Traditional Personal Finance Rules Revised

Some financial rules really survive the test of time. Don’t spend more than you earn, stick to your budget, save for retirement. However, some tips are outdated and plainly not valid in this day and age. These previously holly pieces of advice just do not stand in today’s economy and rapidly changing job market.

Buy or Rent?

House

The stereotypical response would be to buy property, putting the money into your own investment rather than the landlords wallet. Despite the fact that buying your own home can be expensive it could save you money over the years. Renting on the other hand comes with less freedom to alter your home but offers more moving out flexibility. There are benefits to both and it’s not as black and white as it used to be. Here are the benefits of each and how to decide whether to rent or buy.

  • Benefits of buying
    • Each payment goes into your property
    • Once you pay off your mortgage you can live rent free
    • You have freedom to alter your home the way you like
    • You can have pets
  • Disadvantages of buying
    • Upfront costs like mortgage fees and stamp duty can make it pricier than renting
    • Joint mortgages might make things complicated if you separate with your partner
    • You have to pay for maintenance
    • Moving can take a long time if you have to sell your house first
    • If you can’t pay your mortgage you’ll get into debt and it will be harder to move into a cheaper property
  • Benefits of renting
    • You can move easily
    • It takes less time to find a home
    • You won’t loose money if the property’s price goes down
    • The landlord has to pay for repairs
    • You may be able to rent a bigger home in a nicer area than you could afford to buy
  • Disadvantages of renting
    • You won’t own your house/ flat
    • You have to move out when your landlord decides
    • Your landlord makes the rules
    • You have to pay the deposit which is sometimes not rightfully kept
    • Rent could increase

Which is cheaper? In the short-term it is paying rent, however in the long-run it could be buying a house. It really depends on your life priorities. If you will travel a lot or if you can’t afford a mortgage than renting is definitely a better option, making buying property a questionable advice. The new rule is: don’t pursue buying a house blindly.

Save 20% of your salary monthly

Saving

For a long time we’ve been told that we should save 10% for our retirement, 5% for emergencies and the rest for holidays, weddings or other high expenses. This rule no longer holds true, with longer lifespans, the decline in retirement plans, altering social security benefits and higher individual diversity.

Now your best option is to calculate an estimate number depending on your life-style and personal goals. People may have varying income needs in retirement or emergency. Therefore instead of blindly following the 20% rule, be honest with yourself and calculate a more accurate number that counters in your passions, living expenses and frequent high expenses like cars etc. You can use a pension calculator to help you see the full picture of your likely retirement income.

Student Loan

Student loan

The pervasive though is that a student loan is a “good debt” because it’s an investment. The fact is that graduates do earn more than non graduates, so in the long term, you are statistically more likely to improve your earning prospects by going to university.

However, not all careers need a degree and some have job training pathways. Furthermore, not all courses will guarantee you a higher pay or even employment. Therefore it’s vital to weigh the costs and benefits of a degree. Unfortunately, the debt that comes with higher education isn’t always necessarily a good thing to take on.

Take time to consider all the pros and cons of getting a degree on your finances and the return on investment you can expect. Consider whether the industry you’re planning to enter cares more about skills and experience than it does for a university credential. If you’re going to school with a plan to “find yourself” or take a break from the workforce, think twice about the price tag that comes with it.

Assume nothing

Old man

There are endless sense gaps in finance, business and governmental processes that undermine even the oldest rules. The best method to currently employ is common sense, for example don’t save only 10% of your salary if you are planning to retire around 40, it will definitely not be enough.

Inquire more to find out about your rights. You might be entitled to benefits or discounts. Do your research rather than follow any old beliefs you might have and take your time making important decisions, especially if there is no rush.

Be in control

Writing

Staying stagnant in your finances will cost you more than you can imagine.
Not switching to a more competitive mortgage rate costs us £2.5bn a year, failing to consolidate credit card debts leaves us £10.5bn worse off and leaving personal loans where they are brings with it an unnecessary bill of £5.7bn. We have now more choice than ever and the fierce competition using new sales tactics is making it even harder for us. Try to beat through the overwhelming feeling and keep pursing the best financial option.

Keep track of your accounts and documents as you might be loosing money because of outdated addresses and organisations loosing your records. This is particularity worrying for our generation who is switching their jobs frequently and is loosing their pension income. If you want to track down your pension details click.

It’s clear that in this day and age if you want financial security you will have to pay for it. The generation inequality might feel unfair, but in this case you have to play by the new rules.

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