Why every personal finance rule you know is wrong

Why every personal finance rule you know is wrong

Low bond yields, weaker stock returns and longer lives have sabotaged the rules of money. Here are the new guidelines you should follow


personal finance

Success with money is always built on a solid plan. Set your goals and then, with a long-term perspective, take the steps to reach them. But what if those actions only worked in the past? What if the rules have changed?

The good news is that the basic tenets of common sense are alive and well—so no need to panic. You will still get ahead if you simply pay yourself first, consistently spend less than you make, continue paying your highest interest rate debt first, and continue advancing your career and upping your income as the years progress. Simple wisdom never goes out of style.

But as markets become more global and interest rates remain low, some rules about saving, spending, investing and retirement may be out of date, may be misunderstood or be just plain wrong. In all cases, the math needs revisiting.

What we do know is that the major factors at play in undermining the rules boil down to two major trends. One, we’re living longer. And two, market returns are anemic and experts don’t see that changing any time soon. Of course, the first trend is a good thing and the fix fairly easy—a slightly bigger nest egg, a little less spending in retirement or a delay in your retirement by just a few years. As for the second trend, we all need to prepare for a long run of puny returns from bonds and likely only half the gains we’ve grown accustomed to from stocks.

To help you out, we’ve asked MoneySense experts to come up with some of the key rules that they figure need to be tossed, or at the very least updated. You may discover your plans need to overhauled— or that you’re still on track. Either way, we expect these articles will kickstart some constructive conversations.

The new rules of saving »
The new rules of spending »
The new rules of investing »
The new rules of retirement »