On the Mises Institute’s website, Frank Shostak has an article called “Can Quantitative Easing Lift Economic Growth?“.  He points out that there is no monetary pumping that can be beneficial for the economy.  Instead, monetary pumping hurts the economy as it “leads to the weakening of the wealth generation process”.

Shostak is right on the money (no pun intended) in his analysis of monetary inflation.  In his article, he states the following:

“Hence various studies that supposedly show that the Fed’s quantitative easing can grow the US economy are fallacious.  To suggest that monetary pumping can grow an economy implies that increases in the money supply will result in increases in the pool of real wealth.  This is however a fallacy since all that money does is serve as the medium of exchange.  It enables the exchange of the produce of one specialist for the produce of another specialist and nothing more.  If printing money could somehow generate wealth then world wide poverty would have been eliminated by now.”

This is an important point.  Money, in this case the U.S. dollar, is a medium of exchange.  By creating more money, we don’t get any more actual goods and services.  The creation of money also doesn’t actually destroy wealth in and of itself.  But as Shostak points out, it hurts the wealth generation process.

In other words, if the Fed creates another $1 trillion out of thin air tomorrow, this doesn’t actually destroy anything at that particular moment.  But it does hurt future production in a big way.  It redistributes wealth and it also misallocates resources.  The newly created money changes how resources are used.  We saw this back in the housing bubble when too many resources were diverted into the housing sector, as opposed to other consumer goods or savings and investment.

Monetary inflation distorts the economy.  It sends artificial signals that are not in accordance with market demand.  In the long run, it makes us poorer.  Even people who directly benefit from the initial monetary inflation (for example, investors or bankers) are usually hurt in the long run.  Everyone’s standard of living is affected in some way, as there is less production of goods and services that would be created absent the monetary inflation.

Many people, even free market thinkers, believe that the main problem with monetary inflation is that it causes prices to rise.  While monetary inflation does cause prices to be higher than they otherwise would have been (not necessarily higher though), money creation is detrimental in many other ways.  It redistributes wealth and it misallocates resources.  We have a lower standard of living because of monetary inflation by the Fed.  Unfortunately, it is a bad sign for our standard of living that the Fed continues to engage in massive monetary inflation.

Monday, September 16, 2013, was an interesting day in the markets.  I usually avoid discussing one-day market moves, unless something big happens.  But in this case, the interesting event is why the markets moved.

Lawrence Summers, a former Treasury secretary, withdrew himself as candidate as the next chairman of the Federal Reserve.  This led to a belief that the next chair of the Fed will likely be Janet Yellen, a true inflationist.  The markets responded.  Stocks were up big to open the day and interest rates went down. Bond buyers were optimistic that the Fed would continue to prop up the bond market with more quantitative easing (monetary inflation).

Summers was thought to be less of an inflation “dove”.  He is a Keynesian like most of the rest of them in the elitist club, but I suppose Yellen is more outspoken about her desire for massive monetary inflation.  Her and Paul Krugman could get along just fine.

In the grand scheme of things, I am not sure that the next Fed chair matters all that much.  I have already offered 3 reasons on why I think there will not be a long stop of quantitative easing any time soon.  I think as long as price inflation remains relatively low, then the Fed will keep propping things up with more funny money.

While I don’t think the next Fed chair matters much in terms of policy, it is still an interesting thing to watch.  Even more interesting is to see how the markets react.  Stocks and bonds really liked the news that Yellen has a good chance at getting the nomination.

What does this tell us about stocks?  It shows that much of the gains in stocks are taking place due to monetary policy.  As long as the market sees more monetary inflation in the future, then investors are willing to buy stocks.  The same goes for bonds, at least in the short term.  But it also means that stocks and bonds could come crashing down when a tightening of monetary policy seems more likely.

Ironically, stocks and bonds gave up much of their gains by the end of the trading day.  This was blamed on talk from Obama about the debt ceiling.  We can’t ever really be certain about why stocks and bonds rise and fall, other than the behavior of buyers and sellers.  Maybe the stock market retreated a bit with investors realizing that it doesn’t matter that much who the next Fed chair will be.  There was even a little talk at the end of the trading day that maybe Summers isn’t out of the running for sure.

In any case, it seems ridiculous that the stock market would shoot up because of the possibility of one particular individual getting appointed as Fed chair.  But that is the reality of the world we live in.  Until more people realize they are being ripped off by the central bankers and the politicians, then it will continue to go on in some manner.  This is why we have to pay attention to politics and central bank policy.  It has a great effect on our money and our investments.  It shouldn’t be this way, but that is the reality we have to deal with until things change.

Using my blog stats, I can see what people are searching for on the internet.  A popular search is for “401k confiscation”.  I have written about it before.  I think it will be tried by politicians in the U.S.  I am less sure that it will be successful.  In fact, I see a shifting of public opinion in the U.S.  I see more people leaning towards freedom in almost all areas.  This includes foreign policy, civil liberties, and economics.

There was recently news that the government in Poland is trying to reduce the government debt by seizing private pension funds.  Many see this as a preview of what is going to happen in the U.S.

I think the federal budget is going to become more and more of an issue.  It is going to get difficult to handle.  The federal government will not be able to continually run the massive deficits that we have seen over the last few years.  The American people will not tolerate a significant increase in taxes.  And I think the Fed will eventually be more limited in its power, as it seeks to avoid massive price inflation.  Eventually, the government is going to have to actually cut spending.

But the politicians are going to try every trick in their playbook.  I assume this will include retirement account confiscation.

I can’t be sure, but I have a prediction of what will happen.  It will be the people with government pensions who will take the hit.  This is how it should happen.  It is not as if there has been money set aside for government employee pensions.  It is just like Social Security.  It is full of IOUs.  So the only way to pay out government pensions in the future is by taxing people or borrowing even more.

If you are planning your retirement in the distant future based on a government pension, I would be careful.  This is not guaranteed, as many would have you believe.  The government has broken many promises before and it will happen again.  This includes federal, state, and local government pensions.  State and local pensions will probably depend a little more on the specific fiscal situation of that government.  There is little doubt that the federal government is the worst off.  The federal government has just been able to kick the can further down the road because of its digital printing press (the Fed).

On the other hand, I don’t think the government will be successful in confiscating 401k accounts.  Some politicians will try, but I believe there will be too much backlash.  That is at least what I hope for anyway.  Each 401k has a specific name on it.  It is tagged.  People will view this as outright theft, which they should.  The only 401k confiscation I see happening is what we see right now with the Fed devaluing your dollars.

Private pensions through companies will be a little trickier.  I don’t think the government will be successful in confiscating them in the U.S.  On the other hand, if they are not properly funded and there are defaults, we might not see a government bailout due to insufficient funds.  So there are no guarantees with anything, but I think private pensions will be safe from government hands.  I am just not sure how well funded they are.  It can be tricky, actuarially speaking.  What if people live a lot longer than was expected?

In conclusion, I am hoping that public opinion keeps retirement accounts safe from the government.  This, of course, would not include government pensions where taxes have to be collected in order to pay them out.  If you have a government pension that you are depending on, I would have a back up plan.  If you have a large 401k, you have a better chance of escaping the theft of the U.S. government.  However, even here, I would not put all of your eggs in your 401k basket.  Desperate politicians can do crazy things, even against a massive public outcry.

I recently wrote a post about frugality.  There was an article on a millionaire who is extremely frugal and I saw a lot of comments from people criticizing frugality.  Some were not just criticizing this one person, but criticizing the concept.  I pointed out that these people have a lower class mentality.  They cannot plan for the future.

One other thing I pointed out in that post is that most people are stuck in their jobs.  I asked, “How many people under the age of 65 do you know who could just quit their job at any time and be fine, financially speaking?”

For this post, I want to expand on this point.  I want to compare the lives of two people.  One person has accumulated a net worth of $500,000 and the second person has a net worth of $5,000.  These amounts do not include equity in their primary residence.  While their age doesn’t matter much, let’s say they are both 40 years old.  Let’s also say they make about the same income from their job, say around $65,000 per year.

There is a big difference in the amount of wealth these two people have built up.  The person with half a million dollars has 100 times the amount of money.  Their actual day-to-day lives may not seem that much different.  They may live in similar neighborhoods and drive similar cars.  They both get up early 5 days a week to go to work.

Yet there is a big difference between these two.  One difference is obviously their mentality.  The person with $500,000 to his name is future oriented.  While the second person will have some future orientation, he is much less so in a financial sense.  He does not see the need to save money.  He does not see the point in being frugal.  He figures retirement is a long way away anyway (and on this he is correct).  He figures he may as well enjoy life now and not worry about saving.

The guy with $500,000 cannot retire with his current lifestyle.  Perhaps he could go live in a remote area of Thailand and his money might last for the rest of his life.  But to keep his current lifestyle, half a million dollars will not last him for the rest of his life.

Yet there is still a big difference between these two people and it is not just that one will be able to retire earlier than the other (if the other is ever able to retire at all).  The guy with more wealth has far more flexibility in his life.

You could come up with any number of scenarios where the guy with much greater wealth will be at an advantage.  Let’s say some great once-in-a-lifetime opportunity comes up that requires him to leave his job.  The wealthier guy might be able to take the opportunity.  He could quit his job, knowing he has a cushion.  Or maybe he could just take a leave of absence.  The guy with only $5,000 to his name probably couldn’t even take a two-month leave of absence from his job.  He wouldn’t be able to pay his bills.

Maybe both guys get tired of their jobs and want to make a career switch.  But in order to make that switch, they will have to take a pay cut.  The wealthier guy can easily do it.  He already lives below his means and he has plenty of savings to soften the blow of a much smaller income.  The poor guy doesn’t  really have this option, unless he is willing to drastically reduce his standard of living, which is highly unlikely.

There are also other opportunities that may become available.  Maybe there is a great deal on the house next door.  Maybe you have a friend that has a great new business that needs capital (although I would caution you to be careful on this and to minimize your potential losses).  Maybe you have an opportunity to start your own business and need some cash in the bank to hold you over until you start increasing your profits.

The whole point is that building wealth offers you more freedom and flexibility in your life.  Money doesn’t guarantee you health or happiness.  But it can often allow you to take advantage of certain opportunities that you might otherwise have had to turn down.

My recommendation is that you have the mentality of the upper class.  You should plan for the future.  People who save some money are often happier than those who feel they have to spend everything they earn.  Money doesn’t buy you happiness, but having money in the bank can help with your happiness.  It can also help you get out of bad situations in many cases.

I am an advocate of buying investment residential real estate, if you are in the right position.  To be in the right position, you need to have some emergency money.  If you have an unexpected repair (you should expect repairs though) or if your place goes unrented for a month or two, you need to have some extra savings to hold you over.

In addition, you should be in a good location, or at least willing to buy in a good location.  It should be in an area that is not in a steep decline.  You should also avoid areas with extremely high property taxes.

The biggest thing, when investing in residential real estate, is that you have good cash flow.  You should not invest if there is negative cash flow.  This would assume a down payment between 10 to 20 percent.  If your mortgage payment, taxes, insurance, and incidentals are more than you can collect in rent, then you should not do the deal.

Taking on a 30-year fixed rate mortgage is a good hedge against inflation.  You lock in your monthly payments and pay back the loan in depreciating money.  I think your ultimate goal should be to pay off the mortgage and own property that is debt free.  But you can take advantage of the fixed rate loans, knowing that inflation is likely.  You do have to consider that taxes and insurance are not necessarily fixed, but this should make up a smaller portion of your costs than your mortgage.

One criticism I often see with this strategy is from people saying that rents won’t increase with inflation.  I see some critics say that people will be so poor that they won’t be able to afford to pay rent.  But I don’t think these critics are thinking things through.

If there is massive inflation, then money is flooding the market.  People have a lot of money.  It is just that it doesn’t buy you much.  To take an extreme example, there are stories of Weimar Germany during the period of hyperinflation in the 1920’s, where people would take wheelbarrows full of money to the grocery store and hurry up and spend it before prices went up again.  People had money.  It just didn’t buy much.

Most people have a tendency to pay their rent.  For someone struggling to pay their bills, rent and electricity are usually the first ones paid.  They will pay credit cards and other loans last.  Even poor people understand that a landlord can evict them in a rather short period of time.  I am not talking about people who “own” houses where they don’t pay the bank and end up getting foreclosed on.  This is much different than people actually renting.

In an environment with high inflation, people will have money.  If you are renting to someone who doesn’t pay the rent, then you can evict them and find someone who will pay the rent.  If you have a house in a desirable neighborhood, you are likely to find someone who will rent it at the right price.

In a period of high inflation, rents may go down in real, inflation adjusted, terms.  In other words, if price inflation is rising at 20% per year, maybe rents will only go up by 5% or 10% per year.  But rents are likely to still go up in nominal terms.  And that is all that matters to you as a landlord.  Remember, your mortgage payment is fixed.

Let’s say that your mortgage payment is fixed at $1,000 per month.  You are collecting rent of $1,200 per month.  Inflation goes to 20%.  Your rent only rises by 10%.  The rent you are collecting increases by 10% to $1,320.  But your mortgage payment is still fixed at $1,000.  Is it a bad investment because your rent can’t be increased by 20% in tandem with price inflation?

In conclusion, inflation is actually a good reason to buy investment real estate.  It is the bust that you have to watch out for.  This is why you should buy a place with good positive cash flow and you should have the ultimate goal of paying off your mortgage.

There has been a lot of talk about the Fed “tapering” over the last few months.  It has been a concern for financial markets, particularly the bond market, which has seen the 10-year yield rise close to 3%.  While I think the Fed may “taper” a bit, I don’t think we will see anything close to a stable monetary policy.  Perhaps the Fed will stop inflating for a short while, but it won’t last long.

The correct policy would be to allow competing currencies and gradually replace the Fed with a free market in money.  Absent getting rid of the Fed, the correct policy is for the Fed to stop inflating.  This will cause a major correction and some short-term pain for many.  But this is what needs to happen for real and significant economic growth to happen again.  It would be better to deal with the short-term pain than to continue the problem and make things even worse in the future.  With that said, I don’t think the Fed will adopt a monetary policy in the short run that will be beneficial for the economy.  I think the Fed will continue with its monetary inflation for a while.

There are 3 main reasons that I think the Fed will continue with its so-called quantitative easing.  They are as follows:

1. The consumer price index (CPI) has stayed relatively low.  In a truly free market environment, we would likely see a consumer price index that actually gradually declines.  This would reflect an increase in productivity, such as what we see in the electronic industry.  But compared to the late 1970’s, the CPI is relatively low.  While even 2% is higher than it should be, and while the index may be flawed, the Fed will use this metric as an excuse to continue its loose monetary policy.  As long as high inflation is not being perceived by the general public, then the Fed has a green light to continue with its monetary inflation.  I believe this is the one metric that could cause the Fed to eventually stop its money creation.  If price inflation starts to get out of control, I don’t think the Fed will risk hyperinflation.  But as of right now, the CPI is relatively low and the Fed will even cite this as a reason for more QE.
2. The economy is still in bad shape.  We can hear all of the rosy speeches from Obama and Bernanke all day long, but people know that things are bad.  In reality, things would be much better right now if the Fed had pursued a better monetary policy since 2008.  Things would also be much better if the government were not spending so much money and misallocating resources on such a grand scale.  But since unemployment is still high and the middle class is feeling the pinch (along with poorer people), the Fed will cite this as a reason to continue its QE, even while saying that things are improving.
3. The big banks still need to be bailed out.  The Fed bailed out the big banks in 2008 and has been doing it again since last year.  It has been buying mortgage-backed securities and paying a price that is above market value.  The balance sheets of the major banks are still not good.  But they are better than they would be had the Fed not engaged in its purchases of $40 billion per month of MBS since September of 2012.  The Fed cannot get away with a bailout like what happened in the fall of 2008.  Public opinion is too much against it.  So the Fed resorts to tricks.  It bails out the banks by buying the bad assets of the banks.  The primary purpose of the Fed is to keep the big banks afloat.  It will not give up on this mission.  As long as the public is deceived and the Fed can use QE to bail out the banks, why wouldn’t it keep doing it this way, instead of causing a public uproar?

There was an article today that was linked on LewRockwell.com.  It was on a site called Gold Switzerland.  The title of the article is “The real state of the world economy is dire“.  I have several critiques of the article, but I want to focus on one thing in particular.

As a side note, this is not a criticism of LewRockwell.com or Lew Rockwell.  I absolutely love the site.  There are many interesting and informative articles where many libertarians would still find disagreements.

In this article on the sorry state of the world economy, the author points to some of the major problems that have built up in today’s world economy.  I agree with much of what is said.  Although I am pessimistic in the short run, I am probably far less pessimistic than what the article portrays, especially if you look at the longer term picture.

But my one point of major contention comes when the author states the following:

“We have had a century of false prosperity based on printed money and credit.  In the last 100 years we have seen the creation of the Fed in the US (a central bank owned, created and controlled by private bankers” combined with fractional reserve banking (allowing banks to leverage 10 to 50 times), exploding government debt and a derivatives market of $1.4+ quadrillion.  These are the principal reasons why the world economy has expanded in the last century and particularly in the last 40 years.”

I cannot begin to tell you just how wrong the author is here.  While I certainly agree there has been some false prosperity and I agree that the Fed and the growth of government have been disastrous in a lot of ways, it is absolutely ridiculous for the author to claim that the whole last century has been one of false prosperity.

It is not false prosperity when I turn on my flat panel television and pick from hundreds of different channels.  It is not false prosperity when I sleep in the comfort of my air-conditioned home every night. It is not false prosperity when I go to the grocery store and am able to pick out almost any food that I desire.  It is not false prosperity when I use my cell phone to call someone or to look up the latest news on the internet.  It is not false prosperity when I put my clothes in the washing machine, turn it on, and walk away to do something else.

You get the point.  Our lives are so much different than our great grandparents of 100 years ago that it is almost ridiculous to even try to compare.

I will concede that some things are more expensive than they were 40 years ago.  These are not electronic things.  It is areas that are highly controlled by government, such as education and medicine.  But it is not as if the author of this article specified such things.

I understand the Austrian Business Cycle Theory.  There are artificial booms, caused in particular by central bank monetary policy.  This leads to busts.  I don’t think it is possible to be in an artificial boom for 100 years, or even 40 years.  There are certainly resources being misallocated continually because of government and central bank policy.  But we also see shakeout periods where some of this malinvestment is corrected according to market demands.  We saw this in the early 1980’s when the Fed tightened monetary policy and allowed interest rates to rise.

In a free market economy, we would see almost continual improvements across the board, with only mild setbacks here and there.  In a more mixed economy like we have now, it is a bit more of a roller coaster ride, particularly with a central bank that wields a lot of power.  It tends to be two steps forward and one step back.  But as long as there are some elements of freedom, we generally see progress moving forward in most areas.  There are exceptions and there are times where we may even move backwards, but the general trend is still forward.

In conclusion, I am not happy with the current state of the economy.  The Fed has quadrupled the monetary base over the last 5 years and the federal government continues to accumulate debt at a staggering pace.  I really do think we are in for some hard times ahead.  But to say that the last 100 years has been false prosperity is a ridiculous claim.  Our lives are completely different than those living one hundred years ago, even amongst the rich at that time.

There are really only two ways that you can increase your savings.  First, you can increase your income.  Second, you can spend less.  Some would say that there is a third option of investing, but this is really part of increasing your income.

Savings is important for many reasons.  It involves planning for the future.  It is delaying gratification.  It means having more reserves for emergency expenses.  It means a higher likelihood of retirement.  It also gives you more freedom and flexibility in terms of your job and your lifestyle.  And, of course, there is the magic of compounding interest.

In terms of trying to save more, you really need to look at both areas.  You should see if there are reasonable ways to increase your income, without necessarily altering your life too much.  You should also see where you can cut back on spending, again, with the preference of not having a significant impact on your lifestyle.  However, in some cases, maybe you do need to alter your lifestyle.

Each individual and family situation will be different.  If someone is earning $200,000 per year at a job and is barely saving any money at all, then the person should probably be looking at his spending habits first.  Even if the person lives in an expensive place like New York City, there is still a major problem if you can’t accumulate significant savings with such a high income.  Perhaps the person could earn even more than the $200,000 per year, but my bet is that if he has trouble saving money earning $200,000 per year, then he will also have trouble saving money making $250,000 per year.

On the other hand, think about a person who is making $12 per hour and is saving almost nothing.  He is probably not living a lavish lifestyle on such a low income, even if he is young and single.  He will have trouble saving money with this income because you still have to pay bills such as rent and food.  The most obvious thing for this person to look at is his income.  He has to look at ways to earn more, whether it means getting a different job, working a second job, or starting a side business.  It is important that if this person does find another job making a lot more money, that he not start spending all of this new found money.

In terms of increasing income with investments, this can be important once you have built up some savings.  If a guy has a savings account of just $1,000, I don’t think he has to worry much about his savings account earning him less than 1% interest per year.  He has to concentrate on saving more money.  Once he builds up a significant amount (say, $10,000 or more), then he should start paying a little more attention to where it is going.

If someone has a net worth of $500,000, yet only makes $40,000 per year, he really should concentrate on his investments.  A good return on his investments could net him almost as much as his yearly income.  In today’s environment, I think someone with this much money should consider investment residential real estate, assuming it is in a decent area.  Having $500,000 sitting in a money market fund does not make much sense.

One last important point is that you shouldn’t forget to invest in yourself.  If you need the right equipment to make a side business work, then you should consider the investment.  If you need a certification to help in your career, consider it.  If attending a seminar will help you in your endeavours, then maybe it is worth it.  You shouldn’t take on debt to do these things, but a $1,000 investment in education today that may net you thousands of dollars in the future should not be neglected.  You will not get that same return in the stock market.

On January 23, 2001, Harry Browne published an article titled “It’s Still the Economy Stupid”.  Clinton had just left office and there were a lot of myths about the economy during his two terms.  Unfortunately, looking back now, as horrendous as things were during the Bill Clinton era, they have been far worse under Bush and Obama since that time.

One of the myths that Harry Browne explodes is that of the supposed budget surpluses.  He pointed out that the debt was increasing every year, even though people were claiming there were surpluses.  This was an accounting gimmick.  At that time, there was a surplus coming from Social Security.  The amount being paid out to retirees was less than what was being collected from payroll taxes.  This surplus money was being used to show a budget surplus, even though this money is supposed to be part of the Social Security trust fund, earmarked for Social Security payments.

In that article, Browne quotes Clinton saying that “we’re on a path to pay off the entire debt by the end of the decade.”  This was completely impossible, even at that time, especially since there was no way we were going to see any reduction in overall government spending.

Democrats today like to blame the huge deficits under Bush on the modest income tax cuts.  But this is not the reason we saw massive deficits.  The reason is that Bush and Congress spent money like crazy, including on two disastrous wars.

Of course, Obama has been a complete disaster too, keeping the spending as high or higher as when he took office, which was already at astronomical levels.  When we look at $100 billion deficits from the Clinton era, this sure does sound good compared to $1 trillion deficits under Obama.  This isn’t an excuse for Clinton or Congress during that time.  It is just to say that things are even worse now.

I particularly like the part of Harry Browne’s article where he gives his thoughts on a farewell address for a Libertarian after having completed one term as president.  Browne’s versions goes as follows: “Do you remember when the government was so large that you had to pay income tax?  Remember when Social Security was eating up your retirement funds, and they wouldn’t let you out of it?  Remember when the drug war was tearing up your city?  I rest my case.  I’m going home now and watch TV.”

I’m not sure if even a Libertarian president could accomplish all of that in one term.  But if anyone ever did accomplish this, it would have to be done by somebody who emulates Harry Browne.

There was a story run on Yahoo! Finance about a guy who is worth $1.6 million.  The story likens him to someone in the book The Millionaire Next Door.  This guy says “There are two ways to become a millionaire.  You either make a lot of money or be a frugal person.  I’ve kind of combined those.”

So he admits that he has made good money.  Someone working at a job earning $40,000 a year is going to have a tough time becoming a millionaire before the age of 65, even if he is really frugal.  And that is even more true now in the current economy.  It is a lot harder to get 10% annual returns these days.

I have written about frugality before.  I always find these stories fascinating.  I wrote recently about Mr. Money Mustache.

In this Yahoo! Finance story, I found the comments more fascinating than the story itself.  Some people defended the story and said others were missing the point.  Some people really liked the frugality, although some disagree with his policy of not giving any gifts.  Some people stressed the importance of having a good balance.

And then there were other people who made fun of the guy.  They say things such as, “What is the point of living if you are not going to spend money and enjoy life?”  Other comments said things such as “What is the point of saving all of this money when you could die tomorrow?  I want to spend my last dollar on the day I die.”  There was one guy who said he lives the same way with 300 bucks in the bank.

Now I am not saying that you should live your life just as this guy has.  I am not saying that you should be so frugal as to walk long distances to avoid the costs of transportation (although some could use the exercise).  But I do want to defend this guy against the rude people making comments making fun of him.

The difference between upper class and lower class is not so much based on wealth as some believe.  It is based on time preference.  A person who sees beyond today is upper class.  A person who is constantly living for the moment is lower class.

Some people are wondering what the point is of saving all of this money.  They say that this guy doesn’t enjoy life, but how do they know?  This is a very subjective thing and they have no idea if this guy is happy or not.

This whole idea of spending your last dollar on the day you die is ridiculous.  Nobody knows how long they are going to live, so good luck with planning that.  And I suppose these people have no interest in leaving any kind of inheritance to children or grandchildren.  I suppose they have no interest in leaving any kind of legacy.

But I figured out why some people are making fun of this guy for his frugality.  The people making fun of him are lower class.  They cannot see far into the future.  They also have little hope for the future.  These are the people who’s retirement plans consist of playing the lotto each week.

The one commenter who said he lives the same way with 300 bucks in the bank is completely wrong.  He doesn’t live the same way.  He is lower class.  He is so far from the millionaire status, that he has given up.  He has little self worth and he sees no way that he could ever achieve millionaire status.  He is right in thinking he can never become millionaire, at least in terms of today’s purchasing power.

Most people I know do not like their jobs.  Some people really hate their jobs.  They are stuck.  Some people are content with their jobs, knowing they can’t find anything better.  But they would still quit their job if they struck it rich.  There are very few people who truly love their job.

Yet this guy in the story quit his regular job and became a stand-up comedian.  How many people under the age of 65 do you know who could just quit their job at any time and be fine, financially speaking?  There are not many.

These commenters making fun of this guy’s frugality are losers for the most part.  They say he is not happy, but he was able to quit his job and do something that he likes.  The commenters making fun of him are stuck in their miserable jobs while they think they find happiness in spending all of the money they earn.  They will never be in a position of financial freedom.  They will be stuck in their consumeristic world, while continuing to make fun of those who plan ahead in their lives.

In conclusion, I agree with those who say a good balance is important.  At the same time, I think frugality can be a good thing, as long as you step back and see the big picture once in a while.  While it is more difficult now than it has been in the past, saving money can lead to financial freedom in the future.  This is only for the upper class.