tag:blogger.com,1999:blog-5465015914589377788.post326010488733064385..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Smooth Consumption over a LifetimeMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-5465015914589377788.post-39079927542460861542020-11-01T10:14:23.591-05:002020-11-01T10:14:23.591-05:00The comment above is a reply to DIY Investor's...The comment above is a reply to DIY Investor's comment:<br /><br />Milevsky's book is well worth reading for any serious investor and the concept of "smoothing consumption" is important to think about.<br />I liked his chapter on taxes which I mentioned in my blog<br /><br />http://rwinvesting.blogspot.com/2010/06/taxesdiy-investor-milevsky.html<br /><br />His exercise of constructing a personal balance sheet by taking into account human capital is worth doing.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-90383008388237692792010-07-20T19:48:59.048-04:002010-07-20T19:48:59.048-04:00@Gene: I thought about that justification, but it...@Gene: I thought about that justification, but it doesn't fit well with his example. He has a 25-year old spending $50k per year and borrowing $25k per year to do it. The only way this can make sense is to count mortgage payments as consumption, which I usually don't.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-34262368311830723752010-07-20T19:26:25.163-04:002010-07-20T19:26:25.163-04:00@Michael James: I imagine his justification for th...@Michael James: I imagine his justification for the strategy makes some sense. For instance, most of us cannot afford to purchase a home outright at the time we feel the need to enter the housing market.<br /><br />Also, by borrowing to get a degree which leads to a well-paying career, we may be using income smoothing wisely. Waiting to accumulate enough cash to do this might be the wrong move. Perhaps he doesn't advocate spending more to get the fancy HD television and premium satellite package in the name of income smoothing?genehttps://www.blogger.com/profile/05608927986297939720noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-23057203893123472142010-07-20T13:34:33.978-04:002010-07-20T13:34:33.978-04:00@Patrick and @Gene: I was a little hesitant to di...@Patrick and @Gene: I was a little hesitant to disagree too strongly with Moshe Milevsky for fear of being proven wrong (he is a smart guy after all), but it seems that the commenters so far are prepared to be more critical that I was.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-39062097670466656722010-07-20T12:43:57.989-04:002010-07-20T12:43:57.989-04:00Besides the very good points made in your post and...Besides the very good points made in your post and in the comments, there is a further risk of increasing spending above savings. Since it's far easier to add expenses than dial them back, I think consumption has a bias towards increasing over time.<br /><br />Planning for increasing income is fraught with risk. Using the prospects of increased income to justify today's purchases is silly, unless you have the powers of taxation and borrowing of a strong nation (probably still a bad idea). I think this strategy belongs in the realm of video games and cautionary novels.genehttps://www.blogger.com/profile/05608927986297939720noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-15350989208822500852010-07-20T09:48:07.662-04:002010-07-20T09:48:07.662-04:00I'm with Jenna. This is just another form of ...I'm with Jenna. This is just another form of speculation.<br /><br />No debt for me, thanks.Patrickhttps://www.blogger.com/profile/16816252455472704262noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-32450852150093409592010-07-19T16:10:00.927-04:002010-07-19T16:10:00.927-04:00@Jenna: That's another good reason to advise ...@Jenna: That's another good reason to advise young people (or anyone else) not to borrow too heavily.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-12757481440800861842010-07-19T14:00:40.892-04:002010-07-19T14:00:40.892-04:00Seems like you would need a crystal ball to know w...Seems like you would need a crystal ball to know when to save and when to spend. I think it's hard for the younger population to predict when they will get higher paying jobs / careers, when they will be continuing their education and when they will be having children. Doesn't seem to be a good plan to be borrowing money for these things when nothing is set in stone.Jennahttps://www.blogger.com/profile/01856794755665483941noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-67158115826846011122010-07-19T07:37:21.666-04:002010-07-19T07:37:21.666-04:00@DIY Investor: Including human capital on the per...@DIY Investor: Including human capital on the personal balance sheet was interesting, but somewhat misleading. If you're going to include future income on a balance sheet due to the value of your human body and brain, you should probably include the future costs of your body's upkeep, such as food, shelter, and clothing. At least some minimal amount of money needed to live should count against human capital on a balance sheet.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.com