5 Financial Rules to Live By — and Why I'm Breaking Them All

So here's the thing: I love rules. I'm sorry, everyone, I just do. Ugh, I feel like such a traitor to my generation of awesome rebels.

But as I see it, rules provide a black and white-ish framework for making things happen. If you've got good rules, and you stick to them, you're pretty much guaranteeing your future success. I created my own "5 Financial Rules to Live By" in my early 20s, and they've paid off huge. Thanks to my rules, my husband, Jarrod, and I went from a net worth of -$47,000 (yup, that's negative $47K) to over $500,000 in just 10 short years. And it's not like I'm some kind of genius. Anyone (including you!) can adopt my rules to get results.

Just one problem. I'm currently breaking every single one of them.

Rule #1: Don't spend more than you earn.

Duh. This is The Big Financial Rule we should all follow, all the time. How are you ever going to get ahead if you're only taking steps backward every paycheck?

I always lived well below my means, limiting spending to necessities and things I truly love, like travel and books. Make sure your earnings far exceed your spending. You can actually foolproof this by setting up auto-transfers to savings and investing accounts every pay period for a certain percentage of your income. If the money isn't sitting in your checking account, you're far less likely to spend it.

Rule #2: Always pay extra on high- and moderate-interest debt.

Did you know it's possible for the minimum payments on some loans to not even cover the interest? So you could be diligently making payments every month for your entire life without ever paying down a single cent of your debt. How crazy is that?!

That's why I always paid way over the minimum payment on debts like credit cards and student loans. Interest is such a waste of money, and I don't want to be in debt forever. You can outsmart the interest-cycle-of-death with just a little planning. By focusing your extra payments on the highest-interest debt until it's totally paid off, then focusing that same monthly amount on your next high-interest debt in line, you can literally save thousands of dollars.

Rule #3: Always be investing in retirement accounts.

What kind of retirement do you want? I know, it's decades away, so it's hard to even imagine. But try. Your geriatric self will thank you for it! Want to be scuba diving in the Great Barrier Reef and sipping sangria in Spain? Taking your grandkids to the zoo and the science museum? Joining your friends for yoga and spa treatments?

Or would you rather stay home every day, watching whatever the 2050 version of Netflix is because you're too broke to go out? I'll take the sangria and yoga, please.

The secret to a happy retirement account is a little thing called compound interest. And it explains why it's so important to start saving for retirement as early as possible. Compound interest just means that the interest you earn on your savings earns its own interest. So you're making money on the money your money is making. Exponentially!

Let's say you have an IRA, and you contribute the maximum allowable $5,500/year. That might sound like a lot, but it's totally doable if you start with just five to 10 percent of your income and bump it up another percent each year.

Rule #4: Don't waste money replacing perfectly good stuff.

If it ain't broke, don't replace it. You'd be amazed at the amount of money spent replacing perfectly good stuff in the name of updating. Well, maybe not. You may be one of those people!

I struggle with this less than most people do. I'm perfectly happy with the hand-me-down pots and pans we've had for over a decade and the wall art we received when we got married almost 15 years ago. I'm even good wearing the same hoodies I wore in high school around the house. If it doesn't need to be replaced, I don't waste money replacing it.

Rule #5: Don't accept a pay decrease.

You want to keep your life and your finances moving forward. You're constantly expanding your knowledge, experience, and skill sets, so you should be paid for it! Of course, there's an exception for career changes. If you're a newbie, you've got to expect to be paid like one and to work your way back. Otherwise, don't accept a pay decrease. It just makes your next salary negotiation that much harder because you're starting from a lower number. Jarrod and I both always negotiated higher salaries.

StockSnap | Michal Jarmoluk

Why I'm breaking these rules now.

These are all proven rules for financial success. They've served me well, and I fully stand behind every one of them. So why on earth would I break them all now?

Simply put: to chase a dream!

Jarrod was offered a character artist position in Germany, and it provided an opportunity for us to realize my lifelong dream of living abroad. Side note: I'm exceptionally lucky to be married to someone who made my lifelong dream his personal mission!

Making the move to Germany turned my financial rules upside down:

  • Jarrod had to take a 50 percent pay cut for the same work he's been doing for 10 years simply because video game work pays less in Europe. And I took a 100 percent pay cut since I don't have an EU work permit (sorry, Rule #5).
  • These deep cuts mean we're not actually able to cover our basic expenses like rent, utilities, and groceries with his income (so Rule #1 is out the window).
  • Since we can't cover the basics, we certainly don't have anything extra to throw at our remaining debt or retirement accounts (adios Rules #2 and #3).
  • And we had to make some stupid replacement purchases to make this happen, like an apartment full of Ikea furniture because that was actually cheaper than shipping our perfectly good furniture here (which shattered Rule #4).

But all hope isn't lost. Because of our diligent adherence to my five financial rules in my 20s, we were able to seize this adventure without risking financial ruin.

Our investments (mainly rental properties) generate some income to help make up the difference between income and expenses, and we can pull some money each month from our Dream Fund Savings to cover the rest. Our high-interest debt is long gone. We're not taking a horrible interest hit with our remaining student loans and low-interest mortgages. Our retirement accounts are still earning their compound interest on the money we've invested over the last 13-ish years. So even though we're not making contributions right now, our money is still growing.

Our fully funded emergency savings covered the insane cost of moving here, including replacing our furniture. The pay decrease still sucks, but it's also giving me time to hone my newer skills like writing, blogging, and learning German. Which may generate better income in the future.

The big lesson here is that these financial rules offer financial freedom. So you have the option later to throw caution to the wind and do something completely crazy for the sake of a lifelong dream.

And that's how I, Michelle Clardie, sworn rule-follower, broke my five financial rules and joined the ranks of awesome rebels!