Wednesday, April 14, 2010

Inferior vs Normal Goods

In my assorted reading, I come across several new (to me) concepts and ideas. Quite often, these concepts seem to apply to my situation at the time I encounter them.

Recently, in an economics book, I read about what economists refer to as inferior goods as contrasted against normal goods. This seemed to have implications for those interested in early retirement.

First the definitions: An inferior good is something that people want less of as they get richer.

Examples of inferior goods include eating street food (as opposed to eating in white-tablecloth restaurants); buying new items (versus settling for used ones or getting old items repaired); and taking bus rides (compared to driving one's own car).

A normal good is something that people buy more of as their incomes rise (better clothing, getting a bigger house, fancier entertainment etc.)

In my own case, the goal was to get time off. Now, I am very aware of how important luck is in our lives and I won't deny that my wife and I are extremely fortunate. But we also planned for and made numerous adjustments in working towards this goal of getting time off (which in our case means no steady income). In retrospect, I see that starting from years earlier, we consciously opted for the so-called inferior goods.

To me, this choice seems to be another necessary condition. It strikes me that those who are serious about taking time off (by giving up their regular salary) have to opt for at least some "inferior goods."

You make all the adjustments you can, and then you hope for luck.

Monday, April 12, 2010

Are you ready for Early Retirement?

I picked up the term organizational ambition from Taleb in his book Fooled By Randomness. He uses it in a different context, but I think it has definite significance to those thinking of early retirement.

Let's assume that every now and then, you compute your net worth and idly contemplate taking early retirement and living a life of leisure. Here's one question you have to ask yourself: Do you have any organizational ambitions? In other words, are you excited by the idea of your next promotion, a new title, more responsibilities and the accompanying pay raise?

Answer this Yes/No question honestly. There are many valid reasons to want that success. You will be making your parents, your spouse, and your children proud by getting promoted. You may also want to prove yourself to your colleagues, or even to yourself with future professional successes in your field.

If the answer is Yes (i.e. you do have org. ambitions) then there is no point in getting frustrated about the lack of a life of leisure, because the time for you to quit is not imminent. Give yourself time, say 2 years or 5 years to re-evaluate things.

If the answer is No, and you indeed have no organizational ambition left, then that is one more thing out of the way. A lack of organization ambition is a necessary but by no means sufficient condition for early retirement.

Wednesday, April 7, 2010


We just vacated our rented apartment after spending 45 days in Indore, MP, and I am heading out. I am keen to spend a few days with my parents in Chennai next, and to meet friends in Chicago following that. And yet, I experienced a surprising sense of sadness at leaving Indore.

I am going to miss the daily interaction with people here – the two ladies who run a tiffin service from their home kitchen (I bought one meal from them daily), the used-bookstore guy who waves at me in recognition from across the road, and Manak Seth, the grocer who always gives us an extra 5% off MRP. The friendly young man who fetches and packs the groceries at Manak Seth's shop asked me if I would ever come back to Indore again.

It is a little scary how quickly one gets attached to people, things and places.