20 real answers to the 20 dumbest finance questions: Part 1

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If Nick at Punny Money does one thing well, it’s creating humor where there sometimes isn’t. His recent post about the 20 dumbest personal finance questions had me laughing with it’s “here’s your sign” sort of answers. Then I got to thinking. Before I started seeking answers to my financial questions, I might have asked a couple of those questions a time or two. And rather than sarcasm, wouldn’t it be nice to have honest real answers to them? So, hopefully, I’ll do the questions as much justice for real answers as Nick did for humorous ones.

  • Q: Why Can’t I ever seem to save any money?
    • A: If you can’t ever save any money, one of two things is happening. You are stretched too thin and have too many bills and debt to have any true extra. If that is the case, it’s time to take some serious steps to remedy the situation. The other possibility is that you have your priorities a little messed up. You most likely are waiting until the end of the month and “saving” whatever is left over. If that’s not working (and 99.99% of the time it won’t) try writing down all your bills and other expenditures and putting them in order of importance. Now add the money for savings to the list. Add other things that you’d like to save/spend on. When you get a check or other income, pay the first on the list and then move to the second. Continue until you run out of money or you run out of list. Whatever you do, make sure you’re planning for the savings rather than “seeing” if there is anything left over at the end of the month.
  • Q: Why should I pay off my credit card each month when I can just pay the minimum payment?
    • A: Well, the most obvious answer to this question is that if you only pay the minimum payment, it will take you years to pay off the debt. You don’t want to pay on that for years, so pay it off each month if you can. The other reason is that 99.99% of credit cards have absolutely ridiculously high interest rates. I know bookies with better juice. Why would you want to pay the credit card company nearly 1/4 of the debt each year just because you don’t want to pay the full balance. Another option is that you can’t afford to pay the whole balance. If that is the case, go back to the first question, because you have more debt than you can afford and it’s time to get rid of it.
  • Q: How should I invest my money?
    • A: You have two choices. Get a professional to guide your investments and probably pay a pretty good bit of fees to do so. Or, you could learn some of it for yourself. Get a subscription to a financial magazine. I suggest Money or Kiplingers. Learn about the different modes of investment. Educate yourself and then begin to test your own theories. One caution though. Don’t put all your eggs into one basket until you’re sure of yourself and your ability to invest.
  • Q: I have two loans: One small one at 5% and one large one at 21%. Which one should I pay off first? The small one, right?
    • As a general rule, you should pay off the loan with the higher interest rate first. You’ll be saving yourself 16% if you get the 21% paid off and are still paying on the 5% loan. One exception to this rule is that if the smaller loan is so small that you can pay it off in 3 months or less, it can be very encouraging to pay it off first.
  • Q: Why should I bother going to college?
    • A: The truth is that College isn’t for everyone. However, the college degree has become a nearly necessary asset for most well paying jobs. If you think you can make it through College, your lifetime salary could increase by 1/4 or more.
  • Q: Will I have enough money to retire?
    • Honestly, I can’t say for certain. The easiest way to decide is to make a few calculations. You should estimate that you will need 70-80% of your current salary at retirement to survive in your retirement years. So, if you are making $100,000/year when you retire, you should expect to need $70,000 to $80,000 a year to continue your current lifestyle. There are plenty of calculators that will estimate how much you need to save and what you need to have in savings today to make that happen. Visit just about any finance website and you’ll be able to find one.
  • Q: Somebody told me about an opportunity to make lots of money. Is it a scam?
    • Like my son’s good friend Cookie Monster is fond of saying, “smells like a cookie, looks like a cookie, tastes like a cookie, must be a cookie.” If it sounds too good to be true, it probably is a scam. There are exceptions to that. The recent Real Estate bubble for instance. They are few and far between though. Do your research on any “opportunity” before partaking.
  • Q: Hey, can you lend me X dollars?
    • Sorry, I’m not much on lending, but you could try out Prosper.com and see if anyone there will help you out. It’s a great site that allows people like you or me to lend to people like you or me while still giving the lenders some protection from default. (besides Bruno the bat boy)
  • Q: I’m really trying to impress my new girlfriend. Got any ides for a cheap date?
    • Don’t tell my wife or she might expect me to do it, but try a nice bottle of wine, some sandwiches and a picnic. It’s not the greatest in January, but sometime between April and October usually work out pretty good. If you wanna go really cheap, leave out the wine and go for her favorite beer.
  • Q: How will ____ affect my credit score?
    • Everything that you do financially affects your credit score in some way either positively or negatively. As a general rule, Paying your debts on time and reducing them are the best things for your score.

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