Reconsider a Few Financial Tips

There are many financial tips we’ve all heard over and over again. But many of these tips aren’t perfect or don’t apply to every person’s individual situation. Instead of just following tips that you heard about on television, take the opportunity to consider if the tip is really appropriate for your situation today. You might find a better alternative that makes more sense for you right now.

Here are some financial rules that are popular to follow:

1. Cut your expenses to have long-term financial success. Most of the well-known personal finance gurus focus on cutting expenses and saving money. I am going to assume that you already know you shouldn’t spend money unnecessarily, but there’s only so much you can cut from your expenses. Once you have cut your expenses as far down as you can go, and you find that that is not enough, it may require you to consider making a lifestyle change that you may not be comfortable with.

How about increasing your income? After a certain point, it’s much easier to increase your income $300 per month than to cut another $300 each month from your bills.

Take the time to trim your expenses to a reasonable level and then focus your efforts on creating more income. A promotion, a new job, a second job, or a home based business can be easier to accomplish with less effort and grief than making further budget cuts at home.

2. Lease a car instead of buying. Cars today can last over ten years. If you like to keep your cars until the wheels fall off, buying is the best option. However, if you like to drive a new car every few years, and y0u don’t have the cash to purchase outright, then leasing is a better option.

Pull out a calculator and do the math yourself.

Be sure to consider all the expenses included with the options considered.

3. Do what you love, and the money will follow. This can be a great idea if what you love to do can provide an income and you’re good at it. There are many hobbies and interests that would be exceedingly difficult to turn into a significant source of income.

For example, you might love to go fishing. But professional fisherman have to fish standing up, rain or shine, in hot and cold weather, and make a certain number of casts per hour to be competitive. You also have to travel extensively. Many people that love to fish wouldn’t enjoy fishing in that manner.

4. Always contribute the maximum amount into your 401(k). This is a good thing to do if you have taken care of everything else. If you do not have a large surplus of cash after paying your bills every month and you don’t have an emergency fund, how will you pay for a car repair or the $4,000 medical bill for an unforeseen illness or injury? What if you lose your job?

There are other expenses that should be considered before making the maximum contribution into your 401(k) or other retirement account. If you ever find yourself in a position where you have to withdraw money from your retirement account to take care of something else, it can result in both penalties and taxes. In some cases, you can’t or won’t always put the money back in, either.

Consider totally funding your emergency fund reserve account with a minimum of three months living expenses before maxing out your contributions to the 401(k). This will help you weather any financial storms that may happen along the way.

Examine the tips you’ve been following and see if they make sense for your current financial situation.