Equilibrate Income and Consumption -- So You Don't Wind Up Broke

Roger Nusbaum submits: Ben Stein was on Consuelo Mack's PBS show in a short interview that had a couple of great, albeit simple, tenets for financial planning.

The nature of the interview was such that Consuelo seemed to cut him off continuously, but he got some good big-picture stuff out there.

He talked about equilibrating (I had never heard that word before) consumption and income over one's lifetime, so you don't "wind up broke."

The other important point that he made was that "liquid assets equals freedom." He used that phrase several times, and then went on to talk about the importance of saving. He quoted his father as saying liquid assets equals security, and living beneath your means equals freedom. He also said that every time you buy into a fund (or whatever), you are buying freedom -- and there is nothing more important than buying freedom.

I have been trying to convey similar ideas since the start of this blog and trying to live this way for even longer. I have only had a couple of occasions to have the live beneath your means conversation professionally (I manage portfolios, I am not a financial planner), and I am no good at compelling people toward understanding this to the point of making better decisions.

One argument that came up in the comments is that people are more active in their 60s when they first retire and slow down as they get older. This makes sense, but medical expenses go up a lot as people age too -- an awful lot. The notion of slowing down the activity/spending assumes a certain amount of discipline. Some will have the discipline and some will not. Anyone thinking they will spend less on activity when they hit 70 needs to have a long look at themselves in mirror to make sure they can follow through.

My thinking is probably quite limited here, but when people talk about being active, don't 95% of them mean traveling? I have a couple of thoughts on this that will probably go over poorly. One is to take a couple of trips-of-a-lifetime before you retire while you are still making money.

The other thought is spend a little less when you go. With a little time spent researching you can find great places to stay that are not expensive. A couple of $20,000 cruises a year can be a killer.

As for saving, I have written a couple of times about studies that say people save too much because the brokerage firms scare them into saving more than they need to collect more fees. I'll save less, that'll show them!

If you have no bills to pay (here I mean only one car payment instead of two and having less mortgage than you could otherwise afford), have a lot of money saved, or some combination of both, you will be able to weather almost anything -- which I think is the type of freedom than Stein refers to.