Uncommon Sense: Some Money Rules That Might Surprise You

Most money wisdom is pretty straightforward. You simply have to use your common sense to figure out that it’s good to save for a rainy day, spend wisely on things you really need, and keep a hopeful outlook for your financial future.

Sometimes, though, a money rule comes along that calls upon your “uncommon sense” and requires you to look a little deeper to see the sound wisdom it carries. Let’s take a look at a few important ones that start out sounding puzzling and contradictory:

  1. When the stock market goes down, it’s a good thing.
    If you have money to invest and at least ten years before you need your money, a drop in the market can actually increase your holdings.  By investing a set amount of money each month (called dollar cost averaging), you acquire more shares when the price is low and fewer when the price is higher. The result is a lower cost per share than if you bought a set number of shares each month. And you won’t have to guess which way the market will shift or decide when to buy or sell.
  2. Getting a big tax refund each year is not a good money strategy
    If you look forward to a tax refund each year, you are missing an opportunity to benefit from your own hard-earned dollars. Instead, you are merely giving the IRS an interest-free loan until tax time. You can adjust the amount you pay the IRS during the year by changing the withholding on your W-4 form if you are an employee or adjusting your quarterly estimated tax payments if you are self-employed. Put the extra money you would have given the IRS each month into savings and earn some interest that is yours to keep!
  3. Rushing to pay off credit card debt may set you back financially
    In some cases, it may not be your best financial move to put all your resources toward paying off credit card debt. If you have debt on a no-interest or low-interest credit card, you might be better off putting money away in a 401(k) account with a company match first. Contributing to a 401(k) can reduce your income taxes and the matching funds you receive are free money for your retirement savings.

Using your “uncommon sense” for money management simply means figuring out what the real bottom line is for your dollars.

Comments

  1. I so much wish that I had found this site so many years ago when I had no financial wisdom at all and let my husband handle all the financial stuff. When he got sick, I woke up. I was lucky that I had enough time to change most of the stupid mistakes that I had made. I did however, keep my own charge card (I only had one for a clothing store). I also had my own checking account that his name wasn’t on. We had a system where he paid half the bills and I paid the other half as I was working also.
    So half the bills had my name and the other half his. When he got sick, I was paying all the bills except for our car insurance so it was easy to put all the bills in my name. It took almost a year for the house to be transferred into my name alone after he passed away. But since I was prepared, handling the finances was a breeze. I tell everyone I know that are just starting out, have 3 accounts, yours, his and ours. It works so much easier if something unforseen happens and one of those accounts are frozen for any reason or if the ATM happens to be down for that bank.

  2. Here is my Uncommon Sense Advice

    !. If the market goes down that is a BAD thing. If you continue to buy shares and the market continues to go down you still have a bunch of shares that are worth less.

    2. Some people are not good at saving so getting a big refund check is better than getting NO refund check and having NO money in savings.

    3. Who has 0% interest or low interest credit cards? Probably less than 5% of your audience. There are NO guarantees that you will earn interest with your 401k but there is 100% guarantee that you will have to pay interest on your debt. Debt is bad and you are at more risk by having debt than by having some money in your 401k.

    • Thanks for this — for #1, I’d modify it to say “If the market goes down and stays down that is a BAD thing.” That’s never happened, fortunately, over time the market has always gone up.
      For #2, I completely agree with you.
      For #3, I understand your point, but if you have employer matching available for your 401(k) contributions and you don’t contribute, that’s like walking by money and leaving it lie on the ground.

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