You’ve probably heard the phrase, “Rules are meant to be broken.” While rules can offer guidelines for us and can have a positive impact, sometimes those rules need to be re-evaluated. This is true right now with money rules. We’re currently dealing with uncertain times, handling a health crisis and recession. These are not normal times and we were not equipped to deal with all of this. So here are five money rules to reconsider in uncertain times.
1. Save three to six months of expenses for your emergency fund
A standard money rule that many financial experts advise is that people should create an emergency fund with three to six months worth of expenses. This, in theory, is enough time for you to get back on your feet and manage if you lose your job, have a health crisis, or drop in income.
While this advice is still solid, it falls short for the current times. We’ve now been dealing with a pandemic for an extensive amount of time. Throughout this time, many people have lost their jobs and livelihoods or have had a major drop in income.
Buzzfeed News covered this very topic stating, “Working people who cautiously adhered to advice to save enough to cover three to six months of living expenses, a so-called emergency fund, are being decimated by a crisis that is dragging on far longer than that. Some have lost their homes.”
In other words, even people who followed this advice and had enough might still be struggling. That’s why I think it’s a good idea to shift this number to 12 months of expenses. A year’s worth of expenses feels like a ton of money, but given everything that has transpired this year, it’s a worthwhile cushion to have.
2. Contribute to your retirement
One money rule is that you should always contribute to your retirement account or 401(k). You should always invest in your future, but if you want to take the pedal off the gas right now that’s okay.
If you’re in a good financial place, keep contributing! But if you’re unemployed, now is a good time to divert that money to expenses and emergency savings. Sometimes we need that extra cash now to pay rent, build an emergency fund, and continue making debt payments.
3. “Renting is throwing away money”
One of the money rules I’ve always disagreed with is this thought that “renting is throwing money away.” No, it’s not. You are paying money in exchange for a roof over your head. That’s not throwing money away.
Renting in uncertain times can be an advantage because you can move quickly with your decisions if you need to make changes.
For example, if you lost your job, you could easily move out of an apartment and move in with your parents if need be. If you have a mortgage, it’s much tougher to sell your place and get up and go.
Also, renting might be more affordable right now as housing costs all across the country are getting slashed. You might also be able to negotiate your rent with your landlord as renters have the upper hand right now.
4. Save for your kids’ college
You want to give your children the best life possible. Part of that might include paying for their college so they can graduate debt-free and without the burden of student loans.
One money rule is to save for their education using a 529 college fund. This is a good idea in normal times, but it’s time to re-evaluate this considering where you’re at.
The money you save for your kids may be better suited in your emergency fund or to pay down debt. Also, if you’re behind on retirement, you want to save for that first. Why? Your children can borrow student loans to go to school.
There are no “retirement loans” that can help you retire. So you want to put on your financial mask first so to speak and help yourself. Once you’re all set financially, you can consider saving for your children’s college costs.
5. Pay off your student loans
It’s always a good idea to pay down debt. It’s a solid money rule because paying interest costs you so much money and makes it hard to get ahead and pay off debt.
But if you have student loans, you might want to re-evaluate this money rule right now.
Under the CARES act, federal student loan payments are suspended until December 31, 2020. That means if you have federal student loans, you don’t have to make any payments until 2021, with no penalty.
Some advocate for paying right now as there’s also a zero percent interest rate right now on federal student loans. That would help you pay off your principal faster. If all of your financial ducks are in a row, this could be a good strategy.
However, if you have credit card debt or are unemployed or have little to no savings, now is the time to stash that cash.
Our current situation is showing us how important it is to have liquid cash as a cushion to help us weather this storm. So if your student loan payment money could be used elsewhere and help you, take advantage of it.
Money rules are helpful but remember sometimes rules are meant to be broken. We are not in normal times so we don’t have to take outdated advice that isn’t super relevant to what’s going on now. Re-evaluate these rules and make sure you’re putting yourself first. You want to protect your current and future self, so right now is the time to save more and manage day-to-day. If that’s all you can do, that’s okay.