Editor's note - You can trust the integrity of our balanced, independent financial advice. We may, however, receive compensation from the issuers of some products mentioned in this article. Opinions are the author's alone, and this content has not been provided by, reviewed, approved or endorsed by any advertiser.
Hell, there are no rules here – we’re trying to accomplish something–Thomas Edison
10 personal finance myths busted, If you spend any time reading about personal finance, you’ve no doubt encountered a ton of rules. Whether it’s that credit cards are evil or that school loans are ‘good’ debt, these rules all have their place. A problem arises, however, if you view these rules as inviolable. They’re not, and believing that they are can lead you down the wrong path.

Here are 10 of my favorite personal finance rules that are often meant to be broken:

1. You need a budget: No you don’t. A budget is not an end in itself. You don’t need a budget to feel like your are being financially responsible. And many people who track their spending don’t actually use the “budget” to control spending. A budget can be very helpful if used effectively. But far more important than a budget is spending and saving your money wisely. Many people do this without knowing how much they spend at Starbucks (I’m at Starbucks enjoying a Mocha while I type this!).

2. Passive investing requires index mutual funds: Most people equate passive investing with owning index funds. While this is certainly one approach, it’s not the only approach. In fact, you can be a well diversified passive investor by owning a dozen stocks or so by picking stocks across industries and countries. One might even argue that simply investing in Berkshire Hathaway can create a diversified portfolio. And investing in stocks is a lot less expensive than even index funds, which charge investors trading costs in addition to the expense ratio.

3. You need a lot of money to invest: You can get started with a 401(k) with just a few dollars a month. Betterment is another alternative that allows you to start investing with just $25 a month. And there are several other ways to invest when you have little money.

4. Credit scores don’t matter if you don’t borrow money: Credit scores are important for a lot of reasons. They can be a factor when you apply for a job, and they are a factor in determining your car insurance premiums. And because you can get your free credit score without a credit card, there’s really no excuse to ignore your score.

5. Credit cards are bad for your finances: Credit cards aren’t the problem; credit card debt is. Credit cards offer convenience, security and rewards. Some cards come with 0% introductory rates on balance transfers and purchases. And the best rewards credit cards offer everything from cash back to free travel.

6. An emergency fund should equal expenses for six months: While there is nothing inherently wrong with this rule of thumb, that doesn’t mean it’s right for you. Every situation is different. For example, if you have high interest rate credit card debt, holding cash equal to six months of expenses in an emergency fund may be a costly decision. On the other hand, if your income varies from month to month significantly, you may need to save more than six months of expenses. So consider the rule of thumb, but then make the decision that’s best for you.

7. School loans are ‘good’ debt: ‘Good’ debt is debt used to buy something that goes up in value. A mortgage is a perfect example of ‘good’ debt. A car loan is ‘bad’ debt. With school loans, it’s not so clear cut. Borrow to get a liberal arts degree from an expensive private college, and you’re probably looking at very bad debt. Get an engineering degree from a public university and the degree will probably pay for itself many times over. The key is to recognize that not all college degrees are created equal. Some will pay for themselves; many will not.

8. You should always buy a used car: The last car I bought was used. The two before that were new. While you can save money buying a used car, the new versus used debate is not the most important consideration. A much more important factor is how long you keep the car. My wife and I bought a new, expensive car in 2002. We’ve owned it more than 13 years and have no plans to sell it. I suspect it will last at least another ten years, at which time we will have gotten a very good value for our money.

9. Budgeting is painful: Budgeting can be painful, but it doesn’t have to be. There are a lot of ways to make budgeting painless. For example, only track a couple of categories of expenses that give you trouble, rather than every dime you spend. And use an online budgeting tool. These tools are free and automate the budgeting process. A fairly new tool called Personal Capital is my favorite and one ideal for tracking spending and investments.

10. You should be debt-free before you invest: While I know this is the Dave Ramsey approach, it’s wrong for many people. If we had waited until we were debt-free to invest, our finances would have been a mess. For most people, the time to start investing is TODAY. Even if it’s just a few dollars a month, it’s a habit that you should develop early in life, even while you are tacking credit card or other debt.

What personal finance “rules” do you break?

Author Bio

Total Articles: 1082
Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Article comments


I agree with many of the items on the list. I have a “budget” but I don’t track everything. I know what my fixed costs are per month: mortgage, insurance, etc. I focus on costs that are variable and are easy (at least for me) to overspend: eating out and entertainment.

When I began investing, I started off investing $25/month. There is no need to have thousands of dollars to start investing. Nowadays, it’s much easier to invest with little money because of the firms you mentioned. Back in my day, all I had was the few mutual funds that had a low initial investment.

Rob Berger says:

Jon, I too remember the days of low initial investments. I think I started with $100 with a Legg Mason fund.

gordon burkholder says:

#2 is poorly informed. With a bit of googling, you can find out where to buy a S&P 500 ETF with zero commission and an expense ratio under 0.1%. Not 1% – but under 0.1%. (Hint – Vanguard ETFs via TD Ameritrade…)

Tracking spending (if there is an issue) can be much more valuable than budgeting. Budgeting is great if you can stick to the budget, but if you have a problem with spending then tracking it to know where the problem lies. I am a firm believer that credit cards can be very beneficial if used properly.

Joshua Zytkiewicz says:

The rule I break is always pay with cash. When I have physical cash I always spend it and don’t always remember where.

For me a debit card is the way to go.

M. M. says:

I try to budget though mint.com, however I realize that I always break it. However, I know how much I can spend in a given month and still pay off my credit card in full. I just watch my balances and make sure I never exceed what I can spend.

M. M. says:

I try to budget though mint.com, however I realize that I always break it. However, I know how much I can spend in a given month and still pay off my credit card in full. I just watch my balances and make sure I never exceed what I can spend.

Evan says:

I love these types of posts:


My favorite ones are that permanent life insurance is for no one, if someone has nice things they must be in debt, and credit cards are automatically evil

David says:

I break #6…I only keep about 3 months in my emergency fund. I have no credit card or auto loan debt, and as a nurse I don’t think I would be jobless for long if I lost my job.

ps- loved your story about finding the bill of sale for your stepmother’s Mustang…have a photo you could post? Bet it was beauty! Just out of high school tooling around in a ’65 Mustang…she must have had one phenomanal summer that year.

Heather says:

I don’t budget, but I loosely track my spending via Mint. I know where my weak spots are and come up with tactics to keep things in check. For example, I only get Starbucks when I have a gift card, which I earn through rewards apps and credit card rewards. And that being said, I obviously break the credit card rule! If you’re disciplined enough to pay your balance in full each month, then enjoy those rewards points! It’s free money and like beating the bank at their own game.

david king says:

while passive investing does not necessary mean index fund but owing just a dozen of stock could proof to be a problem in your portfolio. There is such a thing called [ Terminal Wealth Dispersion ], which states that if you simply own a dozen or 30 stocks in your porfolio, you might have the same SD, but your investment return could suffer.

read about it.

William Coleman says:

Thanks for keeping it real Rob. While rules of thumb are certainly a great starting point, they are no substitute for thoughtful analysis. I appreciate your objective and analytical approach on your podcast. It is a nice contrast to some other PF pros with their dogmatic approaches. Some people just want to be told what to do by someone they trust (or by someone who has sales and marketing skills and a well packaged product), but I think that sort of branded brainwashing promotes non-thinking, and it can be pretty toxic. Thanks for the great podcasts, and keep up the good work.

Jordan says:

Very interesting post. There are a lot of quick tips people give on personal finance, but until people understand what they’re actually doing, things like budget apps aren’t going to help right away. Thanks for sharing your insight!

Mike M. says:

Budgeting is easy. Pay yourself first. A) Save ( $200- ???) per month for Retirement. B) Save (200 – ???) per month for other needs. Then you can live on the rest.

Bruce says:

A really good exception to “not investing before being out of debt”, is the 401-k match from employers. Who wants to lose that just because of some credit card debt?

My wife and I are semi-retired and have a small mortgage on our downsized home (gasp!)-we couldn’t resist the 3.5% fixed rate. Another rule of thumb bites the dust!

You are spot on about car ownership. Personally, I prefer 2-3 year old, low mileage models, purchased used for 40-50% off new MSRP! But, you can drive about anything if you keep it for 10 years or longer, like you said.

Dale Degagne says:

#1 – 6, and #9: I totally have your back on these.

#8 & #10, not so much, but I’d love to see some math for #8.

I mean – if you buy a 3 year old car, and keep it for 15 years vs buying the same car new, and keeping it for 18 years – what’s the math difference?

As for #10 – D.R. is eccentric…and is a debt motivator…not an financial advisor (if he was, he might update his platform to include more realistic numbers for mutual funds and take out his system of chasing managers).

That said, if debt is emotionally debilitating, I think that’s a legit reason to pay it off before investing. I know it’s not always going to be the most efficient, but it’s quite possible it will end up being the route that makes you happiest.