The 5 "Common Sense" Money Rules That Could Be Costing You $500K+
Why Context Matters More Than Conventional Wisdom
80% of Americans say they follow “common sense” money rules.
The problem? In the right situations, those rules can cost you hundreds of thousands over a lifetime.
Most financial advice is designed for the masses - simple, easy to follow, impossible to screw up. And for most people, that’s fine.
But if you’re a high-income professional who understands nuance, blindly following conventional wisdom might be the most expensive mistake you’re making.
Here’s the uncomfortable truth: the best financial advice is rarely one-size-fits-all. “Always” and “never” don’t account for your specific situation, your math, or your goals.
Let’s dig in ↓
Rule #1: “Always Pay Off Your Mortgage Early”
This is financial gospel in most circles. Dave Ramsey built an empire on it. Your parents probably believe it religiously.
And for many high-income earners with low-rate mortgages, it’s mathematically wrong.
The conventional wisdom: Paying off your mortgage early is like getting a guaranteed return equal to your interest rate. No debt = peace of mind = financial freedom.
The math everyone ignores: If you have a 3% mortgage and historical stock market returns average 10% annually, you’re potentially leaving 7% annual returns on the table by aggressively paying down low-interest debt.
Here’s what that actually costs:
$500/month extra toward a 3% mortgage over 20 years = approximately $155,000 in total extra payments and you’re mortgage-free.
That same $500/month invested at 7% average returns over 20 years = approximately $262,000.
The difference: $107,000 in lost wealth from following “common sense” advice.
This doesn’t mean mortgages are always good or that you should never pay yours off. It means the decision depends on your rate, your risk tolerance, your other financial goals, and whether the psychological benefit of being debt-free is worth six figures to you.
Rule #2: “Never Carry a Balance”
This rule exists because most people lack financial discipline. High-interest credit card debt at 18-24% APR is financial suicide.
But the rule misses an important nuance: not all balances are created equal.
The conventional wisdom: Any credit card balance is bad. Pay it off immediately or you’re being irresponsible.
The strategic reality: A 0% promotional balance can be a tool for liquidity and strategic deployment of capital—if you have the discipline to use it properly.
Real scenario: You have $10,000 in unexpected home repairs. You have the cash, but you also have a 0% APR balance transfer offer for 18 months.
Option A: Pay cash immediately. Your $10,000 is gone.
Option B: Use the 0% balance, invest the $10,000 at 7% for 18 months, then pay off the balance before interest kicks in. You’ve earned approximately $1,050 on money that would have otherwise been immediately spent.
The key distinction: 0% promotional rates with no fees and a disciplined payoff plan is fundamentally different from carrying 22% APR balances while making minimum payments.
One is strategic use of available capital. The other is financial self-destruction.
Rule #3: “Buy as Much House as You Can Afford”
This might be the most financially destructive advice in mainstream culture.
Banks will approve you for far more house than you should actually buy. Real estate agents make more commission on expensive houses. Society equates home size with success.
The result? People become “house poor” - massive mortgages, minimal savings, constant financial stress.
The conventional wisdom: Real estate is your best investment. Maximize your housing since it’s “forced savings” through equity.
The brutal reality: Your house doesn’t pay you dividends. It costs you—in mortgage interest, property taxes, insurance, maintenance, and opportunity cost.
The math: Let’s say you’re approved for a $600,000 house but buy a $400,000 house instead.
$200,000 less in mortgage = approximately $1,200/month saved in payment.
That $1,200/month invested over 20 years at 7% = approximately $627,000.
Plus, you’re not stressed about the payment. You have margin in your budget. You can maintain a 20%+ savings rate. You can weather job loss or income disruption without panic.
Buying below your approval amount isn’t “leaving money on the table.” It’s choosing liquid, growing wealth over illiquid home equity and financial stress.
Your house should serve your life - not consume it.
Rule #4: “Always Max Out Pre-Tax Accounts First”
This advice dominates retirement planning. “Lower your taxes today!” But it ignores a critical question: what if taxes are higher when you retire?
The conventional wisdom: Pre-tax contributions (traditional 401k, traditional IRA) reduce your taxable income now. Pay less tax today, deal with it in retirement.
The strategic problem: You’re making a bet that your tax rate will be lower in retirement than it is today. For many high-income professionals who save aggressively, that bet is wrong.
If you’re in the 24% bracket now and the 32% bracket in retirement (because you saved well and have substantial required minimum distributions), you’ve actually increased your lifetime tax burden.
Real scenario:
$10,000 contributed to traditional 401k in 24% bracket = $2,400 tax savings today, but $3,200+ tax bill on withdrawal in 32% bracket
$10,000 contributed to Roth (after paying $2,400 in taxes) = $0 tax on withdrawal ever, regardless of future brackets or tax law changes
Over 30 years at 7% growth, that $10,000 becomes approximately $76,000. The Roth version is entirely tax-free. The traditional version could face $24,000+ in taxes due.
Tax diversification - having money in both pre-tax and Roth accounts - gives you flexibility to optimize withdrawals based on actual tax situations in retirement. Putting everything in pre-tax because “that’s what you’re supposed to do” eliminates that flexibility.
Rule #5: “Always Keep 6 Months of Expenses in Cash”
This rule exists to prevent people from going into debt during emergencies. It’s solid advice for most Americans who live paycheck to paycheck.
But for high-income professionals with stable careers and multiple financial options? It might be costing you serious returns.
The conventional wisdom: 6 months cash = safety. Anything less = reckless.
The opportunity cost: With inflation at 3%, your cash loses approximately 3% of purchasing power annually. Meanwhile, that money could be invested or at a minimum sitting in a high-yield savings account or US treasury beating inflation so you aren’t losing purchasing power.
The math: $50,000 sitting in cash for 10 years:
In a 1% high-yield savings account = approximately $55,000 (loses ground to inflation)
Invested at 7% average annual returns = approximately $98,000
That’s $43,000 in lost wealth from “playing it safe.”
This doesn’t mean eliminate your emergency fund. It means question whether someone with stable $200K income, a working spouse, access to a HELOC, and a portfolio line of credit needs the same emergency fund as someone making $50K with no backup options.
Context matters. Your emergency fund should reflect your actual risk profile, not a one-size-fits-all rule.
The Framework: How to Decide Which Rules Apply to You
Here’s how to evaluate whether conventional wisdom applies to your situation:
Step 1: Run the actual math. What does following versus breaking this rule cost or gain over 10-20 years? Use real numbers, not assumptions.
Step 2: Assess your specific situation. Stable income or variable? High risk tolerance or low? Building your foundation or already financially secure? These factors change everything.
Step 3: Consider your psychology. Can you sleep at night with a mortgage when you could pay it off? Can you tolerate market volatility? Some people would rather pay the “peace of mind tax” than optimize every dollar - and that’s a legitimate choice.
Step 4: Calculate your margin for error. Do you have room to be wrong? Can you absorb a worst-case scenario if your strategy doesn’t work perfectly?
Step 5: Make the conscious choice. Don’t follow rules blindly because “that’s what everyone does.” Don’t break them recklessly because you read an article. Understand exactly what you’re doing and why.
The Biggest Mistake: Treating All Advice as Universal
The financial advice industry loves absolute rules because they’re easy to package and sell.
“Always do this.” “Never do that.” “Everyone should follow this strategy.”
It’s simple. It’s memorable. And for many people, it prevents catastrophic mistakes.
But simple rules for complex situations often lead to suboptimal outcomes.
A 25-year-old with $10,000 saved and a 7.5% mortgage could consider probably pay it off aggressively. A 35-year-old with $500,000 invested and a 2.75% mortgage should probably consider keeping it and invest the difference.
Same “rule.” Completely different situations. Opposite optimal strategies.
The people who build the most wealth don’t blindly follow or blindly break rules. They understand the principles behind the rules, evaluate their specific context, and make intentional decisions.
Bottom Line: Context Matters More Than Rules
Financial rules exist to simplify decisions for people who don’t want to think deeply about money.
But “always” and “never” advice doesn’t account for:
Your specific tax situation and future tax trajectory
Your risk tolerance and psychological relationship with money
Your career stability and income reliability
Your timeline and life stage
Your actual financial goals (not generic ones)
The best financial plans aren’t built on someone else’s blanket advice. They’re built on YOUR circumstances, YOUR math, and YOUR priorities.
Sometimes that means following conventional wisdom because it genuinely applies to you.
Sometimes it means doing the exact opposite because your situation demands it.
The key is knowing the difference - and having the confidence to make decisions based on your reality, not someone else’s rules.
See you next week.
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Great article, Fran! Really enjoyed this one