3 More Money Rules You Can Break


3 More Money Rules You Can Break

Three more things you should consider before blindly accepting them as a financial guideline.

Break it: Send your kid to college! It’s a great investment!

The average college grad makes over $26k more a year than someone with only a high school diploma. Most financial planners will cite this statistic from the Census Bureau when endorsing savings accounts for college. However, if putting those dollars aside for your child means sacrificing your retirement and your security, you should find other ways to fund the experience or reduce the cost of their education. Look into community college for the first two years. Have your student live at home. Make sure to apply for every scholarship available to him or her – even the ones that are a long shot. College grads may make more money, but they also graduate already in debt: the average college loan debt is over $26k.

Break it: Buy a house if it costs 2.5 times your income (or less).

This seems like a time tested reasonable guide to home-buying. However, if it doesn’t suit your circumstances, disregard it. Can you afford the monthly payment? Start there. Factor in taxes, insurance, maintenance, current mortgage rates and the size of your down payment. Consider how long you will live in the house. No one stays in the same place forever. If you are planning on a move in just a few years, renting may be better for you.

Break it: Upon retirement, withdraw 4% of your portfolio then adjust every year for inflation

The 4% rule calls for a retiree to make annual inflation-adjusted withdrawals and be reasonably sure the portfolio will last 30 years. If you are that person, the 4% rule is a fine place to determine how much you can spend. However, nothing seems to work this smoothly any more. It may be better to withdraw more in good times and then cut back when things are tough. Investment results may guide your distributions. Other income sources may influence your decisions. Monitor and adjust as you go along.

Source: USAA


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