Freed by Frugality
WHEN I TOOK A JOB with a U.S.-based software company and moved to the States in 2000, I wasn���t planning to live here permanently. I came under the H-1B visa program, which allows nonimmigrant foreigners to obtain temporary employment. I figured I might work in the U.S. for a few years and then return to India, where I grew up.
Things didn���t quite turn out that way.
I started my career as a software engineer in Kolkata, my hometown. But as a lover of travel, I seized opportunities to work abroad and get to know new cultures. My plan was to work in other countries while I was young, before heading back to Kolkata with my wife to settle down. America was on my bucket list. An opportunity came almost by accident.
While working in Ireland in the late 1990s, I returned to Kolkata to visit my parents. I bumped into an acquaintance who lived in the U.S. and worked for a software company. In those days, many software engineers regarded his employer as the premier software company. Sensing my envy, he asked for my resume. I was skeptical about my prospects but, on his insistence, I typed up a CV.
After returning to Ireland, I forgot about the whole thing, but he didn���t. A recruiter called me weeks later to set up a few phone calls to check my technical knowledge. Once I had cleared that hurdle, the recruiter offered to bring me to the U.S. headquarters for interviews. An expense-paid trip across the Atlantic sounded like a great deal, and I was soon on a plane heading to the Pacific Northwest.
The dozen or so interviews over two days were grueling. I was bombarded with all sorts of questions, including brainteaser puzzles and bizarre algorithmic problems. By the end, I felt I had wasted everyone���s time. Demoralized, I returned to Ireland.
When the recruiter called back the next week, I was almost certain that I hadn���t made the grade. But to my surprise, she offered words of congratulation: I had made it.
My coworkers and supervisor at my Irish employer advised me to accept the position. I leaned toward doing so, but there was a downside: taking another foreign job in my early 30s would delay my eventual return to India.
On the other hand, the upsides were too attractive to ignore. The chance to be part of a transformative company might never come my way again, I���d get to explore a beautiful country full of natural wonders, and the job might be my ticket to financial freedom���for two reasons.
First was the promising math of working in a high-income country before returning to one that has a low cost of living. Even modest savings would go far in my hometown. I���d already saved a bit from my previous overseas jobs. A few years of saving in U.S. dollars would mean increased financial security.
Second, my pay package included stock options���a benefit I���d never before heard of. The recruiter explained that, when the options vested, I���d reap the profit from any rise in the company���s share price since my starting date. The stock had been on a tear for nearly a decade. If history was any guide, she said jokingly, the options would make me a lot of money. Little did I know that all my options would expire worthless and that the stock wouldn���t recover for 15 years, thanks to the bursting of the dot-com bubble. So much for getting rich quick.
Because I was na��ve enough to extrapolate past performance of the company���s stock into the future, the overall compensation package looked unbelievably attractive. Great work, beautiful place, generous pay. What more could I ask for? I accepted the job offer and moved to the U.S. in early 2000.
Coming to America. The new chapter of my life started well. That summer, I visited a close friend of many years who was also now living in the U.S. It was refreshing to catch up with him and spend time with his family. His wife suggested that I buy a house. When I replied that I planned to go back to India in a few years, my friend laughed and made three predictions: I���d soon gain at least 20 pounds, I���d have no time to connect with friends and I���d live in the U.S. permanently. I made a friendly bet that he was wrong.
Over the next few years, we lost touch���until tragedy struck. My friend suffered a cerebral stroke and was put on life support. I flew to see him as soon as I could but, alas, he never awoke from the coma. I didn���t get a chance to say goodbye, let alone treat him to something as payment for the three bets I���d lost.
My friend���s premature death shook me. He wasn���t even 40. I felt that my life also was ticking away. I started to picture my future self and the family who depended on me financially. What would happen to them if I died? Who would attend my funeral and what would they say about me? My midlife crisis set in early.
Meanwhile, I, too, had a few ups and downs. I went through a divorce in 2003. What followed was a period of ultra-frugality while I put my financial house back in order. I said goodbye to every hint of luxury���the almost new car, the spacious rental apartment, vacation trips, cellphone, even going out with friends. To save on rent, I bought a poorly lit townhouse in a not-so-great location. I rarely bought anything beyond groceries and essentials. I cooked all my meals and limited my socializing to occasional get-togethers with close friends over homecooked food. The local library became my only source of books and videos. With a four-figure cost of living and my six-figure income, it didn't take long before I was back on track financially and able to resume a less thrifty lifestyle.
A few years later, I remarried. I abandoned my plan to return to India and decided to settle permanently in the U.S. This last decision nixed my plan for financial freedom. I could no longer count on a lower cost of living later in life. I was 38 and effectively starting my financial journey from scratch.
My friend���s demise was also a wakeup call. I needed to stop procrastinating and get serious about my financial responsibilities, especially now that I was not only remarried, but also had a stepdaughter. I bumped up the coverage amounts on my life- and disability-insurance policies. I named beneficiaries on my financial accounts. I figured that I needed to do more than just save aimlessly���I needed to plan. That was when I realized my biggest money blunder.
I was clueless about the stock market and its indispensable role in building wealth over the long term. I had wasted the first 15 years of my career, taking shelter in bank certificates of deposit and savings accounts. I had, unfortunately, missed out on years of stock market compounding. No, I wasn���t sitting on the sideline with cash, waiting for a better time to invest. Rather, I simply mistook the sideline for the playground.
Thankfully, I also possessed a valuable asset���my income-earning potential���and that offset my many financial mistakes, big and small. I was fortunate that software engineering turned out to be a dependable career for my generation, providing not only abundant job opportunities and high pay, but also enjoyment and satisfaction. The steady income, and the security it provided, was my greatest financial strength.
Fixing my money mistakes was easy once I took the time to learn about investments and personal finance. I maxed out my 401(k) contributions, putting the money in diversified stock funds. I got into the habit of investing my savings in inexpensive index funds. Because of the demands of work and family, and the pursuit of various hobbies, I was too busy to pay much attention to market noise. That was a blessing in disguise.
Wrestling with readiness. The 2000s went by swiftly. My wife went back to work, and the extra income bolstered our household balance sheet. My stepdaughter started elementary school and���seemingly before we knew it���was off to an in-state university. As empty nesters, our daily life slowed, and I had time to focus on something that had been bothering me.
A brief interaction with a stranger, whom I���ll call Ted, left me anxious about our finances. Ted was a part-time driver for a shuttle service that my employer used for local commutes. One day, I was feeling unwell at work and needed a ride home. Ted showed up with a car.
Ted appeared to be in his late 60s or early 70s. He was eager to strike up a conversation and, from his remarks at stoplights and amid the rush-hour traffic, I figured he was disgruntled with his job. I was curious as to why he was still working at his age, especially if he disliked his job so much.
Ted didn���t mind my inquisitiveness. He had retired several years ago after working for 35-plus years. The first few years of retirement went well���until the 2008 financial crisis. His nest egg had shrunk, and he was too afraid to dip into it. Instead, he needed ongoing income to supplement his investment earnings. He didn���t think he could ���re-retire��� anytime soon.
I found his story hard to believe. How could a citizen of the world���s wealthiest country be unable to afford retirement after a multi-decade career? Did he lose money flipping houses or in some other crazy get-rich-quick scheme? I didn���t know what had happened, but I got a clue later when I learned about the effect of the financial crisis on new retirees. Ted was probably one of the many investors who had responded to the market plunge by panicking and cashing out their investments, vowing never to own stocks again.
Ted���s story made me worried. Was I going to end up in the same boat when my paychecks stopped? How much money would I need for retirement, and how much longer would I have to work to get there? With my daughter in college, it was a good time to research my retirement readiness.
The exercise was overwhelming. As I navigated through the retirement planning maze, my spreadsheet got overly complicated, with dozens of parameters and macros. I didn���t expect so many moving parts and so many unknowns. I was getting nowhere in figuring out a target size for my retirement nest egg. The number varied widely depending on my assumptions and inputs.
It then dawned on me that I was asking the wrong question. It wasn���t about how much money I���d need to retire comfortably. Rather, the question was whether my personal time and independence were more valuable than financial comfort. It was about finding the courage to set a retirement date.
Buying time. With this changed mindset, my spreadsheet appeared to tilt in my favor. Unless catastrophe struck, I wasn���t too far from financial freedom. On my 47th birthday, I made a resolution to retire in three years, by the end of 2017. I wrote down the number 1,095���the number of days until my 50th birthday���and pinned it on our kitchen wall.
My daughter was amused. My wife was more surprised than anxious. Could I really afford to walk away from a golden-egg-laying career so soon, especially after a late start? Truth be told, I was a little puzzled, too, until I analyzed our cash flow. The secret wasn���t an oversized gain on smartly picked stocks, nor was it financial windfalls. Instead, it was that we lived far below our means.
Frugality was ingrained in me, thanks to my parents. They also imparted many other sound money habits that have paid off bigtime throughout my life. I had been able to handle money responsibly and keep expenses in check since my schooldays. Growing up in a middle-class family in India, I also learned to abhor debt. Paying off a loan always felt like an accomplishment.
Our low expenses helped in two ways. First, we didn���t need a large nest egg to support our modest lifestyle. Second, our supercharged savings rate, which typically ran at least 60% of our household���s after-tax income, quickly got us to our number���what we needed for financial security. The compound growth of our dollar-cost-averaged investments did its magic.
To be clear, our financial situation was far from rock-solid, especially for an early retiree. The plan could���ve backfired. But I wanted to take my chances, knowing that I could reverse course if things didn���t work out. My wife didn���t intend to stop working in the near future. That, and the flexibility of my plan, made things easier.
As I approached my 50th birthday, I broached the subject of retirement with my supervisor. His brilliant suggestion turned out to be the best financial guidance I���ve ever received: He advised me to gradually reduce my work hours rather than stop abruptly. I took him up on his offer.
Switching to a part-time role at age 50 has worked out well, and I still love it. I get the extra time for my personal interests. Without the pressure of a high-powered career or the feeling that I���m dependent on a paycheck, I enjoy my work more. My modest spending habits may not appeal to others���but they���ve bought me one of life���s greatest luxuries, which is financial freedom.
Sanjib Saha is a software engineer by profession, but he's now transitioning to early retirement. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is��passionate about raising financial literacy and��enjoys helping others with their finances. Check out his earlier articles.
Things didn���t quite turn out that way.
I started my career as a software engineer in Kolkata, my hometown. But as a lover of travel, I seized opportunities to work abroad and get to know new cultures. My plan was to work in other countries while I was young, before heading back to Kolkata with my wife to settle down. America was on my bucket list. An opportunity came almost by accident.
While working in Ireland in the late 1990s, I returned to Kolkata to visit my parents. I bumped into an acquaintance who lived in the U.S. and worked for a software company. In those days, many software engineers regarded his employer as the premier software company. Sensing my envy, he asked for my resume. I was skeptical about my prospects but, on his insistence, I typed up a CV.After returning to Ireland, I forgot about the whole thing, but he didn���t. A recruiter called me weeks later to set up a few phone calls to check my technical knowledge. Once I had cleared that hurdle, the recruiter offered to bring me to the U.S. headquarters for interviews. An expense-paid trip across the Atlantic sounded like a great deal, and I was soon on a plane heading to the Pacific Northwest.
The dozen or so interviews over two days were grueling. I was bombarded with all sorts of questions, including brainteaser puzzles and bizarre algorithmic problems. By the end, I felt I had wasted everyone���s time. Demoralized, I returned to Ireland.
When the recruiter called back the next week, I was almost certain that I hadn���t made the grade. But to my surprise, she offered words of congratulation: I had made it.
My coworkers and supervisor at my Irish employer advised me to accept the position. I leaned toward doing so, but there was a downside: taking another foreign job in my early 30s would delay my eventual return to India.
On the other hand, the upsides were too attractive to ignore. The chance to be part of a transformative company might never come my way again, I���d get to explore a beautiful country full of natural wonders, and the job might be my ticket to financial freedom���for two reasons.
First was the promising math of working in a high-income country before returning to one that has a low cost of living. Even modest savings would go far in my hometown. I���d already saved a bit from my previous overseas jobs. A few years of saving in U.S. dollars would mean increased financial security.
Second, my pay package included stock options���a benefit I���d never before heard of. The recruiter explained that, when the options vested, I���d reap the profit from any rise in the company���s share price since my starting date. The stock had been on a tear for nearly a decade. If history was any guide, she said jokingly, the options would make me a lot of money. Little did I know that all my options would expire worthless and that the stock wouldn���t recover for 15 years, thanks to the bursting of the dot-com bubble. So much for getting rich quick.
Because I was na��ve enough to extrapolate past performance of the company���s stock into the future, the overall compensation package looked unbelievably attractive. Great work, beautiful place, generous pay. What more could I ask for? I accepted the job offer and moved to the U.S. in early 2000.
Coming to America. The new chapter of my life started well. That summer, I visited a close friend of many years who was also now living in the U.S. It was refreshing to catch up with him and spend time with his family. His wife suggested that I buy a house. When I replied that I planned to go back to India in a few years, my friend laughed and made three predictions: I���d soon gain at least 20 pounds, I���d have no time to connect with friends and I���d live in the U.S. permanently. I made a friendly bet that he was wrong.
Over the next few years, we lost touch���until tragedy struck. My friend suffered a cerebral stroke and was put on life support. I flew to see him as soon as I could but, alas, he never awoke from the coma. I didn���t get a chance to say goodbye, let alone treat him to something as payment for the three bets I���d lost.
My friend���s premature death shook me. He wasn���t even 40. I felt that my life also was ticking away. I started to picture my future self and the family who depended on me financially. What would happen to them if I died? Who would attend my funeral and what would they say about me? My midlife crisis set in early.
Meanwhile, I, too, had a few ups and downs. I went through a divorce in 2003. What followed was a period of ultra-frugality while I put my financial house back in order. I said goodbye to every hint of luxury���the almost new car, the spacious rental apartment, vacation trips, cellphone, even going out with friends. To save on rent, I bought a poorly lit townhouse in a not-so-great location. I rarely bought anything beyond groceries and essentials. I cooked all my meals and limited my socializing to occasional get-togethers with close friends over homecooked food. The local library became my only source of books and videos. With a four-figure cost of living and my six-figure income, it didn't take long before I was back on track financially and able to resume a less thrifty lifestyle.
A few years later, I remarried. I abandoned my plan to return to India and decided to settle permanently in the U.S. This last decision nixed my plan for financial freedom. I could no longer count on a lower cost of living later in life. I was 38 and effectively starting my financial journey from scratch.
My friend���s demise was also a wakeup call. I needed to stop procrastinating and get serious about my financial responsibilities, especially now that I was not only remarried, but also had a stepdaughter. I bumped up the coverage amounts on my life- and disability-insurance policies. I named beneficiaries on my financial accounts. I figured that I needed to do more than just save aimlessly���I needed to plan. That was when I realized my biggest money blunder.
I was clueless about the stock market and its indispensable role in building wealth over the long term. I had wasted the first 15 years of my career, taking shelter in bank certificates of deposit and savings accounts. I had, unfortunately, missed out on years of stock market compounding. No, I wasn���t sitting on the sideline with cash, waiting for a better time to invest. Rather, I simply mistook the sideline for the playground.
Thankfully, I also possessed a valuable asset���my income-earning potential���and that offset my many financial mistakes, big and small. I was fortunate that software engineering turned out to be a dependable career for my generation, providing not only abundant job opportunities and high pay, but also enjoyment and satisfaction. The steady income, and the security it provided, was my greatest financial strength.
Fixing my money mistakes was easy once I took the time to learn about investments and personal finance. I maxed out my 401(k) contributions, putting the money in diversified stock funds. I got into the habit of investing my savings in inexpensive index funds. Because of the demands of work and family, and the pursuit of various hobbies, I was too busy to pay much attention to market noise. That was a blessing in disguise.
Wrestling with readiness. The 2000s went by swiftly. My wife went back to work, and the extra income bolstered our household balance sheet. My stepdaughter started elementary school and���seemingly before we knew it���was off to an in-state university. As empty nesters, our daily life slowed, and I had time to focus on something that had been bothering me.
A brief interaction with a stranger, whom I���ll call Ted, left me anxious about our finances. Ted was a part-time driver for a shuttle service that my employer used for local commutes. One day, I was feeling unwell at work and needed a ride home. Ted showed up with a car.
Ted appeared to be in his late 60s or early 70s. He was eager to strike up a conversation and, from his remarks at stoplights and amid the rush-hour traffic, I figured he was disgruntled with his job. I was curious as to why he was still working at his age, especially if he disliked his job so much.
Ted didn���t mind my inquisitiveness. He had retired several years ago after working for 35-plus years. The first few years of retirement went well���until the 2008 financial crisis. His nest egg had shrunk, and he was too afraid to dip into it. Instead, he needed ongoing income to supplement his investment earnings. He didn���t think he could ���re-retire��� anytime soon.
I found his story hard to believe. How could a citizen of the world���s wealthiest country be unable to afford retirement after a multi-decade career? Did he lose money flipping houses or in some other crazy get-rich-quick scheme? I didn���t know what had happened, but I got a clue later when I learned about the effect of the financial crisis on new retirees. Ted was probably one of the many investors who had responded to the market plunge by panicking and cashing out their investments, vowing never to own stocks again.
Ted���s story made me worried. Was I going to end up in the same boat when my paychecks stopped? How much money would I need for retirement, and how much longer would I have to work to get there? With my daughter in college, it was a good time to research my retirement readiness.
The exercise was overwhelming. As I navigated through the retirement planning maze, my spreadsheet got overly complicated, with dozens of parameters and macros. I didn���t expect so many moving parts and so many unknowns. I was getting nowhere in figuring out a target size for my retirement nest egg. The number varied widely depending on my assumptions and inputs.
It then dawned on me that I was asking the wrong question. It wasn���t about how much money I���d need to retire comfortably. Rather, the question was whether my personal time and independence were more valuable than financial comfort. It was about finding the courage to set a retirement date.
Buying time. With this changed mindset, my spreadsheet appeared to tilt in my favor. Unless catastrophe struck, I wasn���t too far from financial freedom. On my 47th birthday, I made a resolution to retire in three years, by the end of 2017. I wrote down the number 1,095���the number of days until my 50th birthday���and pinned it on our kitchen wall.
My daughter was amused. My wife was more surprised than anxious. Could I really afford to walk away from a golden-egg-laying career so soon, especially after a late start? Truth be told, I was a little puzzled, too, until I analyzed our cash flow. The secret wasn���t an oversized gain on smartly picked stocks, nor was it financial windfalls. Instead, it was that we lived far below our means.
Frugality was ingrained in me, thanks to my parents. They also imparted many other sound money habits that have paid off bigtime throughout my life. I had been able to handle money responsibly and keep expenses in check since my schooldays. Growing up in a middle-class family in India, I also learned to abhor debt. Paying off a loan always felt like an accomplishment.
Our low expenses helped in two ways. First, we didn���t need a large nest egg to support our modest lifestyle. Second, our supercharged savings rate, which typically ran at least 60% of our household���s after-tax income, quickly got us to our number���what we needed for financial security. The compound growth of our dollar-cost-averaged investments did its magic.
To be clear, our financial situation was far from rock-solid, especially for an early retiree. The plan could���ve backfired. But I wanted to take my chances, knowing that I could reverse course if things didn���t work out. My wife didn���t intend to stop working in the near future. That, and the flexibility of my plan, made things easier.
As I approached my 50th birthday, I broached the subject of retirement with my supervisor. His brilliant suggestion turned out to be the best financial guidance I���ve ever received: He advised me to gradually reduce my work hours rather than stop abruptly. I took him up on his offer.
Switching to a part-time role at age 50 has worked out well, and I still love it. I get the extra time for my personal interests. Without the pressure of a high-powered career or the feeling that I���m dependent on a paycheck, I enjoy my work more. My modest spending habits may not appeal to others���but they���ve bought me one of life���s greatest luxuries, which is financial freedom.
Sanjib Saha is a software engineer by profession, but he's now transitioning to early retirement. Self-taught in investments, he passed the Series 65 licensing exam as a non-industry candidate. Sanjib is��passionate about raising financial literacy and��enjoys helping others with their finances. Check out his earlier articles.The post Freed by Frugality appeared first on HumbleDollar.
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