Life-Cycle Consumption Smoothing

Taken from the July 13th&20th issue of Business Week:

'The big idea is that you should arrange your borrowing and saving so as to achieve the highest possible standard of living that you can maintain reliably and steadily over a lifetime.

You don't want to subsist on macaroni and cheese in your youth in order to live in luxury when you're old and can't enjoy it. But neither do you want to subsist in poverty in your final years because you blew all the money earlier.

The happiness you get from extravagance at any age will never compensate for the unhappiness of extreme poverty at a different age.'

Winners smooth out their consumption patterns across their entire life cycle.