If something doesn’t work for you, you’re extremely likely to stop doing it.
Common sense, right?
Even though it’s called “personal” finances, 90% of the financial information available on the internet is like a piece of boxed vanilla cake – oldie but a goodie, yes, but lacking some flavor.
I’m not dogging the advice that is circulating out there – let’s face it, things like “spend less than you earn”, and “max out your retirement savings each year” are golden as far as your financial health is concerned.
But I am saying that too much of the time you’re not given ways to tweak these Benjamin Franklin-era pieces of advice to work for you and your family.
Let me show you what I mean with several examples of how my husband Paul and I added the “personal” back into our personal finances…and still benefited from the sound advice:
Regurgitated Financial Advice #1: Max Out Your IRA Each Year by Making Equal Monthly Contributions
Max out your Individual Retirement Accounts each year, which means contributing $5,500 per account. Do this by contributing an equal amount each month ($453.88 per account, or $5,500 divided by 12 months) for dollar cost averaging purposes (you can find out more about what the heck dollar cost averaging is here).
Why it Didn’t Work for Us: Since we live pretty far from my family, we typically travel to see them during the end of year holidays for an extended period of time. Several years ago I figured out that it would be great to have extra cash flow in the last two months of the year.
How We Tweaked it: We still max out both of our IRAs; however, we do it in 10 months instead of 12 to open up funds at the most expensive time of year for us.
How You Can Further Tweak this for your Personal Situation: Do you have summers off, or work seasonally? You can choose which months to shut off (if your contributions are automated), or you can just manually not contribute certain months. Divide your maxed out contribution ($5,500 per person for Roth/Traditional IRAs) by the number of months you wish to contribute to find out how much to automate those months.
Regurgitated Financial Advice #2: Don’t Be in a Hurry to Pay Off Your Low-Interest Student Loans
Student loan debt is ‘good debt’ that typically comes with a lower interest rate, plus you get an interest rate tax deduction at the end of the year so the advice is that you should not be in a hurry to pay it off when you could be using those extra payments for something else.
Why it Didn’t Work for Us: We loathe being in debt. Once we got engaged in 2009, we made a huge push to pay off the remainder of my $36,000 in student loans as well as the remainder of Paul’s debts to start our marriage off right.
How We Tweaked it: In May 2010 we came to the conclusion that our savings account and the amount owed on my student loans would intersect sometime in August 2010. So, we went for it and got rid of the last $8,000 in student loans all in one fell swoop.
The reason why we took this rash move is because we had backup plans in case an emergency crept up while rebuilding our emergency fund. For example, we had $1,500 sitting on the sidelines in a money market fund at a brokerage firm that we could easily liquidate for emergencies. We also each have Roth IRAs. While we would never want to tap these for money, we knew that we could take out the contributions we made tax and penalty-free in the event of an emergency. Finally, we also had established credit lines. Of course it would have stunk to go back into debt right after getting out of it, but we saw these as a last resort to float us for the 30-day grace period.
We could have taken the full 11 years to pay off our debt (like our creditors wanted us to; I’d still be in debt while writing this except that I decided instead to manipulate my debt), but 5 sounded a lot better to us. So far our interest savings from paying this debt off has been $2,700+! Plus we quickly rebuilt our emergency savings.
How You Can Further Tweak this for Your Personal Situation: Wiping out most of your emergency savings is a bit rash. So if you have other financial backups, you may instead want to periodically send a lump sum from emergency savings into your student loan debts to make a real dent in the interest you’re being charged. Then, work on replenishing your fund.
Regurgitated Financial Advice #3: Have a 20% Down Payment on a Home
You should have a 20% down payment ready (plus closing costs) when purchasing your home. One specific financial reason is that if you don’t, then you will likely need to pay something called PMI insurance (a few extra hundred dollars per month to insure the lender against you foreclosing).
Why it Didn’t Work for Us: One of our top priorities was to purchase a home after getting engaged in June 2009. Well…we didn’t have 20% to put down. Still, it was a great time to buy with low interest rates coupled with that first-time, $8,000 homebuyer’s tax credit (the one you got free and clear).
How We Tweaked it: We ended up putting 14% down, plus came to the table with closing costs (plus bought a refrigerator and a new-to-us used car one month later…fair warning: you should not wipe out everything you have in order to come up with that 20% + closing as things may go wrong immediately after signing your closing docs). This worked out well for us because Paul was eligible for a VA loan which does not charge PMI for down payments of less than 20% (note: there is a VA loan funding fee you pay at closing).
How You Can Further Tweak this for Your Personal Situation: Are you or the person you’re buying a home with eligible for a VA loan? Look into this as a possibility if you do not have 20% to put down on a home. Also, there is a way to still get out of paying PMI on a home purchase without a VA loan. You’ll need to work with a lender. If you can find a seller who will pay closing costs, and the lender puts the PMI insurance as a lump sum on the front end of the loan, then you could get out of paying it. Of course this will have to make financial sense to the sellers as well, so be prepared to negotiate!
My point in showing you these examples is that if you’ve tuned out because you keep hearing the same, un-personalized financial information from everyone around the web, I’d love for you to tune back in. The fact is, if you followed all of that advice, you would be light years ahead in finances. I hope I’ve shown you that there is wiggle room where you can still benefit from the advice but tweak it to fit into your own life.
I would love to hear examples of how you tweaked traditional personal finance advice to fit your situation. Please share in the comments below!