pay them off, credit cards can be a great tool, especially during times in your life when youre waiting to make money from a new job or business. Brown himself leaned on credit cards when he started his business.

Unlike a debit card that draws cash from your checking account, credit cards come with benefits, including points and cash-back rewards. They often include robust fraud protection and insurance coverage. Most importantly, credit cards when used properly help you build your credit score, which can open financial doors down the road.

Its true that you should start building your savings as soon as possible in life, but there comes a time when its permissible to spend the money youve worked so hard to make, said White, who is 74.

People my age spend a lot of time being very frugal and accumulating money, he told MarketWatch. Part of accumulating for retirement is saying its OK to spend it.

You can go ahead and splurge within reason especially if youve worked hard to save this money. Its not frivolous if youve wanted to go to Europe all your life and you spend $5,000 of your savings to do it, White said.

Financial planners interviewed for this story repeatedly mentioned clients who insist they need to pay off their house before retirement. They think thats the golden rule, the 11th commandment that Moses had that didnt make it into the Bible: Thou shalt have a paid-off home in order for you to retire, said Jeremy Shipp, a certified financial planner specializing in retirement planning with Retirement Capital Partners in Richmond, Va.

Though financial gurus like Dave Ramsay preach getting rid of debt at all costs, not all debt is bad debt, Shipp and other experts noted. It doesnt make sense to rush to pay off your house with money from your savings if the returns on your portfolio are higher than the rate on your mortgage.

I tell people, if youve got a 3%, 30-year fixed mortgage, why are you paying that thing off? Keep it forever. Its free money, said Ken Waltzer, a certified financial planner with KCS Wealth Advisory in Los Angeles. If youre making 7% on your investments and youre paying 3% for your mortgage, thats 4% a year on that money youre earning for free.

The urge to pay off a house as fast as possible is based on Great Depression-era thinking, says Shipp. Mortgages were structured differently then and it was easier to lose your house while you were still paying it off. But he advises clients that they can really be shooting themselves in the foot if theyre piling any extra cash they have into trying to pay down this liability when its a very favorable liability to have.

Once you put $1,000 in extra payments into the walls of your house, you lose access to that money, whereas you would still control and manage it if you held onto it and put it into a side account, Shipp said. People dont understand they dont really own and control the equity that is inside their house, Shipp said. Its not like a piggy bank.

The only way to access that equity is to either sell the house or obtain a home-equity loan from a bank. Instead of pouring extra money into your house, its a better bet to keep that money close at hand, he said.

The intangible benefit of liquidity, use and control of your cash, its so hard to quantify because as life changes and situations arise, we just cant quantify how much it could mean to you to be able to put your hands on a sizable amount money whenever you want without any penalties or taxes associated, Shipp said. Thats just one benefit that is really overlooked.

Higher education is seen as a golden ticket, and parents often have the urge to try to pay for their childrens college or graduate school, especially because they want to save them from the burden of student-loan debt. But doing so can derail parents financial future, said Niv Persaud, a certified financial planner at Transition Planning & Guidance in Atlanta.

The best college for your child is the college you can afford, Persaud told MarketWatch. Many parents go into debt for their child to go to a top college or sacrifice their retirement savings. Its easier for your child to secure a student loan. But there is no loan for retirement.

Clients of hers, a successful lawyer and her husband, paid for their childrens schooling, then saw their dreams of early retirement disappear. She was really annoyed because she thought she had more than enough, Persaud said. She was looking to retire by 58, 59, but that wasnt going to happen. They didnt even have an extravagant lifestyle. They just have one home; they didnt travel a lot. People are always surprised.

Weve been taught to work hard and save money so that, hopefully, someday we can plop down on a beach and relax for the rest of our lives. The idea of leaving the workforce later in life was popularized in part with the advent of Social Security in the 1930s, Brown said. Back then, people started receiving their retirement benefits only a few years before the typical American reached their life expectancy. The financial services industry jumped all over the idea of retirement, Brown added, and in his view, his industry has heavily promoted the idea that peoples primary financial goal should be to save enough money so they can drop out of work and recede from active life.

But hes seen many clients retire completely as in, effectively stop doing something useful with their time and hes been alarmed to see their cognitive abilities diminish shortly afterward. (There is also considerable research that backs up this idea.) People think theres this magic thing, Im gonna grind it [and] work 60 hours a week, and then I have some magical day when I dont do it anymore, Brown said. Its had a massive impact negatively for people.

A better approach is to reframe your thinking around retirement, and make plans for later years that are purpose-filled and engaging, either through work, or other activities. Think carefully about how youll spend your time during this period, because some people, especially men, find themselves lost when they suddenly switch from working non-stop to endless leisure time. What a successful retirement means is that youre done working for your money and its time for your money to work for you, Shipp said.

People often see buying a home as a necessary milestone that means theyve reached adulthood and achieved security. Home ownership is also seen as a way for Black and Latino families in particular to grab a rung on the financial ladder, but some research suggests that homeownership isnt necessarily effective in closing the racial wealth gap.

Thats because homeownership beyond whether you can scrape together enough for a down payment is an expensive ongoing cost.

The thing that people never seem to include in the cost of homeownership is maintenance and repairs, Waltzer said. Its always way higher than you expect. I always tell people to add at least 1% per year of the cost of the house for maintenance, and if youre going to do remodeling, add that in too. Its not the gold mine that people think it to be.

While real estate is considered a solid investment because home prices generally go up over time, it doesnt typically outperform the stock market over the long term.

Popular culture tends to glamorize stock-market traders, and theres no shortage of celebrities and social media influencers peddling cryptocurrency and other investments as get-rich-quick schemes. But buying and selling individual stocks, or stock picking, is risky and volatile, not to mention that it takes time to research companies and track stock performance.

A better bet is to grow your money steadily by investing in index funds that mirror the overall performance of the S&P 500 SPX or Dow Jones Industrial Average DJIA . The biggest loss of money Ive seen in my career is people chasing individual stocks, Brown said. More people get blown up from that than anything else.

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7 money 'rules' you can actually break, according to financial experts - MarketWatch