15 Financial Rules You May Want to Break

There are many rules of thumb out there when it comes to money management. Although following the conventional wisdom can be smart in certain situations, it's not always the best choice for everyone.

In fact, here are 15 common financial rules that it may make sense for you to break.

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Saving 10% of your income for retirement is very common financial advice. But it may not be good advice.

Many people will end up with too little invested for the future if they set aside just 10% of earnings -- especially if they don't make much or if they invest very conservatively.

Rather than following this blanket rule, it's best to set investment goals and decide how much to invest each month to achieve them based on your timeline and projected returns.

ALSO READ: Saving 10% of Your Income Really Isn't Enough for Retirement

Budgeting your money is typically a good idea to make smart decisions with it. But the rule that you must have a detailed budget is sometimes meant to be broken.

Some people simply cannot and do not want to follow a budget because they feel too constrained. In these circumstances, other approaches could be better. For example, it may make sense to live by a 50/30/20 rule where you keep fixed expenses at 50% of income, save 20%, and have the flexibility to do whatever you want with the money left over.

Splurging on nonessentials is often called a waste, and some experts advise following the financial rule that you don't buy things you don't need.

The reality, however, is few people can stick to a spending plan that strips all the fun out of their life. And there's no reason to do that as long as you spend responsibly.

Instead of avoiding splurges, decide what you do want to splurge on based on what you value most and build that into your budget.

ALSO READ: Budgeting 101: How to Start Budgeting for the First Time

Some finance experts suggest that you steer clear of credit cards because they are likely to leave you in debt. But the reality is, cards can be a good tool.

You can use cards to buy everyday items, thus earning rewards for spending you have to do anyway. Or you can finance purchases at no interest using a 0% APR card as long as you pay it off before interest comes due. This can be a better approach than following a blanket rule that credit cards are always bad.

Chances are good that you've heard you should pay off your debt ASAP -- even making big sacrifices to do so. But this rule may also be one you should break depending on the kind of debt you have.

While it is indeed smart to aggressively pay down high-interest debt, you may not want to pay extra to certain types of low-interest loans such as your mortgage. You can often get a better return on your money by investing it in other ways rather than paying off inexpensive debts early.

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It's often said that renting is wasteful because you make payments without building equity in a home of your own. But in some circumstances, renting is actually the best move.

This could be the case if it's much cheaper to rent than buy and you rent and invest the difference. Or renting could be the right move if you aren't in a financial position to buy a house or won't be staying put for several years.

If you do have to rent, you aren't throwing away money, but instead making a responsible decision to use your money to get housing in the way that's right for you at the time.

ALSO READ: What's Wrong With Renting Forever?

There are some good reasons to follow the rule that says you should put 20% down on a home. For one thing, you avoid PMI, or private mortgage insurance. PMI is an added cost tacked onto your monthly payments to buy insurance that protects your lender in case of foreclosure.

But in some cases -- especially in expensive areas -- waiting to put down 20% could mean delaying for many years and giving up property appreciation during that time.

If you can make a reasonable down payment and find an affordable loan, moving forward with less than 20% down could make a lot of financial sense and you can feel free to break this rule.

Many financial experts -- and some mortgage lenders -- recommend spending around 25% of your income on your housing. But this rule may be one you want to break as well.

In some cases, you may decide it's better to spend far less -- especially if you have lots of other financial goals you want to accomplish and don't want to commit to a large mortgage payment.

In other circumstances, you have to spend more to be able to buy a house within a reasonable commute from your job. If that's the case and you can make sustainable cuts in other areas, it may be OK to go over the 30% limit if that's what's necessary to become a homeowner.

ALSO READ: How Much House Can I Afford?

You've probably heard that you should max out your 401(k) if you can. But if you follow this rule, you could end up with less retirement money in the long run in some cases.

You should always contribute enough to your 401(k) to get your maximum employer match, and there are no exceptions to this rule. An employer match is free money. But once you've done that, you may be better off putting money into other accounts such as an IRA instead.

Other types of retirement accounts can provide a broader choice of investment options and different kinds of tax breaks than a 401(k). It's worth looking into them when deciding where your cash should go rather than just defaulting to maxing out these workplace retirement plans.

Having an emergency fund is definitely a smart financial decision, and you don't want to break the rule that says you should save for unexpected expenses. But while it's commonly advised that you should save up a fund with three to six months of living expenses, you may need to invest a different amount.

In some cases, saving more than six months' worth of expenses makes sense. This could be a good approach if you are the sole earner for a large family, for example, or if your job is uncertain.

In other situations, you may want a smaller emergency fund -- at least temporarily. If you have a lot of high-interest debt, it likely wouldn't make sense to have a huge amount in savings while continuing to accrue interest. You might want a small emergency fund with just a few hundred dollars until your debt is paid down.

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It's important to decide how best to allocate your investment dollars. You don't want your portfolio to be either too conservative or too aggressive. As a result, one rule of thumb that is often recommended is to subtract your age from 110 and put that amount in the stock market.

But this rule may not be right for everyone. Depending on your personal tolerance for risk, your investment goals, and the amount of money you have available to invest, you may want a different asset allocation.

It can be better to do a personalized calculation and decide on what mix of assets works for you rather than just following this rule.

ALSO READ: Understanding Asset Allocation for Your Portfolio

Another common rule when it comes to asset allocation is that you should determine how to invest based on your age. Again, this is a rule that may need to be broken depending on your unique situation. If you hope to retire at a very young age, for example, you will likely need a different distribution of investment dollars than someone who plans to work until they are 70.

The 4% rule is often cited as a method of determining how much you can safely withdraw from retirement accounts. If you follow this rule, you'd withdraw 4% from your accounts the first year and then increase distributions based on the rate of inflation.

But depending on how much you have invested and your retirement timeline, this rule may not make sense for you. It could put you at risk of running out of money in some circumstances, or result in you withdrawing less than you should in others.

It's better to consider your specific age, the number of years you expect to rely on your retirement funds, and a variety of other personalized factors to decide on a distribution schedule that works for you.

ALSO READ: What Is the 4% Rule?

When deciding how much income you'll need as a retiree, you'll probably hear that you should replace about 70% to 80% of pre-retirement income. But this is a rule that is meant to be broken.

Many current retirees actually spend as much, or more, than they did while working. If you want to be sure you do not run short of funds, you should consider planning to replace much more than this minimum amount.

Finally, it's a commonly cited rule that you should multiply your income by 10 to decide how much life insurance to buy. But following this rule could get you in trouble.

In some cases, if you have a lot of debt or if you have a lot of dependents, you may need to buy much more life insurance than this. Likewise, if you are a stay-at-home parent or a caregiver for aging parents, your income may be very small but the value of your services would be substantial, so buying more life insurance would be critical.

There may also be circumstances where you need less insurance, such as situations where you have no one depending on your income but you just want to make sure there are funds for your final expenses.

Ultimately, there are better ways to decide how much life insurance to buy, including factoring in your debt, the income that must be replaced, your mortgage payments, and educational costs for any children you have.

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Ultimately, while basic financial rules can sometimes provide a good starting point for managing your money, they can also lead you astray.

Rather than following a general plan that may not take the specifics of your situation into account, it's far better to take the time to develop a personalized approach that's designed around your goals and needs.

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