Sunday, July 12, 2009

Consumption Smoothing

I was listening to a personal finance podcast the other day and the host, who was talking about funding retirement, mentioned a new strategy. He called it "Lifetime Consumption Smoothing". Sounded interesting.

Basically, the idea is that most people reach their peak earning potential in their 30's, 40's and 50's. Unfortunately, though, that's also when their consumption peaks. They spend the most during this period of their lives as well.

The host was advocating "smoothing" this consumption out over one's lifetime. That is, while you're earning oodles of cash in your 30's, don't spend it all; rather, put some away for when you're old and don't have the same earning potential.

It sounds suspiciously like a rebranded version of my grandfather's "save your money, son, for when you're my age" plan.

But a solid plan, nonetheless. Shawna and I have bought into it.

We're eating canned cat food once a week now.

1 comment:

LAS said...

Hey PJ, I'd be impressed if it were twice a week on the canned food - lol!