What's Your Why #3—Rules are Made to be Broken

A penny saved is a penny earned. How many of us grew up hearing this? What would I say if I told you that this rule of thumb that we all take for granted is a big fat lie? Well, I'm sorry to say that it is a lie. Let's say you've saved a dollar instead of a penny. And let's say that inflation rises five percent. That dollar you saved is no longer worth a dollar. Lies, lies, lies!

In the last installment of "What's Your Why" we talked about decision making based on social approval. Rule following is another way many of us make decisions about money. The problem is that there really is no "one rule fits all" scenario. And between all of the talking heads on TV, advice on the Internet, and every financial advisor in town trying to sell you a different product it is prudent to always ask, "Does this rule really apply to me?

Here are a few more rules that aren't necessarily true, or at least not true for everyone. Wait until full retirement age to take Social Security. Your home is a great investment. Three to Six months is enough for an emergency fund.

If you wait an extra five years to take Social Security but you've already retired you need to do some math. Will you be eating through your retirement income at a rate that may cause you to run out of money or to have less income later in life, even with the extra Social Security income?

Your home may be a great investment. But it could be a money pit. Or the market could fall out of the real estate market. The world is changing. If you want to buy a home, buy a home but don't put all of your investment eggs in that basket.

How about your emergency fund? If the primary income earner in your home lost their income, or their ability to make an income, would three to six months of emergency funds really be enough to keep your family on its feet? Think big picture when it comes to protecting your family's income. In addition to an emergency fund should you take another look at your disability, liability and life insurance protection?

Here's a general rule for following rules. Yes, I see the irony in that statement.

Be mindful about why you are following a money rule. A good start is to ask yourself a few simple questions.

Answering yes to these questions may mean that following a rule is a constructive approach. Is this a general rule that I can use to apply a really complicated situation or is this a situation that occurs frequently so I have evidence that this rule works for me?

Answering yes to these questions should give you pause about whether or not to follow a rule. Am I choosing between two rules that directly contradict each other? Is this rule proposed as a mandate or one-size fits all solution?

To read, What's Your Why #1, click here. To read, What's Your Why #2, click here.

The Mindful Money Blog is written by Susan Larson, public speaker, writer, financial advisor, community volunteer. Susan lives in Fort Collins, CO. Follow Susan on Facebook.