Financial Rules

The Points Guy

While some financial advice has remained tried and true, there are a few rules that need to be adjusted for the 21st century. This is according to the experts, of course. Here are a few tips on how to cash in big without following the classic financial rules of thumb.

20% Or More On Home Downpayments

If you’ve ever considered buying a house, you’ve probably heard the rule: Don’t take out a mortgage until you have 20% saved for a downpayment. This is not always true, now.

“If we look at the macroeconomic factors of the last couple decades, real estate has appreciated considerably while wage levels have largely stagnated,” said Justin Chidester, owner of Wealth Mode Financial Planning in Logan, Utah.

“My new rule of thumb is this: If you can save 20 percent down for your target home within about five years, go for it,” advised Chidester. “But if you take much longer than that, you’re going to be chasing a moving target with home prices going up, which also means you missed the opportunity to experience appreciation on something you own.”

If you’re looking to buy a home soon, definitely keep reading.

Credit Cards For Emergencies Only

“For emergencies only” is a common caveat paired with credit card spending. Today, however, credit cards are more diverse. There are also several tools which can help you stay out of debt. “Make sure to set up a monthly automated payment from your checking account to pay off your credit card balance in full every month,” said Eric Maldonado, owner of Aquila Wealth, “so as to never incur any interest charges.”

Using credit cards today can get you cash-back rewards, too.

Marriage Equals Merged Finances

While getting married may mean sharing just about everything, it doesn’t necessarily mean your money.

“Getting married doesn’t mean you have to merge all your bank accounts,” explained Ryan Frailich, founder of Deliberate Finances in New Orleans. “Having open conversations about your finances, spending, and debt is vital … but you can do all that without putting all your money into shared accounts.”

Pay Off That Mortgage ASAP

“At one time, when interest rates were double-digits and investment returns were an average of 8 percent, that made sense,” said Melissa Ellis, founder of Sapphire Wealth Planning in Kansas City, Missouri.

Because interest rates are lower now and investment returns typically higher, you don’t have to rush.

“It’s better to make your payments on time, take your mortgage interest deduction on your federal income taxes and have more [money] invested for higher returns,” said Ellis.

Prestigious Degree For A Good Job

20 years ago, you definitely had to get a degree from a prestigious university to land a great job. Now, that’s not quite the case.

“The cost of college 20+ years ago was much lower compared to wages,” explained Mark Struthers, founder of Sona Financial. “Because wages have not kept pace, and the money had to come from somewhere, student loan debt has become the next big crisis.”

Before jumping at the ivy league colleges, potential students and their parents should consider the return on investment when it comes to college.