We quit our jobs a little over eight months ago. We didn’t tell anyone about our plan until after our resignations were handed in. No one expected us to do anything of the sort. All of our family, friends, colleagues – complete surprise.
We’ve received a lot of questions about our new life – What’s the point of this time off? What’s your plan? When are you going to go find new jobs? Are you scared? What do you do all day? (Note: we’ve heard this particular question approximately 1000% more than when our days were spent whirling around in Aeron chairs – everyone asks it now, no one did before).
The question that many people seem to find toughest to vocalize (and we usually don’t hear until at least the third beer), is “How can you afford to just quit your jobs?” This is also, funnily enough, probably the easiest question for us to answer. The answer doesn’t relate to any deeply held hopes or dreams. It doesn’t reveal anything about our souls. It’s just dollars and cents. Cold dry facts.
So here it is. We can afford to quit our jobs because … drum roll… we saved a whole bunch of money!
Okay, I know that probably isn’t the big reveal that some readers might have been hoping for. But it’s the truth, and usually it’s best to tell the truth.
I think some of our friends sort of secretly believe that we must have a trust fund somewhere or perhaps one of us was quietly pulling in bazillions while we were employed. Neither is the case. We were relatively well paid during our employment, that is true. I have zippo complaints about our salaries. But we weren’t tech wunderkinds or financial gurus or brain surgeons. We never had a liquidity event. We were both mid-level paper pushers at our respective corporate gigs.
Although I definitely credit the fact that we made pretty good money for upwards of 10 years as a very helpful first step, it wasn’t the only factor or even the primary catalyst for being able to leave our jobs. After all, many of the people expressing incredulity were our own colleagues, whom we know made similar or even higher salaries. So, yes, our real-life “you gotta save” example sounds trite. Like MSNBC or CNN Money lite-finance advice. But it’s true. The way we got to the corporate off-ramp was through good old parsimony. Turns out, being a cheap-ass has its benefits.
Here’s an example. When I was a little baby corporate drone, approximately a million (i.e., ten) years ago, I was half-way in the market for a new car. My former girlfriend and I had broken up, and I was carless as she had a greater need than me for our wheels (she drove to work, I took public transportation every day). Anyway, I had grown up in the middle country. Where the wheat fields are wide and the roads are long. Where a car is an absolute necessity. I was relatively new to San Francisco. I was a young professional. I thought I should have a car.
Middle-of-the-Country Me was sort of thinking about a Honda Civic. Or a Nissan Sentra. Two of my colleagues – fellow junior corporate drones – were convinced I should buy a BMW 325i. Their conviction centered around the idea that the BMW would properly reflect my “position” in life, and that it would help Swanky Me attract the “ladeeez”. I wasn’t exactly certain that the ladeeez would really like me better in a 325i, and thought it ill-advised to invest more than $30,000 in such a nonscientific plan …
So I fiddled and twiddled and researched, all the while getting more and more used to not having a car. Work and friends and restaurants and bars and the laundromat and the grocery store were all accessible by walking and public transit. I enjoyed wearing out my sneakers exploring San Francisco. I never made it to a dealer to test drive cars. I never finished my research. I never bought a Civic or a Sentra or BMW. Not in 2005 and not in any of the years that I lived in San Francisco.
That one decision, which was less of a decision than a failure to make a decision, ended up saving me a bunch of money. In 2005, a brand new Nissan Sentra would have cost about $17,000, a BMW 325i about $30,000. Car insurance would have been perhaps $1500/year (the Sentra a bit less, the BMW more). And if I had financed the purchase, the total interest costs over a five-year loan (assuming 5% interest) would have ranged from $2,250 (Sentra) to $4,000 (BMW).
Around the same time that my two colleagues were pushing the joys of flagrant materialism, another colleague, who was only recently out of school and very much the most junior member of the team, found out that I was using a basic checking account, at zippo interest, as my one and only storehouse for savings. She was appalled by this. I still remember her 24-year-old jaw falling as she realized that her corporate superior was, in fact, an idiot. She plopped down in my office and refused to leave until I opened a high-interest on-line savings account at ING (now Capital One). The rates varied month-to-month, but I made somewhere between 3.0% and 5.0% in annual interest from 2005 through 2007 (interest rates fell precipitously in the financial crisis of 2008/2009). There may have been higher yielding savings accounts than at ING. There were certainly other, different, investment options (stocks, bonds, tax-deferred accounts, etc.) that I could and should have built into a cohesive financial investment plan. But even though I could have done it all much better, my junior colleague’s insistence that at the very least my savings had to be in an interest bearing account ended up making me a lot of money over time.
Back to our example. In order to calculate my savings from not buying a car during the time I lived in San Francisco, let’s assume I deposited in my ING account (i) in 2005, the entirety of the auto purchase price, (ii) at the beginning of each of the following 5 years that I lived in San Francisco, an amount equal to the annual auto insurance premium, and (iii) at the end of 2009, an amount equal to the total auto loan interest charges. So, after running the figures, by the time I left San Francisco in 2009, Cheap-Ass Me had $29,480 more than Middle-of-the-Country Me (Sentra) and $45,959 more than Swanky Me (BMW) would have had.*
Of course, Cheap-Ass Me also had to survive in San Francisco without owning a car. Which, umm, was fine. No problem. Life was easier without worrying about parking and break-ins and traffic (all of which are terrible in that city). I got tons of exercise walking the hills and learned my way around the architecture and parks and points of interest with an intimacy that is impossible to have when zooming by at 40 mph. Sure, once in a while it would have been nice to have a car to run errands or head out of the city to explore the mountains or the vineyards. But in those instances I either made do with public transit or rented a car. And I met the perfect girl and managed to get her to date and even marry me, all without owning a car.
I don’t mean for the above example to imply that I haven’t spent money in other ways (and sometimes imprudently – I’ll discuss my restaurant predilection in another post), or that all corporate types necessarily buy fancy cars (although clearly some do). The example is only meant as that, an example. It shows one instance where I opted out of something that many would consider ordinary course for a young professional.
The example, however, is fairly reflective of how I’ve lived my entire adult life. Frugally. Partly because of indecision (hard to decide how to spend the money), laziness (hard to get moving on the research much less head to the store), doubt (do cute girls or friends or family or colleagues really care about my car or my clothes or my house or my smartphone?), and mostly because I’ve always liked the feeling of stacking up my pennies and knowing that they’ll be there when I need them.
I wish I could say that ten years ago I was a financial whiz and I’ve managed my money with consummate diligence and skill ever since then. But that wouldn’t be true. Not by a long shot. For many years I didn’t have any real investments. For several years I put off contributing to my company’s 401K – I was just too lazy to fill out the paperwork, and figured I could always do it “next year.” There are tons and tons of things I could have done better in past years, and I wish I had. But even without financial wizardry, just saving pennies makes a huge difference. Putting the money in a special account and not spending it. Sounds simple, and it is. Sometimes the simple answer is the best answer.
* Assumes ING paid me 3.5% annual interest on deposited funds from 2005-2007 and 1% from 2008-2009 (compounded monthly). See here for historical (non-official) interest rates.
Calculation does not include the additional costs of license/registration, gas or maintenance. I also did not take into account public transportation costs because, whether or not I owned a car, I would have taken public transit to work in order to avoid the exorbitant cost of downtown parking.
Of course, if I had purchased a car in 2005, it would have retained some of its value in 2009, depending on condition. One depreciation calculator suggests that, on average, the market value of cars depreciates about 60% over the first five years. Therefore, Middle-of-the-Country Me and/or Swanky Me might have ended up with a bit of cash upon sale of the car (perhaps $6,000 for a Sentra/$12,000 for a BMW), but would, overall, still be out far more money than Cheap-Ass Me.