Many times we ask ourselves various questions about money, debt and savings and we use those answers to set a course or path to follow towards the end goal. But what if we’re answering the wrong question, and set off down a path to nowhere?
Here are 4 common questions people often ask, and why they’re wrong.
How much should I be saving?
I see this one about every week on forums and blogs. I think it really highlights the underlying problem. Specifically, the person asking the question is likely in the position he is in because he wasn’t focusing on the right things. This is only part of the question. To really get the answer they are looking for, they need to decide what they are saving for. “How much should I be saving for retirement?” will give a completely different than “How much should I be saving for a new car?”
Should I be buying now?
This has really become popular with the economic downturn. There are some really great deals to be had, especially in the housing market. If I had a dime for every time I saw or heard someone asking if they should be buying a house now, I could quit my day job. The answer to this question is another question : Do you need to buy something now? If the answer to the second question is ‘yes’, then now would be a great time. Buying a house when you don’t need a house is just the same kind of thinking that caused much of the current problems we’re dealing with now.
Is it better to earn more or spend less?
This is the wrong question because it presupposes one is the right thing to do while the other would be the wrong thing to do. The real answer is ‘both’. Spending less is usually easier to do than earning more, and earning more while ignoring spending problems only leads to life on the earning treadmill. People who answer ‘earn more’ are likely the sort of people who live beyond their means. They suffer from spending creep, and have little if anything left over at the end of the month. Conversely, you can’t cut your way to wealth and while a frugal lifestyle can help avoid many financial problems it is only part of the equation.
How much should I have in an emergency savings account?
Most people who follow financial blogs or read personal finance magazines and books will no doubt respond to this question with a robotic ’3 to 6 months of living expenses’, but that’s a pretty catch all answer. What you should ask yourself is, ‘Why do I need an emergency savings fund in the first place?’ If it’s to supplement your income in the event of a job loss, then you need to examine not only how much your essential expenses (mortgage, grocery, etc) are but what the average time to find a new job in your field and location is. It will likely take longer to find a new job today than it did in 2006, so your savings cushion should be plumper.
photo by -bast-
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