Personal finance experts "push" rules when it comes to money.
You have to get a good paying job, you have to go to college, and preferably the right one.
You should be saving 10% (or 15%) of your pay for retirement.
Don’t buy a home unless you have a 20% down payment.
Don’t sell when the market is going down, and don’t buy when the market is going up.
You get what you pay for.
If you want to get a good paying job, you have to go to college, and preferably the right one
Those are just five examples, but you get the idea.
These kinds of “rules” are easy ideas to swallow. You don’t have to think about them very much at all. You just have to follow them and, in theory, your finances will turn out just fine.
Here’s the catch: rules are rarely right in all situations. A person who is 50 needs to be saving more than 15% for retirement. Buying and selling often has more to do with personal situations and diversification than market timing, and there are many examples where buying during a market increase and selling during a market decrease can work out. I know two people who make six figures with less than an associates’ degree of college education.
Rules exist to summarize the vast majority of situations and turn them into an easy-to-understand statement. They can be really useful for general guidance for many of the decisions you make in life, from buying a car to choosing life insurance.
However, rules tend to be summaries of a lot of facts and observations. They don’t match every single situation. They just match a lot of situations.
No rule is set absolutely in stone, and the reality of different situations often leads to different conclusions.
Use rules when you’re in the heat of the moment and have to make a snap decision. Otherwise, spend the time learning the real facts of the situation you’re faced with and make a sensible decision. Many times, the “rule” and the facts will agree, and that’s great – you’re sure that you made the right choice. Other times, the “rule” and the facts will disagree, and that’s also great – you’re going past the rule and making the right decision.
The key is to spend some time really learning about every decision you make, from the enormous ones like choosing a career path to the little ones like choosing a blender. The more you know, the better decision you’ll make. The better the decision, the more likely you’re going to wind up with money in your pocket over the long run.