Here’s a stark reality: Most people simply cannot afford to save for all of their future expenses. That being the case, in what order of priority should you save? First and foremost, you need to accumulate an emergency fund: at least 5, and preferably 8 to 9 months worth of regular monthly expenses. Next, save for important short-term purchases, such as the downpayment on a home. Both of these savings should be kept in a safe, liquid account, such as a money market mutual fund.

Although you hear them all the time, financial “rules of thumb” usually do not offer sound financial advice.  Why?  Because, in most cases, the particulars of each individual’s financial situation cannot be fit into one, easy, all encompassing generalization.  However, there are some exceptions.  So, now and going forward, we’ll look at those relatively few financial rules of thumb that do offer sound financial advice to everyone.

Here’s the first thirteen:

There’s an old saying - "Cash flow is king."  But, what does it mean?  Simply put, it means that, no matter how “rich” or “poor” you are, no matter what your overall net worth is, your first and most important financial consideration is whether, each month, you have enough income – cash flow – to pay all of your monthly bills.  And, generally, there are two ways to “increase” your “cash flow”.

SEPPs - Most people are aware of the fact that if you withdraw money from 401ks, 403bs or deductible IRAs prior to age 59 ½ , you have to pay  income tax on the withdrawal, plus a 10% penalty (with certain exceptions, such as, if use a limited portion as a down payment on a home).  The question many people have is (these exceptions aside): is there any way to withdraw money from your 401k, 403b or deductible IRA prior to age 59 ½ while avoiding the 10% penalty?  And, in fact, there is.

Under current tax law (Internal Revenue Service Code Section 72(t)(2)(a)(iv)) you can withdraw money from your 401k, 403b or deductible IRA prior to age 59 ½ without paying the 10% penalty tax if you take "substantially equal periodic payments" - SEPP -in other words, basically, the same size withdrawal over a number of years, both of which you have to designate to the IRS upfront.  To calculate what, in your case, "substantially equal periodic payments" will be, you can go to the Internal Revenue Service 1989 Cumulative Bulletin (Notice 89-25), (Page 66) which explains how to calculate the "substantially equal periodic payments". (Additionally, IRS Revenue Ruling 2002-62 also gives details and clarifications relating to these early IRA withdrawals.)  The fact of the matter is, however, if you are considering an SEPP you really should consult with, or at least seek the assistance of, a CPA or tax attorney. (For an article with more information on SEPPs, click here: http://www.retireearlyhomepage.com/wdraw59.html )

The real question is, is taking advantage of the SEPP exception a good idea?   The answer is, no and yes.  No, in that, you should never withdraw money from your 401k, 403b or deductible IRA prior to age 59 ½ unless you absolutely have to, and if you have no other savings that you can tap first.  Yes, in that, if you are certain that circumstances are going to force you to access money in your 401k, 403b or deductible IRA prior to age 59 ½, than you should take advantage of the SEEP exception so you’ll at least be able to avoid the 10% penalty.

While the Internet can be a very valuable resource, it can and often is used to circulate misinformation.  In this recent “PC World” article, author Steve Bass pulls back the curtain on the Top 25 spoofs, shams, pranks and hoaxes circulating on the Web.

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