11 Outdated Money Rules You Can Stop Following Today

Where your finances are concerned, there will always be tried and true rules to follow. As times change, however, there are also a number of rules that should go, or at the very least be altered, in order for them to stay relevant. According to a 2022 survey conducted by Junior Achievement USA and Citizens Bank, 54% of teens believed they were ill prepared for the responsibility of successfully financing the adult lives they envision for themselves, likely associated with 41% of those surveyed also stating they were receiving no financial literacy education with their school studies. In addition, an Intuit survey of U.S. high school students found that 85% of them would really like financial literacy included in their studies, with the top three concerns being how to become wealthy, save money, and avoid debt, in that order.

An early desire to be on top of your money management knowledge is good news, although it's fair to wonder whether kids' financial education younger kids would receive could be outdated by the time they reach adulthood. The following are fantastic bits of advice about what old fashioned strategies you can toss in the trash, and advice on what strategies to keep with a few tweaks.

If you've been told too many credit cards are bad for your credit, it's easy to understand the logic. According to a 2024 study by Experian, the total balance held by U.S. credit card holders was $1.07 trillion in 2023, an increase of 17.4% from 2022. While older Americans saw some of their debt decline, millennials and Generation Z bore the brunt of debt increases, with millennials carrying 8% more debt than in 2022 and Gen Z burdened with the highest increase at 15.4%. However, while Generation X is the generation with the largest mix of credit cards, they also only carried an additional 1.9% more overall debt from 2022.

What that tells us is how many credit cards you should actually have ought to be dictated by your discipline with paying your credit card bills consistently and on time. The best ways to do that is to only carry specific cards for specific purposes assigned to each, and keep a payment schedule for each card — bonus points if you can convince each card provider to align your payment dates to make the latter easier. On average, as per Experian, people who keep their credit utilization around 35% tend to have good FICO scores between 670-739. You can also take advantage of credit card bonuses for savings on travel or shopping, which will improve your credit score and save you money. 

According to a recent AARP survey, one in five Americans 50 years old and over don't have any retirement savings, and 61% of people 50 plus surveyed are afraid they won't have enough money saved up to retire. While people with workplace retirement options are 15 times more likely to save for retirement, there are 57 million working Americans without workplace plans. It makes sense that saving is top of mind for more people than ever, and a focus on savings accounts and the like take the top spot in terms of old-fashioned money advice. However, once you learn the power of compound interest investments you'll realize very quickly that counting on a savings account is just putting all your eggs in one basket and hoping for the best.

Compound interest is interest earned on interest and is based on a specific rate of return on your initial investment in your first year, before compounding each year afterward. For example, a 5% rate of return on $200 would amount to a balance of $210 in the first year, but by the end of year two, the 5% would be applied to the $210 instead of the original $200 investment. While there's nothing wrong with a high-yield savings account, not diversifying is leaving money on the table. Aside from the aforementioned account, this list of the best compound interest investments can guide you. 

Depending on whom you ask, the standard rule around emergency savings is to have three to six months of savings put aside for job loss, illness, or any other emergency. While that's not a bad idea if you're in a position to do it, in this economy, it's just as likely you aren't. The Bureau of Labor Statistics (BLS) found there wasn't much change in the fortunes of 6.8 million unemployed Americans as of June 2024, with people in the category of long-term unemployment of 27 weeks or more growing to 1.5 million Americans — in 2023, the number was 1.1 million — a group representing 22% of the unemployed population.

In her academic research paper "Rules of Thumb in Household Savings Decisions" Assistant Professor of Finance at the University of Boulder Colorado Emily Gallagher suggests saving at least $2,467 as opposed to several months of funds. This estimate is based on one month of income for a low-income household and takes financial hardship into consideration. Even if this isn't your situation, there are ways an emergency fund can actually work against you if you aren't paying debts or investing. Also, there's the risk that waiting to save several months of income is keeping you in a dead end job. With the gig economy providing a number of easy online side gigs you can do for extra money, you could be limiting your earning potential. 

There's no shortage of tips to help you pay off debt, and the old adage about paying off all your debts before investing in your future needs to be reconsidered, depending on your situation. If you are up to date with your payments and your credit score is unaffected by what you owe, consider what percentage of interest you owe to a creditor versus the interest you earn on investments like index funds. For example, The Federal Reserve Bank of Kansas City found the average variable line of credit in the third quarter of 2023 averaged between 7.7% to 9.1%. With the average index fund on the S&P 500 returning as much as 16.72% in 2024, it might make more sense to invest a portion of your income while paying off debt since you can actually earn more money down the road than you currently owe.

One thing to consider is the rule of 6%, which suggests that if the interest on your debt is 6% or more, you should pay it off before investing for your future. However, even that number is based on you already having a diversified investment portfolio, and also considers that you are at least a decade away from retirement. If you're a millennial or in Gen Z, you're likely at least 20 or 30 years away from retirement and have more leeway to pay down debt and invest in your future. 

We've all been told at some point in our lives the three things you should never discuss around the dinner table — religion, politics, and money. That's all a bunch of baloney — at least the latter, anyway. For one thing, not discussing money matters with friends or colleagues could leave you misinformed about opportunities related to salaries, particularly if you're negotiating a salary agreement or raise in a new industry or workplace. It turns out, not talking about money can also ruin your relationship.

According to a Bankrate survey, 42% of adults in the U.S. have kept some kind of financial secret from their partner, even as 28% say they see financial infidelity as on par with a physical affair. The most prevalent form of financial infidelity is overspending, followed by piling on debt without a partner's knowledge, which becomes more of a problem the lower the household income. If your partner or spouse is demonstrating warning signs of financial infidelity, you shouldn't ignore it. Not knowing is far worse than knowing, and is potentially something easier to tackle as a couple than on your — or their — own. Another benefit of being forthcoming about finances is that you may learn something useful from people more knowledgeable about finance than you. This only improves your financial situation and is a great way to teach your kids about financial literacy, which is easier if you're open about the importance of it.

Always avoid paying for things with your credit card if you want to stay out of debt and keep your credit clean — you may want to reconsider this rule, since building a good credit rating means getting used to the idea of owning and responsibly using a credit card. Your debit card isn't going to raise your credit score. Practically speaking, credit cards are generally safer to carry around than cash or debit since they can be frozen as soon as you report them lost or stolen, and typically come with some form of fraud protection and insurance. Many also come with benefits. Cash back rewards for purchases on everything from air travel to groceries offer extra savings, and nowadays you can get as high as 6% cash back on specific purchases.

Credit cards make it easier to keep track of your monthly spending with regular, up to date statements you can use to budget your discretionary income more reliably. Some card companies will even offer cash bonuses for successful applicants of $150 or greater for charging a specific amount to your card. Reward points and frequent flyer miles could earn you free gas, a subsidized summer vacation, or groceries. Of course, the biggest benefit is being able to beef up your credit score for a mortgage approval. According to the Survey of Consumer Finances via Cutler Real Estate, the average homeowners' net worth is 40 times that of a renter's. 

The flipside of this coin is the idea that you should carry a balance on your credit card at all times to build your credit. Here are a few reasons why that no longer makes. First, paying off your balance from month to month still affects your credit positively since it shows you're making consistent payments on time. The benefit is that this keeps your credit utilization ratio below the suggested 30% before things typically go off the rails. A lower utilization rate per month, so long as it isn't zero, typically results in higher credit scores since the risk of you failing to pay your balance goes down significantly.

Having a high balance could also indicate that you're spending too much on a monthly basis, which can quickly lead to outsized debt. The other thing to remember is interest. The lower the payment amount you make, the longer it will take to pay off the card. You will also pay extra on top of the principal, which means you will potentially spend more money than the card is actually worth. If you don't carry a balance month to month, you won't pay interest on it. So as long as you use your card and keep your credit utilization ratio within a safe limit, not only can you afford to pay off your balance every month, but you can still build your credit. 

While it's true that home ownership can have a significant impact on your overall net worth, it doesn't necessarily mean it's always a better investment. A Bankrate study found that affordability was the main reason for Americans not owning a home, and that it remains cheaper across all 50 states to rent. The CBRE calculated the cost of the average mortgage was 38% higher than the average rent in the fourth quarter of 2023, peaking at just under $3,500 a month and projected to stay somewhere between $2,500 and $3,000 until 2028. Although the average cost of rent has also trended upward, the average rent is just over $2,000, and is projected to stay between $2,000 and $2,500 into 2028. A housing shortage of 3.8 million homes and rising interest rates have helped to keep the cost of owning a home high.

Therefore, renting versus buying can potentially save you $500 to $1,000 per month, and if the CBRE's projections are correct, that could mean $6,000 to $12,000 per year in savings, or $24,000 to $48,000 over the next four years. If you invested that $500 to $1,000 per month over 20 years, that could be as good an investment to you as owning a home. Find a good financial advisor to help you figure it out.

Staying on the subject of housing, another rule you should do away with is the 30% rule. The 30% rule requires you to spend no more than 30% of your gross household income on shelter. This rule has its roots in public housing regulations from 1969 when rent was capped at 25% of a tenant's income before changing to 30% in the 1980s. This amount didn't take into consideration 401(k)s or the increasingly high student loans that exist today. Whether you make $40,000 or $400,000 per year, individual factors like the size of your family, student debt, retirement saving needs, and the cost of living all impact your ability to live somewhere on less than 30% of your gross income.

The statistic of Americans spending more than 30% of their income on housing proves the point. The Joint Center for Housing Studies at Harvard University found half of all renters in the U.S. spent more than 30% of their income on housing in 2022. In the same year the United States Census Bureau found that homeowners in 18 counties had median costs even higher than renters. Instead of trying to follow an unrealistic rule for the market you're living in, instead focus on keeping track of your monthly expenses and income — minus 10% for savings and investments — and calculate what you can actually afford as rent that way. 

Yes, you can check your credit more than once a year, and in fact, you should. The new world of fraud we live in, incorporating identity theft, skimming machines, and sneaky phishing through phone calls or online platforms, makes staying on top of your credit a necessity. More benign things you should be on the lookout for like inaccurate information, fraudulent or mistaken purchases, or even payments dated incorrectly, can have negative impacts on your credit score, especially if you get flagged for missing a payment.

It should also be noted that a soft check of your credit score, so long as you request your score from a reputable credit agency, has no affect on the score whatsoever. Nor can any lenders see these sort of reports on your credit, although you may have access to them for up to two years. It also shouldn't cost you anything to get your credit score. You can gain access to your score, without cost, from all three national credit bureaus every 12 months. Even better, with a myEquifax account, you can increase that number of checks to six per year. 

Despite assumptions that avocado toast and lattes are the reason millennials and Gen Z can't afford to buy homes, according to real math, it's just not true. So-called financial experts like Suze Orman have famously rebuked younger generations for wasting money on coffee, comparing it to a million-dollar loss using somewhat dubious mathematics. Australian real estate mogul Tim Gurner told us all to stop buying avocado toast if we wanted to own homes. However, this has been thoroughly debunked by at least one senior economist who found that between a $12 avocado toast and $4 latte, it would cost you 5,220 avocado toasts or 15,660 lattes to make a 20% down payment on a median priced home in 2020. If you averaged three avocado toasts a week or a latte five days a week, it would take 33 years and 60 years to do that, respectively. 

Figure out a way to work smarter, not harder. Instead of making yourself miserable by cutting out life's simple pleasures, consider ways to earn extra income. Try your hand at a side hustle or work some overtime if you can. Cutting out ice cream in summer isn't going to get you significantly closer to that house.