My Two Cents

AN UNPLEASANT PRICE shock awaits those who grew up in a low-cost-of-living nation and then relocate to a high-cost country. Coming from India, I experienced it firsthand, as I routinely converted prices into Indian rupees and compared them to the cost of similar items back home. In my initial years abroad, this made it challenging to open my wallet. Everything appeared overpriced.

It took time to come to terms with the fact that, despite higher living costs, I could still afford most necessities, thanks to my higher income. Continually calculating prices in Indian rupees became increasingly illogical and tiresome. Nevertheless, I couldn’t entirely abandon the habit. Instead, I adopted a simplified approach, one that factored in differences in purchasing power.

My new calculation: I’d append a zero to the local price—effectively multiplying it by 10—and consider that figure as the “affordability-adjusted” price in Indian rupees. For instance, if the $20 price tag for a haircut had me pondering a ponytail instead, my thought process would be as follows: If I still lived in India, instead of relocating abroad, would I hesitate to spend 200 Indian rupees to appear well-groomed?

Why did I choose to add a zero, instead of relying on the official currency conversion rate? The exchange rate sometimes made the cost in rupees seem exorbitant. But I instead focused on the average salary in both countries of a software engineer, which is my profession.

For instance, if a software engineer in the U.S. earns a salary of $100,000, the same person in India might earn 10 times that amount in Indian rupees, or 1 million rupees. If the U.S.-based engineer considers the price of a haircut to be reasonable, then the engineer in India should likewise regard the “affordability adjusted” price—the rupee price with an extra zero added to the end—as reasonable.

As unscientific and inaccurate as this approach may sound, it did magic in overcoming my fear of overspending, particularly in my initial years of living abroad. I came to understand that many everyday items—groceries, household essentials, personal care products, electronics and the like—were surprisingly affordable, despite the higher price tag in absolute terms. Conversely, expenses such as housing, repairs and services appeared relatively expensive. Consequently, I aimed to minimize my spending on these costlier categories, ultimately finding a balance I felt comfortable with.

HumbleDollar readers might recall from my previous writings that my financial situation went downhill following my divorce. As a newly single man in my 30s, I faced an urgent need to rebuild my broken finances. I made significant lifestyle cutbacks, meticulously scrutinized the value I’d receive for every dollar I contemplated spending, and earned a well-deserved reputation for being thriftier than any of my friends.

Fortunately, within a few years, I came to realize that my behavior wasn’t merely frugal but bordered on miserliness. By that time, my financial situation had improved, and I no longer needed to cling to my unsustainable lifestyle. Still, I found it surprisingly difficult to tamp down my relentless focus on cutting costs. Undoing my penny-pinching ways turned out to be a more formidable challenge than restoring my post-divorce balance sheet.

Being a tightwad became even more problematic when I remarried a few years later. My wife, who had spent several years as a single mother before our marriage, wasn’t extravagant. Yet we often found ourselves engaged in unpleasant arguments over how tightly to hold the purse strings. My constant scrutiny of every expense became a source of frustration and irritation for my new partner.

As a compromise, I resolved not to expend time and energy scrutinizing expenses that fell below a certain dollar threshold. My recollection is a little fuzzy—this was around 2006—but I believe I started at $10 and quickly made a few upward adjustments. I hoped this would help reduce our contentious spending discussions, while also alleviating my anxiety about overspending.

Like my “affordability adjustment” to reflect my higher salary abroad, this approach also proved remarkably effective. While we, like any new couple, had our fair share of quarrels, they no longer centered around money. Instead of obsessing over every minor expense, I concentrated on large or recurring expenditures. My wife was relieved that she didn’t have to defend every spending choice. Our monthly expenses increased, but so did the quality of our relationship and our time together as a family.

As our careers advanced and our household income steadily increased, my threshold for worry-free spending gradually rose, although it did so at a more moderate pace. I was also getting better at managing my money anxiety.

When I opted for semi-retirement a few years ago, I realized that I needed a new approach to determine my worry-free spending threshold. Since my pay was now less certain, it seemed illogical to base the threshold amount on income. Instead, I found it more rational to establish a limit based on the size of our nest egg. This is when I conceived my “two cents” rule.

The concept is this: If I had $100 to spare, I likely wouldn’t stress over wasting a couple of cents here and there, as long as I’m careful with the dollars. Expanding on this logic, a millionaire shouldn’t be overly concerned about occasional expenditures of $200 or less, unless such expenditures were becoming too frequent.

My new asset-based rule yielded a much larger threshold compared to my previous income-based one. Although I initially hesitated to raise the limit for worry-free spending, I gradually adopted it, especially with the support of a bullish stock market and the continuing income from my part-time job. Result: I now allocate more time to engaging in joyful activities—and less time to dwelling on minor financial decisions.

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.

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