Financial rules are made to be broken

Financial writer Kathy Canavan, who I have known since back in the days when neither of us had any money to manage, wrote a piece this week for USA Today pointing out eight financial "deadly sins" that can leave you living in a cardboard box.

Here's her list:
1. Don't raid your retirement accounts.
2. Don't walk away from your mortgage.
3. Don't use credit cards to pay for a life you can't afford.
4. Stay away from debt-consolidation schemes.
5. Don't co-sign a loan.
6. Avoid payday loans.
7. Don't expect to finance your retirement with a reverse mortgage.
8. Don't cheat on your taxes.

It's all great advice, but it's a lot easier to be righteous about avoiding financial missteps when you have money than when you don't. Remember those days, Kathy?

Because I remember those days quite clearly, I'm going to modify these rules for real-life use:

1. So you've got a bad case of the shorts, but the check's coming next month? Borrow from your retirement account. Uncle Sam will let you take your money out of an IRA with no taxes or penalties for up to 60 days -- as long as you put it back within that timeframe. It's a good reason to move your orphaned retirement accounts from your former employer into a self-managed account so you have that kind of flexibility.

2. Leave that mortgage behind. Fannie Mae announced in April that it is changing the rules for re-establishing credit after deed-in-lieu of foreclosure, pre-foreclosure sales and short sales. A buyer can apply and expect to get a 90% loan after only two years. In other words, if you walk away and get the housing elephant off your back, you could potentially start saving and only have to rent for two years. What's bad about that?

3. Credit cards can be a life saver. Even in these tough financial times, you can find low and no-interest rate cards for short periods of time and balance transfers that will get you over the hump. Try searching

4. Pick a debt counselor who has nothing to gain. There are some crooks in the debt-counseling business, but there's no harm in handing your credit cards over to Mom or a good friend and asking her to hold onto them so you can't use them. Believe me, at your age explaining to your mother why you need your credit card back is mortification enough to keep your spending on track.

5. Can you afford to co-sign a loan? That's the bottom line question. There's nothing inherently wrong with co-signing, but if the person you co-sign for goes south, you'll have to pay the bill. If you don't care or you're in a position to make sure that doesn't happen, co-sign away.

6. Banks are for people who have money. If banks were willing to lend small amounts of money for short periods of time -- even at high interest rates -- payday loan companies wouldn't exist. If you desperately need a few bucks before payday, the payday lender at the corner might be your best bet. But if you think you aren't going to be able to pay the money back before the interest rolls over a couple of times, check out pawn shops. The regulation is tighter and the deal is better.

7. Reverse mortgages fell out of favor in 2008 when housing went crazy. But a reverse mortgage when you're 75 or 80 could be the answer to your prayers. It can put money in your pocket while you keep on living under the same roof. Don't rule it out.

8. Uncle Sam is a tough old bird. When dealing with Uncle Sam, the best rule of thumb is to declare everything you earn and take every deduction you believe you're entitled to. You won't go to jail for making an honest mistake.
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