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As Smith promised last week, here in chapter 5 we will explore “what is the real measure of this exchangeable value; or wherein consists the real price of all commodities.” In other words, what does something really cost? Let’s take Smith’s book that we’re reading now, which you can buy in paperback for $20 (or Kindle for $1, like I did). You might say it costs $20 (plus tax), and you’d be right. But for Smith, that’s not the real price. You did not dig in the ground to mine

Let’s say you worked in Smith’s pin factor, and ended each day with the credit of production for 4,800 pins. How beneficial would it be if you got to take half of those home, and stop at the butcher and baker on the way to trade your pins for their meat and bread? What if they were not in need of 1,000 pins daily? What about paying your mortgage with pins? The absurdity of trading our individual production units (pins, beef, bread, etc.) seems obvious to all of us who have li

While I was getting licensed to work in financial planning, I took a job doing assembly line work for a company that makes generators and power tools. For a time, my day was composed solely of taking folded cardboard boxes, opening them up, and putting them on the conveyor belt assembly line. From there, the next person would place a metal transfer switch box for a specific line of generator inside, and then it would go down the line for the next 10 people to each do their in

I asked last time, “Left to your own skill and only what Mother Nature provides (no tools you don’t make yourself), is there a single thing you use today that you’d be able to make on your own?” My answer is simple: No. I could not make my car, let alone the rear view mirror. I could not make my clothes, let alone the thread to stitch fabric together. I could not make my oven, let alone the cast iron used to fry my eggs this morning. Thinking of Friedman’s pencil, it’s likely

Think of a pin. Walmart sells 1,000 for $11, or 1.1¢ per pin. In your current or former line of work, how long would it take you to earn 1.1¢? At the Wisconsin minimum wage of $7.25, it would take about 6 seconds. Now imagine you had to make a pin on your own. From mining ore, to refining the metal, shaping it, cutting it, sharpening it, forming the plastic head, and combining them. Would that take you more or less than 6 seconds? (Yes, it’s a rhetorical question). This is no

My next read will be a segment of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations. Smith shares the following example in his introduction. Thinking chiefly of the native tribes in North America prior to the American founding, he writes that “every individual who is able to work is more or less employed in useful labour, and endeavours to provide, as well as he can, the necessaries and conveniencies of life, for himself, and such of his family or tr

Perkins offers one final charge, and a summary of his book: “Chase memorable life experiences, give money to your kids when they can best use it, donate money to charity while you’re still alive. That’s the way to live life.” Perkins admits, “I’ve given you an impossible task: to die with zero.” While he would like for everyone to perfectly optimize for this, he knows there are too many unknown variables for each individual, and he is okay if nobody does this perfectly. In hi

Can you imagine a 20 year old with no money? Probably not too hard; that’s most of them! What about a 25 year old? 30? 40? At what point is it concerning that someone is still at a $0 net worth? (Unfortunately, many today are young and have a significant negative net worth, given school and/or consumer debt. But let’s put that aside for the time being). If “all” that you put at risk is all the money/net worth you have, and the worst thing happens — you lose it all — but you’r

As Perkins often reminds us, in order to enjoy an experience, we need some mixture of time, money, and health. The least flexible of these is health. The typical retiree has the most time and money in their late 60s and afterwards, but likely is not eager to go mountain bike riding, multi-day backpacking, cliff jumping, or a host of other things that require a level of health (or at least recuperating joints!). Because of this, Perkins recommends planning around that factor m

Perkins rightly draws a distinction: “We all die a multitude of deaths throughout our lives. [...] The day I die and the day I stop being able to enjoy certain experiences are two distinctly different dates.” With each passing year through retirement, it is more likely than not that the list of things we can experience gets shorter. He acknowledges that we ought to delay gratification given the practical reality that consuming 100% of income/available funds immediately often

This chapter is a bit refreshing after what we’ve been reading. Perkins acknowledges that, especially when we’re young, we can indeed overspend on present enjoyments. We should not be on auto-pilot saving mode, delaying all gratification, nor should we be on auto-pilot spending mode just because we’re young and free. His recommendation is to “Strike the right balance between spending on the present (and only on what you value) and saving smartly for the future.” While he woul

To summarize this chapter in one sentence: decide how much of your wealth you’d like to give to your children, charities, or other beneficiaries, and do that now rather than waiting until you’re gone. Most inheritances (from small bank accounts, to the sale of mom and dad’s home, to leftover IRA money, etc.) occur around the age of 60. Often at this time in their life, the “children” are close to or already retired themselves. They’ve saved up their own money, and while the i

Perkins acknowledges, “dying with exactly zero is an impossible goal.” By this he doesn’t mean spending all your money now and living destitute the rest of your life. He means spending your last dollar as you take your last breath. His recommendation is to use two primary tools to get as close as we reasonably can. Firstly, life insurance companies make it their business (literally) to estimate how long you will live. While almost nobody is “average”, with nearly 100% falling

This chapter answers “why” we should aim to die with zero, while the next addresses “how”. For Perkins, the “why” is simple: If we have money left over, we did not efficiently maximize our “enjoyable experiences”, which, for him, seems to be the meaning of life. To illustrate: Imagine you take home $100,000/year while working. After a happy retirement, you die and have $200,000 left to your name. For Perkins, the waste is not necessarily that you did not spend that $200,000,

What are your favorite memories? A few come to mind for me, including the trips we’ve taken as a family. When Kelli and I were teachers, we would spend a good deal of our summer break on road trips. We drove to places from LA to Vermont, and many in between. Traveling with small children (often at least one baby) wasn’t easy, but looking back that’s part of the fun we have when reminiscing. There was one day in particular we bit off more than we could chew. We left the Philad

Perkins used to be an engineer and, like all engineers, was trained to optimize for accomplishing a particular goal in the most efficient way. In this book, he is applying his engineering to life and wealth. In his words, this book answers the question: “What is the best way to spend your life energy before you die?” In order to answer this, Perkins must take a stance on other, prior questions such as: What is the goal/meaning of life? One of Perkins’ acknowledged premises is

Housel’s Postscript answers the question: How did we get to where we are today (the current U.S. economy and especially the state of the American consumer)? He answers this question with a story containing 10 scenes that take us from the end of WWII to the present: August, 1945. WWII ends. Low interest rates and the intentional birth of the American consumer. Pent-up demand for stuff fed by a credit boom and a hidden 1930s productivity boom led to an economic boom. Gains are

In 2011 professor of medicine Ken Murray wrote an article called “How Doctors Die.” He researched how doctors make decisions when they are the patient regarding their own terminal illnesses. He notes, “What’s usual about them is not how much treatment they get compared to most Americans, but how little.” It’s a common theme in professional services that the professionals don’t always take their own advice. All the biases and mix of personal values do not go away just because

Eat healthy. Exercise. Manage stress. Don’t smoke. These are common health recommendations that are broad and can be given to a large audience. It’s also understood that there are exceptions: for those about to go into heart surgery, don’t run a marathon. Kids can have some candy on Halloween. Recovering alcoholics are often encouraged to continue smoking while in rehab. Beyond exceptions, there also is nuance for individuals based on their specific circumstances. Allergies o

In a 2009 documentary How to Live Forever, interviewers asked a centenarian what the happiest day of her life was. Her answer? “Armistice Day [...] We knew there would be no more wars ever again.” Of course, having lived over 100 years, she was aware at the time of the interview that the 1918 agreement ending World War I was anything but the end of war. It was the happiest day for her because, after the devastation she had just seen in WWI, she hoped with every fiber of her b