All of Our Money Rules (And When to Break Them)

This discussion focuses on established financial rules, explaining their rationale and crucially, when it's acceptable to deviate from them. The speakers, Brian and Bo, emphasize that personal finance is indeed personal, and life circumstances may necessitate breaking some guidelines. The **238 Car Buying Rule** advises a 20% down payment, a maximum 36-month loan term, and total car payments not exceeding 8% of gross monthly income. This rule aims to prevent cars from becoming wealth killers, especially considering average car prices often exceed individual median incomes. Exceptions are made if one can pay cash, or if the goal is to be more aggressive than the rule (e.g., more down, shorter term, lower percentage of income), but never to buy luxury vehicles. The key is that breaking the rule should result in *lower* financial commitment, not higher, and monthly investments must still exceed car payments. The **3525 Home Buying Rule** suggests a 3% down payment, a minimum 5-year intended stay, and total housing costs not exceeding 25% of gross monthly income. This rule is designed to prevent overspending on housing, which can strain other financial areas or leave one vulnerable to unexpected expenses. Exceptions are allowed for those with a clear and assured income trajectory that will bring housing costs below 25% within a few years, or for individuals living in high-cost-of-living areas where public transportation or other cost-saving factors might justify a stretch to 30%. Crucially, any deviation requires creating margin elsewhere to maintain savings for the future. The **First-Year Salary Student Loan Rule** advises against taking on student loan debt exceeding one's anticipated first-year salary. This rule addresses the significant impact of student loans, with many individuals carrying debt for decades and some owing more than their annual income. The speakers highlight the long-term burden of student debt, especially when decisions are made at a young age. An exception is made for specialized degrees with a high probability of outsized income, such as those for attorneys or doctors, where higher debt might be necessary with the expectation of future income growth. However, they stress keeping student loans as low as possible, even in these cases. The **"Always Be Buying" Rule** advocates for consistent investing regardless of market conditions. This strategy aims to remove emotion from investing and capitalize on market downturns. The exception to this rule occurs when individuals are still working through the earlier steps of the financial order of operations, such as not having deductibles covered, not getting employer matches, having high-interest debt, or lacking an emergency fund. Once these foundational steps are addressed, the "always be buying" principle should be applied. The rule also doesn't apply during retirement, when the focus shifts to consuming assets. **High-Interest Guidelines** differentiate between high and low-interest debt, prioritizing the payoff of high-interest debt to balance debt reduction with asset building. An exception is made for car loans with interest rates up to 10%, provided they fit within the 238 rule and are for individuals in their 20s. These can be managed within the 238 framework while resources are directed elsewhere. The speakers strongly caution against 0% interest offers from credit cards, deeming them a "rope a dope" tactic to trap consumers. The **Emergency Fund Rule** recommends having 3 to 6 months of living expenses saved. The amount depends on factors like job security, ease of finding new employment, and financial dependents. This fund acts as a buffer against desperate financial decisions during emergencies. An exception is made if one is close to fully funding their emergency fund and needs to use a portion to max out a Roth IRA contribution before the deadline, or upon reaching financial independence when cash reserves might expand to 12-18 months for investment opportunities or retirement living expenses. The **Goldilocks Rule for Windfalls** suggests investing lump sums based on their size relative to the total portfolio. Small windfalls (under 10%) can be invested at once, while large ones (over 50%) might benefit from dollar-cost averaging over a year to mitigate volatility. The rule can be broken if an individual knows they would experience significant emotional distress from market fluctuations, even with smaller windfalls, in which case dollar-cost averaging is recommended. For seasoned investors ("financial mutants"), accelerating dollar-cost averaging during market downturns (below 20% and subsequent 5% increments) is encouraged. The **25% Retirement Savings Rule** advises investing 25% of gross income for future financial independence, encompassing various retirement accounts. This higher rate is recommended due to the decline of pensions and the later average start date for investing. Exceptions are made for individuals under 30 who may be ahead of the curve, or for those experiencing unique life events (new children, job changes, moves) requiring a temporary reduction in savings rate, with the caveat to return to 25% as soon as possible. The **Credit Card Rule** emphasizes using credit cards for their benefits (rewards, security) but never carrying a balance, as compound interest works against the consumer. Those who carry balances are advised not to use credit cards. 0% offers are not a reason to break this rule; balances must be paid off monthly regardless of the interest rate. The **Pre-tax vs. Roth Contribution Rule** suggests prioritizing Roth contributions if the combined marginal federal and state tax rate is below 25%, and pre-tax contributions if it's above 30%. Between 25% and 30%, other factors like age and tax assumptions are considered. The speakers highlight the importance of tax arbitrage and tax diversification. An exception can be made for building a legacy, such as using Roth contributions for a disabled dependent who can benefit from extended distributions. The **Financial Order of Operations (FOO)** is presented as a nine-step process for prioritizing financial decisions. Deviating from the FOO is generally discouraged, as it can lead to inefficient financial management. However, temporary deviations are acceptable for specific life seasons, such as building up cash reserves for entrepreneurship or adjusting for family growth, provided there's a plan to return to the FOO. Finally, the discussion on **Hiring a Financial Advisor** identifies three triggers: life circumstances becoming overly complex, time limitations preventing adequate financial attention, or the gravity of financial decisions making individuals uncomfortable navigating alone. While do-it-yourself is encouraged, professional help may be beneficial for those with high incomes, complex financial situations, or a desire for proactive planning, especially to avoid significant mistakes. The speakers emphasize that it's okay to remain a do-it-yourselfer if that suits one's personality and circumstances, but professional help is an option for those who need it.