FINANCIAL PLANNERS often ask new clients about their first money memory. Mine was about an early encounter with inflation. It involved a favorite childhood snack named fuchka, a popular street food in Kolkata, where I grew up. The snack is a ball-shaped flatbread, filled with spicy potato mash and topped with tamarind water. As you crunch its crispy shell, the magical flavors burst in your mouth and take your tastebuds on a rollercoaster ride. As a child, this occasional savory treat was my main motivation for earning pocket money. In my elementary school days, our neighborhood street-food vendor used to sell three pieces for 10 paisa—roughly one cent at that time. I rarely had more than five paisa, for which the vendor gave me just one piece. I challenged his math and demanded fairness. Pestered by this argumentative little boy, he agreed to give me an extra piece with every other purchase. I felt proud of my negotiation skills. My joy didn’t last long. Out of nowhere, the vendor raised the price to two pieces for 10 paisa. No more extra pieces for me. This came as a surprise. My little mind couldn’t comprehend how and why prices could increase overnight. Angry and frustrated, I ran home to my mother and drew her attention to this injustice. To my disappointment, my mother seemed more sympathetic toward the vendor than her own son. She told me that prices go up over time but couldn’t explain why. Her advice: Sign up for more chores to boost my pocket money. My childhood snack is 100 times pricier these days, compared with a threefold rise in U.S. hot dog prices over the same period, reflecting India’s far higher inflation rate in recent decades. Today, inflation doesn’t surprise me. What does is the realization that my mother isn’t the only one who’s clueless about its causes.

I'M FRUGAL AND FEEL fortunate to be so. Indeed, among all the financial skills I’ve learned, frugality stands out as the most powerful. But at the same time, I also feel affluent. This might seem like a contradiction, but the mindset of frugality and the feeling of affluence strike me as two sides of the same coin. Frugality is often associated with being cheap. Frequently, “affluent” is used interchangeably with “wealthy.” I beg to differ. Frugality is about avoiding spending on things that have little value, while affluence is about having things that truly matter. I believe it’s possible to strike a balance, so you’re frugal and affluent at the same time. My family’s frugality is evident in our spending. When I compare our average household expenses to those in the same income decile, our numbers are much lower. In fact, our annual expenses are closest to the income group that’s two deciles below ours. Meanwhile, we rank in the top quartile for household income in our city, and yet the value of our single-family home is below the city median. All but one of the cars we’ve ever owned, including the two we bought in the past year, were purchased preowned. We use them for as long as they're safe and comfortable to drive. We are frugal. But we are affluent, too, in the sense that money has never constrained us from having and doing the things we care about. We vacation a lot, often abroad and never on a shoestring. Each of us freely pursues our interests, despite some being somewhat expensive. My lovely wife has a fascination with luxury German-built sport sedans and SUVs, while I’m a minivan person. We own one of each. We have both been able to take long, unpaid time off from work to care for our ailing parents, without worrying about the financial impact. We strive to be generous with those we care about. Most important, we earned our financial independence a few years ago, so my wife and I now have the freedom to retire early or scale back our work. This is what our frugality has bought us. While frugality is a struggle for many, it came naturally to me. Growing up in a middle class, single-earner family, the good habits of budgeting and responsible spending were ingrained in me. After I finished my education and started living on my own, I religiously followed the “save first” mantra and fought every urge to be extravagant. While my self-discipline was great for my financial future, it also led to occasional feelings of being deprived. I was frugal, but I didn’t yet feel affluent. To prepare for new management responsibilities at work, I was compelled to learn new skills and get broader exposure to business problems. Three key insights from this training came in handy for my personal life. First, the 80/20 rule helped me to relax my self-imposed tight spending rules. I discovered that by increasing my spending just a little, I was able to boost my satisfaction with life significantly. The feeling of deprivation was gone. Second, the “do more with less” paradigm helped me to focus on my family’s top priorities. I identified our most important financial goals and channeled most of our money there. Third, the KISS—keep it simple, stupid—philosophy helped me unclutter our finances and put our money management on autopilot. All these lessons transformed me from being overly cautious about spending to a more balanced lifestyle. Today, we are affluent because we are frugal. Like that idea? Try benchmarking your income and expenses using survey data. If your annual expenses are the same or higher than your income group, the chances are you can reduce your spending without any perceptible impact on your lifestyle. Track your expenses, ruthlessly reducing or eliminating spending that has little meaningful value. This will help you spend more on things you find truly rewarding. It doesn’t take a supersized income, financial windfalls, unsustainable self-deprivation, extraordinary luck or investment genius to become affluent. Even if you have none of these, but you have frugality, financial success is all but inevitable. A software engineer by profession, Sanjib Saha is transitioning to early retirement. His previous article was Cost of Living. Self-taught in investment and financial planning, Sanjib is passionate about raising financial literacy and enjoys helping others with their finances. Earlier this year, he passed the Series 65 licensing exam as a non-industry candidate.  [xyz-ihs snippet="Donate"]

I'M A BIT EMBARRASSED to admit that, until I started toying with the idea of early retirement a few years ago, I was pretty ignorant about how Social Security worked. I didn’t even pay much attention to the FICA payroll taxes that were deducted from my paycheck. As I looked into it some more, the prospect of receiving lifelong monthly checks from the government came as a pleasant surprise. I started researching how much I might get. I learned that my retirement benefit depended primarily on two factors. First, the system would calculate a monthly benefit—called my primary insurance amount—based on my taxed Social Security earnings. The second factor would be when I decided to start benefits. I could claim Social Security as early as age 62, and take a permanent haircut on my benefits, or wait until as late as 70 to juice up my monthly payments. Based on my birth year, the system designated 67 as my normal retirement age. That’s when I would get 100% of my primary insurance amount—the benefit I’d earned by paying Social Security taxes. I was still unclear, though, exactly how my benefit would be calculated and whether early retirement might affect it. Should I plan to work longer to boost my monthly benefit? How much longer? Would my benefit grow substantially because of those extra years of toil? I’d already paid the maximum Social Security payroll taxes for 15 years, thanks to the steady paychecks from my software engineering job. In my naïve thinking, if 15 years of payroll taxes got my primary insurance amount to, say, $1,500 a month, then each additional working year would proportionately increase the monthly amount by another $100 or so. As with most things, the answer turned out to be more nuanced. To illustrate, imagine a hypothetical worker named Fred who was born in 1960 and started his career at age 22. Throughout his working years, he earned enough to contribute the maximum annual Social Security tax. The accompanying chart shows Fred’s monthly primary insurance amounts if he stopped working at different ages. Notice that Fred gets nothing if he stops working before turning 32. That’s because it takes 10 years, or 40 quarters, of payroll tax contributions to be eligible for Social Security benefits. Also note the diminishing effect of Fred’s contributions on his benefits during the second half of his career. His benefit’s growth decelerates in his early 40s, and almost stops after age 57, even though he works five more years. Why are Fred’s later contributions less valuable—or outright ineffective—compared to those earlier in his career? The devil is in the details of the timing and amounts of Fred’s Social Security contributions. Fred’s annual contributions are indexed, or adjusted, to factor in wage growth over his working life. These indexed earnings are then combined over 35 years to calculate Fred’s average indexed monthly earnings. Think of this as Fred’s Social Security earnings averaged over 420 months, or 35 years of work. What if Fred worked fewer than 35 years? His earnings would still be averaged over 35 years, but with zeroes for the idle years when no taxes were paid. And if Fred worked for, say, 40 years, his lowest-paid five years would be dropped from the equation. This explains why Fred’s benefit barely budges after 57. If he keeps working, he’d be replacing lower-earning years with higher-earning years—but he’s credited with 35 years of work in either case. The difference between the two rates of pay isn’t significant enough to bump up his benefit much, particularly after the lower-earning years have been indexed for wage inflation. [xyz-ihs snippet="Mobile-Subscribe"] Once Social Security computes Fred’s average indexed monthly earnings, it then plugs that number into a three bracket system to calculate his benefit payment. In the first bracket, each dollar of his credited monthly earnings adds 90 cents to his benefit, up to $1,115. The second bracket adds 32 cents for each dollar of credited earnings between $1,115 and $6,721. The third bracket adds 15 cents for each dollar of credited earnings over $6,721. The idea behind these brackets is to favor the folks who’d probably need the benefits the most due to their lower lifetime income. For example, if Fred had a much lower-paying job, his benefits would be lower—but it would represent a much higher percentage of his working years’ wages. In my case, starting my benefits at my full retirement age of 67 would provide me with 100% of the primary insurance amount to which I’m entitled. I’d receive a monthly payment for the rest of my life, which could be passed along to my wife if she survives me, plus it’s increased annually to keep up with the cost of living. As sweet as all this sounds, 67 is not the age when I plan to claim. Waiting for my maximum benefit at age 70 seems like the wiser choice. My benefit would increase by 8% each year I delay claiming, plus annual cost-of-living adjustments will be added on top of that. I won’t be working until I’m 70, though. Like Fred, working longer would increase my benefits only marginally—certainly not the $100-a-month boost that I’d imagined. Grinding beyond a few more years for the sake of a minimally higher Social Security payout doesn’t seem appetizing. Waiting a little longer to claim, though, does seem palatable given the big gain in benefits that would result. Want to know where you stand? You can get an estimate of your benefits from Social Security’s online calculator. 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. [xyz-ihs snippet="Donate"]

HOW WE SPEND DEPENDS on how we feel about money. To be sure, we’re supposed to spend according to our financial situation and needs. But life experiences can so badly distort our attitude toward money that our financial decisions end up being ruled by fear and insecurity rather than questions of affordability. Such is the case with an acquaintance—let’s call her Satee—whose money habits are at odds with her financial standing. Satee grew up in a typical Indian family of four. Her working dad was the family’s primary breadwinner and financial decision-maker. Her homemaker mom put most of her energy into raising their two kids and taking care of the house. In their family, the financial and nonfinancial responsibilities were clearly divided between husband and wife. When Satee got married, she envisioned becoming a homemaker instead of a moneymaker. She wanted to be a supportive wife, a loving mother and a responsible daughter. Handling money was neither appealing to her nor on her list of responsibilities. Satee’s husband was professionally successful and financially savvy. They moved to the U.S. and had two children. They bought a house, saved for retirement and set aside money for the kids’ education. Everything was falling into place, just as Satee had hoped, except for one problem: Relationship and trust issues soured their marriage. Long story short, Satee went through a messy and conflict-ridden divorce that dragged on for months and turned her world upside down. A property settlement was eventually reached, but the bitter memories and fear of uncertainty remained. Satee took a while to accept her new role as head of a household with two school-age children. To get through the rough patch, she turned to the local community for emotional support. She met my wife through a mutual friend and quickly formed a bond with her. A few years later, she connected with my wife again. This time, she seemed happy and settled. She had some money questions and my wife asked me to help. Satee and I chatted a few times, going over some financial basics. She was keen to learn more. Satee focused a lot on ad hoc, short-term money decisions. She had no clear long-term financial picture. Instead, she was consumed with keeping a tight lid on her spending. Her modest lifestyle left no room for indulgences or even small niceties. I couldn’t tell if the scrimping and excessive penny-pinching were out of necessity or insecurity. Her financial situation didn’t seem so dire. She owned a paid-off single-family house in a good neighborhood, had a decent job with a six-figure salary, and the kids had fully funded education accounts. On my insistence, Satee figured out her actual annual expenses for the past few years. It took her a lot of time to come up with the numbers—not because she was unwilling or shirking, but because her finances were overly complicated with multiple accounts. It was no wonder she lacked a clear picture of where she stood financially. With some help and handholding, Satee finally managed to get the numbers. Her actual spending in each of the past three years turned out to be far smaller than the number she’d fabricated in her head. I wasn’t too surprised. She behaved financially as if she was in poverty, and I knew that wasn’t the case. [xyz-ihs snippet="Mobile-Subscribe"] Evidently, Satee was underspending and over-saving. The next question I asked: Did she need to save so much? To answer that, she needed to take stock of all her financial assets. Once again, this simple step took longer than it would for most people. As with her spending accounts, Satee had too many financial accounts, including savings accounts with several local banks and credit unions, high-yield money-market accounts and certificates of deposits with various online banks, a couple of brokerage accounts, retirement accounts from current and past employers, and so on. Once she located all her financial accounts and reestablished online access, she gave me a call. I asked Satee to go through each account and enter the balance on a spreadsheet—a step she’d never done before. I then asked her to add the numbers up. At first, Satee didn’t believe the result. Per the spreadsheet, she was already a millionaire in her early 40s, without including her home equity, kids’ education funds and other assets. She double-checked each account. She was hoping to get a different answer, but the numbers didn’t lie. It was clear she didn’t need to save so aggressively. Will the revelation change anything? Will Satee allow herself and her family occasional splurges? Or will she continue to let money rule her life and continue to get worked up about every unexpected expense, no matter how small? I certainly hope Satee strikes a better balance between spending and saving, but I wouldn’t bet money on it. Her profound financial insecurity took root during the years of emotional turmoil and uncertainty that followed her marriage’s collapse. It will likely take more than a household balance sheet to overcome her fear of spending. 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. [xyz-ihs snippet="Donate"]

AS A CHILD GROWING up in India, I was taught about the six seasons of Bengal: summer, monsoons, autumn, late autumn, winter and spring. From my recollection, some seasons felt distinct, while others were subtle and transitory. Still, each season had unique characteristics, making it different from the others. A HumbleDollar Voices question—if you could live your financial life again, what would you do differently?—reminded me of the six seasons. How so? Our financial life can also pass through as many as six seasons. I started my financial life with the idea that there were only two seasons: working years and retirement. If I’d recognized the six seasons beforehand and acted accordingly, I could’ve done much better with my most valuable asset—time. What are the six seasons of our financial life? 1. Summer: Financial learning. Bengali New Year starts with summer, arguably the most unpleasant season. Yet the hope of a new beginning overshadows the discomfort from heat and humidity. Similarly, we often start our adult financial life with an occasional stumble and fall. But the thrill of independence trumps any hardships. This is a period to make financial mistakes and learn from them. To explore and settle on a career path. To find a partner and plan a family. The shorter this season, the better. Those who manage to jumpstart their wealth building—saving for housing and retirement—have better odds of enjoying the seasons that follow. 2. Monsoons: Full-throttle saving. The rainy season in Bengal is disruptive. Growing up, I used to hate getting stranded at home because of heavy rain or waterlogging. Instead of playing outside or being with my friends, I had to study or do chores. On the bright side, the extra focus on studies lightened the academic pressure for the rest of the year. The second season in our financial life comes almost as abruptly. We focus mostly on career advancement and earning money, rather than recreation and personal enjoyment. Overwhelming financial responsibilities—for family and housing—force us to reduce waste and streamline spending. Our savings rate rises sharply. 3. Autumn: Slower accumulation. The autumn is highlighted by the festival of Durga Puja, the most enjoyable time of the year for most Bengalis. People slow down to soak up the celebratory mood. [xyz-ihs snippet="Mobile-Subscribe"] The third season in financial life feels the same way. A lifestyle of all work and no play seems unappealing. Our focus tilts away from the career rat race and toward family and other priorities. It isn’t uncommon to scale back career aspirations and make more time for children, or to give up a job altogether to care for an elderly family member. We still earn enough to save a bit toward future financial goals. But we also make a conscious choice to value life outside of work, even when it means less income. 4. Late Autumn: Financial security. Depending on how the prior seasons have turned out, there’s a good chance we can dial back work even further and earn just enough for ongoing living expenses. When can we do this? First, near-term financial needs, such as college education for the kids, must be funded by now. Second, enough must already be saved toward our future financial goals for compounding to take care of the rest. For instance, retirement accounts must have a reasonable balance and enough time to grow before they are tapped. To be clear, we’d still be financially dependent on our jobs during this season, even if we don’t especially like our work. Though we don’t care much about saving anymore, we still need a minimum income to pay the bills. Getting to this stage is when we begin to feel financially secure. How? We know that we have enough for the future, and thus we can choose to spend more time on personal and family interests. 5. Winter: Financial independence. My childhood friends and I used to look forward to the winter months. It was not only the time for school holidays, but also for the seasonal savors. Similarly, we all look forward to financial independence. We may not be wealthy, but we’ve met our financial obligations to others and ourselves. Debts are either paid off or accounted for. Our nest egg is larger and we no longer fear tapping it. We can now choose either to stop working or to work only for enjoyment and supplemental income. From now on, our time is ours. 6. Spring: Conventional retirement. The king of seasons is aptly called the golden age of financial life. Withdrawals from our nest egg may fall as we become eligible for Social Security, Medicare and any other retirement benefits. On the flip side, this final season involves some unique uncertainties. There’s longevity risk, unexpected health issues, and the possible loss of a partner and dependence on others. Still, it’s the season to reflect and be thankful for life’s diverse experiences. 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. [xyz-ihs snippet="Donate"]

AS I'VE TRIED TO HELP folks understand financial issues, I’ve come across numerous money misconceptions. I wasn’t surprised—because, before I learned better, I too misunderstood some of these issues. Here are the top eight misconceptions I’ve encountered: Misconception No. 8: Consumer prices drop when inflation falls. Inflation measures the pace of price increases. Declining inflation simply means that prices aren’t rising as fast, but they’re still going up, albeit at a slower rate. Furthermore, the effect of inflation remains, with prices stuck at higher levels. Inflation is calculated based on price fluctuations for a variety of goods and services. While specific items might slip in price, a positive inflation number—even if it’s smaller than before—still signifies an overall upward trend in prices, rather than a reversal to lower costs. Misconception No. 7: Investing requires professional help. Investing can seem intimidating to beginners, leading many to conclude that professional guidance is the only way to go. But technological advances and a wealth of free educational resources, including HumbleDollar’s money guide, have transformed the landscape. Unlike years ago, today’s investors have access to user-friendly investment platforms and simple, evidence-based strategies like target-date funds and index funds, eliminating the need to rely on professional money managers and stock brokers. Indeed, arguably, investing has become as straightforward as everyday tasks like grocery shopping. Moreover, after learning the basics and gaining confidence, managing investments—especially low-cost diversified investment products—requires surprisingly little time and effort, and there’s no need for extensive knowledge of the financial markets or the economy. There’s nothing wrong with using an advisory service when the cost is reasonable and conflicts of interest are minimized. But doing so is no longer the only way to achieve your investment goals. Misconception No. 6: Buying a home is always financially better than renting. Homeownership carries numerous benefits—emotional fulfillment, lifestyle upgrade, and a sense of stability and belonging. It still symbolizes the American dream. Buying a house for these reasons is fine, assuming it’s affordable. But whether it’s a better financial decision than renting is another story. The cost of homeownership goes well beyond mortgage payments. You need to account for things like property taxes, homeowner’s insurance, regular upkeep, periodic renovations to maintain a home’s market value, and the opportunity cost of the tied-up home equity. All this money could potentially earn higher returns if it was invested elsewhere. To figure out whether buying a specific property at its current price makes sense, you need to do an objective analysis, devoid of social pressure and realtors’ marketing tactics. Misconception No. 5: Social Security won’t be there when we need it. While the Social Security system faces financial challenges, it’s grossly misleading to suggest that the system is insolvent and that benefits could disappear. Projections indicate that the system’s financial deficit would potentially impact less than a quarter of scheduled benefits. Social Security remains the financial cornerstone for millions of American retirees, with most of the funding coming from the payroll taxes paid by current workers. There’s a trust fund to cover the system’s funding shortfall and, without any changes to the system, the fund could be empty in roughly a decade. Even so, the current system would still be able to pay three-quarters of scheduled benefits. Multiple proposals exist to improve the long-term sustainability of Social Security and avoid benefit cuts. Given Social Security’s pivotal role for citizens, failing to fix the system’s finances is almost inconceivable. Misconception No. 4: Estate planning is for the wealthy. Estate planning encompasses a host of possible steps, many geared toward the wealthy, like creating complicated trusts, sidestepping probate and minimizing estate taxes. But contrary to common belief, there are some estate-planning steps that should be taken by everybody. An estate plan addresses how we want medical, financial and legal decisions handled if we become ill or incapacitated and can’t make those decisions ourselves. A will safeguards our family, designating guardians for minors and outlining how we want our wealth distributed. Naming beneficiaries for financial assets—bank accounts, retirement accounts, life insurance and so on—streamlines the transfer of our assets after our death. Such basic estate-planning steps are essential for every adult. Misconception No. 3: Everyone needs life insurance. Insurance—property, health, disability, life and so on—is crucial for limiting the risks in our financial life. But not everyone needs every type of insurance. Sometimes, the cost would be a waste of money because the financial risk involved isn’t significant. For instance, term-life insurance is vital for those without substantial savings who have folks who depend on their income-earning ability. But if your death wouldn’t cause financial hardship to anyone, life insurance becomes an expensive product with minimal benefits. Misconception No. 2: To save for college, it’s essential to fund 529 plans. Faced with steep college costs, parents often prioritize saving for their children’s education. But while 529 plans offer tax-free growth and many have reasonable investment costs, these plans also come with significant drawbacks. If the money isn’t used for education purposes, parents could face steep tax bills, including tax penalties. That’s why parents might want to consider other strategies that offer greater flexibility, such as stashing college savings in a regular taxable account or funding a Roth IRA, where contributions can be withdrawn at any time for any reason. Misconception No. 1: A higher income guarantees faster financial independence. Sure, a big paycheck makes it easier to save. But in the end, what matters is your savings rate as a percentage of your income, rather than the size of your paycheck. In other words, a modest earner could potentially achieve financial freedom faster than a high-income individual with undisciplined spending and savings habits. Moreover, high living costs mean you need a proportionately larger nest egg to sustain that lifestyle in retirement, making financial freedom even harder to achieve. By contrast, modest earners—who save a significant portion of their income and live well within their means—will need a much smaller nest egg to be financially independent. For instance, assuming historical stock market returns, it might take 36 years to achieve financial independence if you save 15% of your income. But if you save 25%, that cuts this timeline to 26 years, while a super-saver with a 35% savings rate might get there in as little as 20 years. These projections don’t hinge on your annual income. Rather, they depend on your investment returns—and your willingness to save. 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. [xyz-ihs snippet="Donate"]