This is the second in a series inspired by a simple toy at CNNMoney that probably doesn’t deserve the attention. (See the first post in the series here.)
Question three in the financial health quiz is "How many months of expenses do you have in an emergency savings account?" The right answer is pretty 
simple:
You should keep three months’ worth of living expenses in a bank savings account or a high-yield money market fund for emergencies. If you have kids or rely on one income, make it six months.
In other words, you should have six months expenses in cash unless you are a two income household with no kids, a.k.a. DINKs.
Now I happen to think that six months is generally too much, but what makes this sort of conventional wisdom truly infuriating is its one-size-fits all nature. I am sure its defenders will say it’s just meant as a guideline or rule of thumb, but that just begs the question of why we need such a dumbed-down guideline to begin with. Can’t some things in our lives be just a little complicated?
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Free Money Finance last week pointed me to an AP article from the end of September headlined “Income gap widens as poor take hit in recession”. (Your 
local news outlet may have used a different title.)
The piece recounts how the recession has lowered incomes across the board but hit the deserving poor and ever-wholesome middle class harder than the fat cats on the top. Kinda ho-hum as mainstream media reports on the Great Recession go. The AP story was run in a few places (see link above and here and here too) but hardly made a splash. Why would it? It just confirms what everybody knows to be true.
But it isn’t true. Or, at least, the conclusions in the article are completely unsupported by the data it pretends to be based on.
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This is the 200th post at Bad Money Advice. As it is also a cold and rainy Friday morning here in Boston, this seems like as good a time as any to reflect and take stock.
I started Bad Money Advice on a much colder morning this past January. My primary goal was, and still is, my own amusement and satisfaction. Unemployment saddled me with a lot of free time and extra energy and I wanted something to do more substantive than on-line poker.
So far so good. BMA amuses me. I’ve got something to say and, apparently, have found an audience of people willing to listen.
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The Digerati Life had a post last week linking to a tool at CNN Money. It asks you a few questions and then gives you a letter grade for your financial health. It’s 
just as subtle and sophisticated in its analysis as you would expect from a web applet on CNN.com.
But it does nicely encapsulate the conventional wisdom on personal finance. So nicely, in fact, that I will use it as the structure for a new occasional series here at BMA, The Conventional Wisdom.
Today the topic is the first question in CNN Money’s quiz: How much is your housing payment? If you enter in more than 28% of your gross income you flunk this one.
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I have a favorite, although rather obscure, Monty Python sketch. An older housewife type (a "pepperpot") sits on a park bench. Another approaches dragging a car engine on a cart, saying she’s been shopping.
"Did you buy anything?" asks the first.
"A piston engine!"
"What d’you buy that for?"
"Oooh! It was a bargain."
It’s not their most memorable bit. But it deftly sums up a way in which we can short circuit our own thinking when we shop.
As I’ve written here several times, when we shop we are not creatures of cold calculation. We can’t be. There are just too many choices at the mall and not enough time to find the one optimal allocation of our money over everything we could buy. Instead, we operate on a set of learned behaviors that approximate the optimal outcome. One of those is bargain hunting.
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simple:
Credit Cards, Investing, Media | Frank Curmudgeon | 
October 20, 2009 12:30 pm | 
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