In engineering there are state functions and path functions.  State functions mean that the current state is independent of the path to get there.  Path functions are dependent on the path.  I would like to talk about state functions … in the context of finance.  Bear with me for a minute.

Sometimes the state that you are in right now doesn’t matter much on how you got there.  What does that mean?  Here are several examples … In 2002 you traveled in a taxi instead of a  limo to your house from the airport; in 2004 you ate at a buffet instead of a sit-down restaurant for dinner; in 2005 you checked out a book from the library and didn’t buy it from a bookstore.  The person you are now wasn’t affected by those actions.  In 2002 you got home, in 2004 you were nourished, in 2005 you were inspired by the author.

But …

In 2002 you could have invested the difference of $40 between the taxi and limo. And in 2004 you could invest the $30 for the difference between the buffet and restaurant.  Or  in 2005 you could invest the difference of $30 for the book.  All those savings could be compounded by time.  The sum of these differences could add to significant amounts for your current life.  It could be thousands of dollars.  It could be tens of thousands of dollars.  Or even hundreds of thousands of dollars.

Your current life isn’t affected much by perturbations in state functions.  In fact, your current state isn’t affected at all by them. AT ALL.

On the other hand, your finances are HIGHLY dependent on the incremental costs incurred as you travel along the lifepath to reach your current state.  Those incremental costs compound over time.

You will come out ahead if you minimize expenses for state functions in your life.

Can you identify the state functions in your life?  The Independent Penguin can.

When I was in my late twenties I was very poor.  Everyone I hung out with was too.  It was just the way life was, I thought.

One day I started doing odd jobs for an older man, Mike.  Mike was a rough character.  He was a self-made man.  Mike was also the first financially independent man I ever really got to know.  During the time I was doing odd jobs we would talk about all kinds of philosophy.

I wouldn’t say Mike and I were ever friends in a traditional sense.  But our time together had aspects of a mentor-mentee dialogue.  The thing I liked most about him was that he thought about things differently than me … and that made me think about things differently too. Things that make you think are good.

One of the eye-opening (to the twenty-something me) conversations that we had involved what people love.

Mike: What do you think people love?
Me: Well, my boss loves his car.
Mike: He’s an idiot!
Mike: What else do your co-workers love?
Me: Well another one loves his house.
Mike:  He’s an idiot!
Me: Another one just got an engagement ring she loves.
Mike: Another idiot!

It went like this for awhile.  Me naming something, then Mike disparaging the owner.  Finally I asked Mike if he loved anything.

He pointed his finger square in my chest and looked me right in the eye and said “Never love anything that can’t love you back”.  Suddenly I knew exactly what he meant.  His words sunk deep in my heart.  Mike is long gone now, and I am approaching the age that he was when we had our talks.  But to this day, rumbling somewhere deep in my subconscious, whenever I see someone happily showing off an item they love (Rolex, house, car, etc.) I can hear Mike’s low growl of “Idiot!”.

Love your kids, your spouse, yourself, your friends, and your pets.  Those are things worth sacrificing for and worrying about.  They make life worth living.

But other things are just hunks of metal, piles of wood and drywall, pieces of paper or other types of junk. Buy them, sell them, enjoy them, repair them, and replace them.  But whatever you do, don’t love them.  Because they don’t even care an iota for you.

The Independent Penguin knows what to love.  Do you?

There is has been alot of partisan debate about Obamacare over the last several years.  It has been discussed seven ways to Sunday, but most discussion has been around policy.

There is a huge contingent of working adults in the 40-64 age range that are currently dependent on work to get health insurance.  Decoupling the ability to get healthcare from work  is a game changer.

Here are three things I predict will happen and start the economy  booming.

1)  Starting Jan 1, when healthcare is no longer dependent on employers, there will be a huge wave of people aged 40-64 moving from jobs they dislike to new careers or jobs they like.  This will come as a surprise to businesses who have always had the control of workers through the threat of loss of healthcare.  The result of this will be a US workforce that is more highly engaged leading to higher productivity.

2) Some of the workers aged 40-64 will retire when they are able to get healthcare before 65. This will come as a surprise to corporate America that has always been able to keep people captive employed (through the threat of loss of healthcare) or lay them off as needed.  They will have to be replaced by younger workers.  The result of this will be a lowering of the unemployment rate for the generation now entering the workforce.

3)  Some of the workers aged 40-64 will start new businesses.  They will end up hiring people.  They will also have to be replaced in the job they left.  Both of these will result in a lowering of the unemployment rate.

To summarize, the US workforce is about to become more engaged, younger, more entrepreneurial, and approach full employment.

Oh- one more prediction.  Both parties will fight to claim credit for the boom.