Money rules supposedly exist to help keep you on track with your financial security, but there are many ‘truisms’ that may not always deliver.
And don’t they say rules are made to be broken? Here are four money rules that you may want to reconsider:
Refrain from using credit cards
During the recession, people went to great lengths to prevent themselves from using their credit cards, including stowing them in a bank safe deposit or freezing them in a block of ice. These days, in order to build a financially responsible track record, you need to show that you can own (and properly employ) a credit card. Whether you’re using credit to pay for large expenses, such as a holiday, or small every day necessities such as groceries, it’s recommended that you pay the balance off in full each time to avoid any negative rating down the track. If you’re not a regular credit card user, consider using it minimally (every three months), simply to retain a spending track record.
Don’t spend on the little things
Sure, your $4 morning coffee habit might be adding up to about $1500 per year, but let’s face it, coffee is probably the cheapest thing you’ll be buying all day. Furthermore, when you begin depriving yourself of small daily pleasures, the motivation to stick to bigger savings goals can start to dwindle. Like deprivation diets, pinching pennies can result in money-spending ‘binges’ down the line. So you could choose to enjoy the little things, and resist spending on larger items that will actually make a difference.
Pay off debt before you save
Common sense advises that it’s better to clear debt before starting the process of squirreling away savings. After all, investing small amounts into low-interest savings accounts won’t help if you have thousands of dollars in high-interest credit card debt. Yet, the case for prioritising saving over debt repayment is strong and obvious, like when you suddenly need an emergency fund. Even if you find yourself owing money, one way to start saving is to match employer super contributions, withholding just enough into your retirement account to help later down the line. When it comes to paying off credit debt, making the minimum payments on cheap, low-interest debt may be fine, if you’re also investing in a way that will earn you greater returns.
Buy, don’t rent
For years, owning your own spit of land was a vital part of becoming a successful adult, but today, that idea may be all but obsolete. Weighing up the related costs, experts now say that renting for life is a viable option for some. RBA data from 2015 suggests that renters are likely to be better off than property owners over the next seven years, based on long-term assumptions. This is in line with the RBA’s calculation that 19 per cent of Australian property is overvalued, compared to renting.
Do you know any money rules worth breaking?