Why financial rules of thumb are trash

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Personal finance is sooo easy ya’ll.

I mean, all you have to do is add up your expenses, subtract them from your income, make cuts as needed, continue to live below your means, predict the future, invest wisely based on those predictions, hope the global economy doesn’t go to hell in a hand basket and you’re done. Easy peasy. Oh and don’t forget to follow every single financial rule of thumb you come across. You know, those handy street signs that point you directly to the financial treasure chest you’ve been searching for.

If you can’t tell by now, there’s a lethal dose of sarcasm in that first paragraph. This is partly because, as promised, we’ve been silent on the blog for a few weeks and we have all kinds of pent up sass in our system. But it’s also because honestly…we’re a little over it.

After the last few years of blogging regularly, entrenching ourselves in books, videos, documentaries, podcasts and all things money, if I hear another financial jargon laced rule of thumb based on averages or medians, while disregarding the personal side of personal finance, I might morph into Uncle Sam. Our Uncle Sam…not the meth-addicted Santa looking dude ya’ll made up.

For the record, we are guilty of this too. We’ve regularly used averages and medians to highlight issues we’re passionate about like the racial wealth gap, the paltry national savings rate, our own savings rate and so on. Like many “personal finance experts”, we’ve also dropped the line that personal finance is personal. But if you really think about it…

what could be more impersonal than using an average, percentage or median to govern your financial life. No one person is the perfectly weighted representative of a bunch of other people so why are we comparing ourselves to "them" Click To Tweet

We’ve spent the last few years sharing our story, speaking to pretty much anyone who will listen to us about money and we’ve never met anyone that was all the averages.

To date, we’ve not met a single black woman that has exactly $43,000 in student loan debt, $6,500 in total credit card debt, saves 4% of her income, pays $1,400 monthly in daycare for lil man, all while making sure her housing costs don’t exceed25- 33% of her take home pay while maintaining flawless natural curls. Something is always unique about her situation because she’s a whole a$$ human being with feelings, a deeply personal origin story and flawless natural curls.

Yet, so many people rely on these rules and treat them as gospel instead of guidelines. Even worse, we beat ourselves up for having more than the average student loan debt and for earning less than the average income for our age group according to the latest viral article.

We feel deep shame for not having a net worth as high as the latest headline suggests we should have and talk ourselves out of purchasing rental properties because it doesn’t quite meet the 1% rule. We stress over whether we’re leaving money on the table by not investing in the someone else’s proposed portfolio and feel like pansies for allocating too much of our portfolio in bonds. Here’s the thing though…

stats and rules of thumb are helpful but not if they suffocate your ability to wholly analyze your own situation and think for yourself. Click To Tweet

While at FinCon, we were interviewed by Marcus and Rich of the Paychecks and Balances podcast. During our chat, we explained how one of the keys to our journey was aligning our spending with our values and how we’ve given each other room, as husband and wife, for those values to evolve over time.

Naturally, as a follow up question, Marcus asked if we “had a percentage or breakdown of what that might look like for the average person“? We’ve been asked similar questions before but this time felt different. Mr. r&R in his smarty-art, Brooklyn tone responded saying

“naaah, I don’t because I don’t believe in the average person. I don’t know who that is. That person literally doesn’t exist “

Why did he say that? It certainly wasn’t because of Marcus. He asked the question because he knows his listeners are looking for a rule to wrap their heads around. Perhaps Mr. r&R’s snarky response was the beginning of a severe lactose-like intolerance to personal finance rules of thumb. Here’s what we do know.

We’ve come to accept that our words have power; that people are actively listening and attempting to shape their financial lives around our perspective. So if we tell someone they shouldn’t spend more than $150 or 5% of their take home pay on personal expenses that are aligned with their values, we’ve drawn an arbitrary line in the sand without any understanding of their life, income, desires or limitations.


Here’s what else we know…

If Mr. r&R hadn’t abandoned his hyper-frugal ways upon first meeting the future Mrs. r&R, there’s a good chance we wouldn’t have gone to Panama in 2012. If we didn’t take that trip, then we wouldn’t have discovered how different our money habits were so early in our relationship. In fact, in 2014, when faced with whether he should save for an engagement ring or pay off his student loans, he chose love. That experience of breaking a rule or choosing the irrational option is now the backbone of our story together.

Similarly, if Mrs. r&R had followed the generally accepted rules of thumb around managing her career, she would’ve sprinted towards job openings in a completely different part of the organization and likely not been promoted in such a short period of time. Instead, she went to the less sexy part of the business where she was able to bring fresh perspective, climb the ladder more quickly and significantly grow her income.

If we’d followed every real estate rule in the book, we likely wouldn’t have purchased our first rental property in 2014 because he hadn’t also set aside funds for short term capital improvements. Instead we rolled the dice, allowed the rental income to fund the short-term capital account over time and then began drawing income from the investment.

Lastly, if we hadn’t decided that Mr. r&R should walk away from a toxic work environment in 2018, despite not having a job lined up, there’s no telling where we’d both be right now. This platform [r&R] would certainly not be where it is today and the business opportunities that have arisen wouldn’t be on the table.

So when we get asked for personal or financial advice, our answer is typically…it depends. A canned rule of thumb is almost always not the solution someone is looking for. Click To Tweet

No, we’re not suggesting we should all just go wherever the wind takes us. But we should acknowledge that all the personal finance rules of thumb are based on historical data and should be used merely as guideposts to inform your decision making. Too often, we see people discarding viable opportunities because some variables in the overall equation doesn’t quite fit what they overheard someone else say on a podcast or read in a book. Instead, we highly recommend people treat these rules like a buffet. Take what you need and ignore the rest, but you certainly don’t need all of it.

That goes for 50:30:20 budgets, the 1% rule, the 4% rule, the expense ratio rule of thumb for investing, the rule of 72, red meat, coffee and cussing at babies. Let’s face it, some of them are a$$holes.


In general we hate any and all questions that begin with “what do you tell the people that…” or “what’s the one piece of advice you say to people who...”?

The reason we loath these questions is because we don’t know anyone named people. Who are they? What are they going through? What are they good at? How much do they have in savings? What’s their risk tolerance? How employable are they and where do they live? All of these factors matter and play important roles in sound financial decision making. More importantly, all of those factors require people to think critically about their own lives, values, desires, aptitudes and plans.

A wise man once said the key to thinking outside of the box is to realize the box never existed. We believe the same is true when thinking about money and financial independence. So naturally, we offer one final rule to trump all rules and that is…don’t be so afraid to break them.

6 comments

  1. Great post. Those rules really are garbage, there are infinite factors at play that will never be the same for any two people. For example, I live in a very expensive city, so yeah . . . my mortgage is high. I balance this out by driving old cars, cooking simply and never buying anything new.

    However, I’ve flown five time over the past year to NYC to support my sister through a difficult time. My pie charts would look wack-a-doodle to a by-the-book financial planner. But who cares, it works for me and my family. I’m also paying out of pocket for my son to attend college.

    All this while being debt free.

  2. Good article, maybe a bit controversial. I think rules of thumb give folks a starting point. Something to grasp. They can even be used as a bench-marking tool. Without them everything would need to be customized and that normally leads to inaction or paralysis. Especially without a financial foundation. It doesn’t work for everybody, but its not meant to be all encompassing.

  3. I agree with Rara- I work in personal finance and rules of thumb give us a place to start. Clients often look at me blankly when I ask them how much they want to spend in retirement. But just putting a number down on paper- even if it’s wrong- can lead to a discussion and progress.

    But I hate them too. The one about spending 80%of your pre-retirement income in retirement is particularly dumb. Especially if you’re saving a FIRE sized chunk of your pay.

  4. Having been in very non-traditional circumstances before, I can really appreciate this because so much of the advice out there just didn’t apply to me.

    Now I try to keep in mind that tips and tricks are just going to not work for a fair number of people, especially given how priorities vary from person to person.

    In the end you have to listen to the advice, then listen to yourself and hopefully find a good compromise.

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