A common question I come across online and among my friends is whether they are saving enough for retirement. Then, they throw out something like this, "I am saving $1,000 a month. So, is that good?"
And my answer is always the same.
"Maybe. How much of your gross income is that?"
A common math error when it comes to personal finance is that people will think in whole numbers instead of percentages. Generally, it is usually always better to think in terms of percentages.
The primary reason for thinking this way is that every situation is entirely different. $1,000 for person "A" may be nothing, but $1,000 for person "B" may leave them eating rice and beans for the entire month.
Percentages are the equalizer in the personal finance world. No matter where you are at, thinking in percentages allows for people to communicate properly about their finances and makes it easier to give and receive advice.
Whether you are determining how much house or car you can afford, or whether you are saving enough money for retirement, percentages are your friend.
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