Today we continue the ESI Scale Interview series where people answer questions about their success at working the ESI Scale.
In short, the series focuses on what the interviewee is doing in the areas of earning, saving, and investing. They also get an opportunity to ask ESI Money readers for suggestions if they choose to do so.
If you鈥檇 like to be considered for an interview, drop me a note and we can chat about specifics.
With that said, let’s get started.
Today we had an interview with Mr AE from Apathy Ends.
My questions are in bold italics and his responses follow in black.
OVERVIEW
Please tell us a bit about yourself.
I am 31, my wife is 29. We have 1 kid (~15 months) and 1 on the way (Late Summer).
For those of you who did the quick math, yes, we are about to have two kids well under 2 and are as prepared as anyone can be. Who needs sleep or sanity?
Been married for 4 years, but have been together since our college days.
We live in Minnesota, sometimes we question why (from ice on the lakes to 101* in 20 days this year), but overall we love it and are close to family.
Oh, and we have a dog that is adjusting to getting far less attention than he used to (but is still loved).
What is your current net worth?
Our current net worth is $205,000 and breaks out as follows:
- Retirement/Brokerage Accounts/ESPP – $145,000
- Home Equity – $50,000
- Emergency Fund – $10,000
I exclude our vehicles and all non-real estate property from the above numbers so they aren’t skewed.
Our Net Worth would be significantly higher, but I weighed us down with a massive amount of Student Loan debt ($85,000) that we just paid off earlier this year. So all the money we accumulated above was done on top of making sizeable student loan payments over the last 7 years.
Our only non-mortgage debt is a low-interest vehicle loan for ~ $9,000.
How did you accumulate your net worth?
Since we have only been working for about 7 years, and were not investing a lot in the beginning, the bulk of our net worth is our personal contributions since there hasn’t been that much time for it to grow on its own.
Obviously the last few years have had a positive impact, but a lot of the money we contributed hasn’t experienced those wonderful compounding doubles yet.
We did make ~25K profit off our first house, which was pure luck considering we shouldn’t have even been buying a house anyway but sometimes things work in your favor. That money was put down on our second home.
EARN
Tell us a bit about your career.
I graduated with my undergrad in 2009, with a degree that was getting crushed by the current state of the economy – think 2009 and jobs that require new construction.
People with multiple years of experience were getting laid off and people fresh out of college were having a really hard time getting hired.
So…
Instead of taking a job I didn’t want (more manual labor than I would have preferred as a college graduate) I decided to go back to school and get an MBA.
After wrapping that up in 1.5 years taking extra classes and working part-time to pay the rent, I was lucky to find a job at a rapidly growing company in Minnesota. My starting salary was $36,000/year working in the customer service department (AKA answering phones all day).
7 years later, I am on my 4th job within the company (not including Senior titles) and have steadily increased my income to $92,000/year, which is 2.5 times what I started at. My current role is in Project/Product Management.
My wife started working in 2013, again making $36,000 as a Customer Support Rep and has worked her way up to $70,000. She is now an Account Owner, but has switched companies since starting her career.
Do you have a side hustle?
My current take on side hustling is I’m not interested in doing something that pays me far less than I earn at my day job. I would rather work on something that has the ability to pay off bigger later that I also enjoy doing. My blog is the first attempt, but it will be slow going as you can imagine with two young kids. I do make some money, but it hasn’t been my main focus and I am in it for the long-game.
I did recently start learning how to code (part curiosity, part frustration while attempting to make changes to my site) and so far I am really enjoying it. If that continues it will provide a good side hustle opportunity.
If you were rating these results on a scale of 1 to 10 (with 10 being best), what rating would you give yourself and why?
9
We worked hard to increase our income as much as possible and are reaping the rewards now. 2.5 times my starting salary in 7 years is something I am very proud of. The only strategy I haven’t used is changing companies.
What are your future plans regarding growing your income?
Keep rocking the same income increasing techniques we have used to date:
- Getting the most out of yearly raises – It drives me crazy when people complain about their salary but “phone it in” the one time every year there is an opportunity to discuss compensation
- Relentlessly pursuing promotions – Where yearly raises are consistent, promotions give the big boosts
- Asking for raises when responsibilities expand – Formal promotions aren’t always in the play, but that doesn’t mean you can’t ask
- Don’t waste an opportunity to negotiate – Before you accept the offer or if you are part of a company re-org don’t let the opportunity to negotiate slip by
- Knowing your worth in the market – If you are willing to accept being underpaid your company will happily continue to do it.
SAVE
What percent of your gross income do you save?
Today we save 31% of our gross income. I do not count debt pay down as saving so the full 31% goes straight into our investment accounts.
How did you get to this level?
As I mentioned earlier I started my career in 2011, was saving 3% of my gross income. My wife started in 2013 and was saving 6% of hers.
The biggest contributor to growing our savings rate from ~4.5% to 31% is putting our salary increases to use that we discussed in the Earn section above. For multiple years, we saved 100% of our raises, and still try to save the bulk of them today.
We would be saving a few more percentage points but childcare and family health insurance ate into our raises the last 1.5 years. For anyone interested, childcare will cost us about $18,000/year which sounds crazy but I know people who pay that for 1 kid at center.
If you were rating these results on a scale of 1 to 10 (with 10 being best), what rating would you give yourself and why?
I want to break this into two separate categories to explain our overall score because the methods seem vastly different to me.
Saving Income Increases – 10
Cutting Spending – 6
We have done a few big things right – not overspending on a home and not buying new vehicles. I am a big fan of one-time decisions that save you thousands of dollars every month vs small (latte-factor) decisions that save a few bucks. Definitely not saying the Latte Factor is BS, but 100s of small decisions is way more work than 2 big ones.
There are definitely some costs/luxuries that we COULD cut out but we enjoy them and aren’t willing to do it. Mainly food/vacations/weekends at the lake. I am also a craft beer fan and that is a pricey little habit.
Overall – 8
We are content with our balance right now, If we need to pull the frugality card we can but won’t unless something changes.
What are your future plans regarding saving your money?
Since we just paid off my student loans a few months ago, an extra $1,000/month freed up. I am hoping to ratchet up our savings rate a little more while simultaneously getting ready to pay for the delivery/child-care of baby number 2.
I don’t see us cutting spending any further (outside of going out less with the kiddos) so we will continue our current strategy of saving the bulk of our salary increases. Why mess with something that works?
INVEST
What are your main investments?
We are heavily invested in retirement accounts right now, broken out by account type below:
- 401Ks ~ $91,000
- Spread between Large, Mid and Small Index Funds (Almost all Vanguard)
- Roth IRAs ~ $39,000
- Most is in SWSTX (Schwab Total Stock Market Index)
- Some in a 2050 Target Date Fund – I bought this when I first started my Roth IRA and haven’t traded our for a broad market index fund yet
- Brokerage ~ $10,000
- SWSTX and a REIT that pays a large dividend (owned this prior to my index fund strategy and it has continued to pay a solid dividend while holding its value)
- ESPP ~ $5,000
- I invest in my company’s Employee Stock Purchase Program. Buy stock at a 15% discount and sell it 3 months later. Most goes straight to our Roth IRAs.
Overall Allocation
We are shooting to have a 100% stock portfolio – but that Target Date fund throws a very small bond percentage in.
- 70% US Stocks
- 43.43% Large Cap
- 16.5% Mid Cap
- 10.07% Small Cap
- 20% International Stocks
- 13% Developed
- 7% Emerging
- 7% Real Estate
- 3% various bonds (US and International/Gov and Corporate)
Contributions are all automatic, every payday money moves into the above accounts without any manual intervention. Only way to do it in my opinion.
If you were rating these results on a scale of 1 to 10 (with 10 being best), what rating would you give yourself and why?
7
We have the basics down, but need to dedicate some time and money to investments that can fund the years before our retirement accounts are available.
What are your future plans regarding investing?
We are comfortable with the 100% stock portfolio risk right now. We both have stable jobs, an emergency fund that can get us by for a few months if we need it (plus the Roth contributions if it got really bad). If one of us were to lose a job we could live off the other’s income without any issues.
We will continue to invest in low-cost index funds across the board, but are starting to contribute more to our brokerage account (last year we maxed out my 401K, both Roth IRAs and contributed ~10K to my wife’s 401K). We want to be ready for an opportunity if one presents itself (small business/real estate) so are going to bump up the liquid brokerage balance.
I know we can get to our Roth IRA contributions, but I don’t really want to touch those if we don’t need to.
WRAP-UP
What money mistakes have you made that others can learn from?
Three mistakes stand out…
1 – Student Loans
Taking out loans for non-tuition expenses, not making interest-only payments, taking the 6-month deferral…
You name it, I screwed it up. Those $14 – 30 packs of Keystone light are a lot more expensive when you use student loan money.
2- Getting an MBA on my own Dime
Paid for this myself, if I could do it over again I would have waited and let my employer pay for part (or all) of the program.
3 – Buying a House Too early
Only put 3.5% down, had PMI, and could barely afford the mortgage payment along with my student loans. It worked out, but the credit goes to a hot real estate market in a good location – not my real estate investing acumen.
Are there any questions you have for ESI Money readers regarding any parts of your finances?
A few:
- Given my success increasing my income within my company would you recommend looking elsewhere to expedite the process? I have thought about it and heard other people have had a lot of success switching companies to grow their income.
- I have not been investing through a significant downturn – I am confident in our ability to stomach the Net Worth drop but if experienced investors have any other advice/strategies I would love to absorb them.
The Physician Philosopher says
I think the changing jobs question is all about how happy you are where you currently work. If happy, then I’d keep climbing that ladder. Nothing worse than changing jobs for better pay, just to hate it.
You guys are doing really well and should stay the course.
I took a lot of flack when I mentioned that we are 100% stocks, but am of the same mindset as you. What matters infinitely more right now is your savings rate. I plan on going 10-20% bonds in about five months or so when the the $200,000 in student loans are gone. Well, right after we have a massive celebration for doing that in 20 months.
Keep up the strong work!
TPP
Mr AE says
Thank you for the advice TPP
I don’t love my work but I don’t think there are many “corporate jobs” out there that would make me much happier either, the people are pretty good (both management and peers). As of right now, I will be sticking it out at my company unless something significant changes. I will make sure all my resume type information is ready to rock in case something happens quickly
Nice work on the student loans! It is a pretty awesome feeling to wrap those up and put them behind ya
Amar says
Believe me, there ARE better jobs out there. If you aren’t 100% happy then you should consider moving. I left my investment banking job after 7 years to go to a small tech/consulting firm and I am probably the happiest I have ever been. Corporate experience is valuable, but at some point you want to take what you’ve learned and implement those strategies where they will make a bigger impact. Either way, you’re on the right track and keep up the hard work!
Dan says
First, congrats for getting through a tough economy when you got out of school by working! Just getting a job as a new grad isn鈥檛 easy at any time, but taking a position to get your foot in the door and building on that to where you are is an accomplishment! I鈥檇 be careful about changing jobs only for Money. Do you like your boss? Do you enjoy your co-workers? Do you like and respect your boss? If you answer no to those questions you should be looking for a change but if like the people and culture of the company you currently work for I鈥檇 focus on building more diverse or deeper skills and staying put. As far as investing goes, you are young and have time. The stock market will tank (again) but you have decades to ride a downturn out. Stocks are overvalued today so consider investing in other asset classes or in intensive training in so other technical skill. In other words, think of investing more in yourself. You are an asset. How can you increase your value? If you do this make sure you invest in knowledge that is in demand (technical skills, coding, database, data visualization, project management). Consider blogging about something that really interests you.
Mr AE says
Thank you Dan – It is fun to look back and see how far our family has come in a relatively short amount of time
I consider my boss and coworkers to be a small perk of my employment because the majority are great.
I like the technical skill investment advice – seems to be something I could put to use for a long time and has value outside of the corporate walls
Chris says
Congrats to the young couple. That’s some pretty good pay increases at your current company. I don’t think I would rock that boat unless you are unhappy with the company itself.
I would max out the wifes 401K before I go more to brokerage. You have a lot of years yet, you can always switch your strategy down the line, but you can’t go back to this year and get the tax deduction for 401K contributions. You may be surprised how much your nest egg grows with both spouses maxing 401K every year when starting out young.
I give you a 10 for savings at your ages. You are a rare breed.
Mr AE says
Thank you Chris – the income increases have been great so far and I appreciate the stay put advice (noticing a trend as I go through these)
I will consider the 401K max for both of us, just having a hard time shaking the feeling that we should be looking at other investments outside of retirement accounts. Still have some thinking/planning to do
Jonathan says
I vote you start investing outside of retirement accounts. You’re on a path for early retirement if you so choose…except that your funds will be locked into retirement account that can only be readily accessed after a certain age. I believe it’s far better to balance out the “retirement accounts” with regular investments that can provide you with benefits now.
My wife and I are only a few years ahead of you guys, but you’re on a very similar income/savings trajectory as we were. We invest almost exclusively outside of traditional retirement accounts. Part of that was necessity – we have been over the income limits for Roth IRAs for a number of years, and my company only started offering a 401k about 4 years ago. But our investments (which are primarily in real estate) are starting to contribute a meaningful amount to our income – last year nearly $60k, though granted a fair amount of that was in the form of principal reduction rather than cash. Regardless, a few more years of investing outside of retirement accounts and we should be in a position to early retire before 40 if we choose.
Chadnudj says
You think $18k for a year of daycare is bad?
Try $43k+ total for a year of daycare for 2 kids under 4 (to be clear, that’s $43k total, not per kid….but still, it’s insanity that I’m paying more for my 2 kids to go to daycare than I paid in total for college….thanks financial aid/scholarships!).
Looks like you’re doing a great job, though. I’d get your wife up to maxing out her 401k, then focus on taxable accounts and/or 529s for your kids (if you want to help your kids avoid the student loans you’ve faced — not everyone feels like they should help their kids with college, but it’s something to consider). I’d also consider knocking out that car loan quickly (even low interest loans are a drag on your cash flow, which in turn reduces what you have free every month to invest).
Mr AE says
I don’t think its bad as I know people in MN that pay 18K + for one kid, but it is still 18K!!!!
We have started the 529s for both, and will ramp up those savings over time as well (we plan to help as much as we can)
The car loan….blah. We need a plan for that, maybe I will compromise with my investment amount and knock a year or so off the length.
Sean @ Frugal Money Man says
First off, congratulations on the income increases for you both!
I will try and answer the first question you ask, because I don’t feel qualified to answer question two yet. I am only 26, so I don’t yet have the experience of investing in a bear market (I assume I will continue to plug and chug into VTSAX).
I heard a great quote once from one of my favorite sport show hosts:
“There is a sea of money out there, so don’t go chasing it. Chase good management, not money.”
If you are with a good company that truly values you, and has shown the interest in investing in you, then stick with them. The money will continue to naturally flow into your paycheck with this kind of company, and leaving them simply for a money grab can be harmful.
Sure, you may get more money elsewhere.
But…
What if the company is a revolving door, has zero consistency, and everyone else you work with is simply there for the money as well? That type of environment is toxic and mentally draining.
Mr AE says
Thank you!
I like that quote – management has been solid (both on a personal level and not being scared to open the wallet)
I agree on the toxicity of some companies, I would be very, very careful about which employer I choose
Dave says
You are definitely on the right track. Keep up the good work. Your financial situation is very similar to mine when I was your age. I admire how you crushed your student losns and persevered during the recession. The labor market was in poor shape, but you did well. Thanks for sharing your success with us.
Mr AE says
Thank you, Dave
Paying for that MBA out of pocket was not fun, but pivoting paths and getting into a growing company has paid off significantly
Arrgo says
Good tips on going for raises and promotions. You can’t just sit back and wait and see what they are going to do for you. I’d be a little cautious about being in a hurry to switch jobs just for a salary bump. Sounds like you are doing ok for now plus you’ve been there a while. They’ll likely be more forgiving if you need more time/flexibility being you’ll have 2 kids to take care of. I’m good with you basically having everything 100% stocks and think you’ll probably do better long term. I think you have 15 – 20 years before you even really need to change that percentage. While what you have saved so far seems like a lot, in the big long term picture it isnt so I wouldn’t worry so much about the next downturn and just keep maxing out your accounts even through a recession. Setting your accounts on automatic is definitely the way to go. I did the same through the 2008 recession and just let the money go in and didnt think much about it. Now my accounts are quite huge and hard to believe. Funny thing is I dont feel like I really put much effort into it (other than the going to work part). Also, I enjoy your blog.
Mr AE says
Thank you Arrgo – I recognize you from my site and I appreciate you reading!
Appreciate the job changing advice – this whole thread has been great on that front (ESI has a great community)
Glad we can lean on people who invested through the nasty 08 downturn for advice
SavvyFinancialLatina says
We are very close in age. Both my husband and I are 28, on the way to 29. I, also, have an MBA.
Y’all are doing great! Congrats on hitting the $200K net worth.
One of the things that has helped our net worth move forward is maxing out our retirement accounts. I created an ISP (Investment plan) last year (2017) to take away the decision factor for our money. I was letting analysis paralysis delay decisions. So now the plan is max out retirement accounts, max out HSA, max out IRAs, automatic monthly contributions to taxable brokerage, extra contribution to mortgage.
We try our best to control our expenses. Not always successful.
I highly recommend creating an ISP plan.
Career wise – I am on my 3rd company. It has helped propel me forward in earnings. But I won’t lie. Change is hard and the grass is not always greener. We have moved for my job, my husband has had to switch jobs because of my career. It has worked out financially, but it has been stressful. Sometimes I wonder if I should have stayed at my first company and just worked harder on negotiating pay increases. However, I am already planning to move in 2 years to another company to increase my earnings. I don’t see career growth at my current company. But need to stay a little longer due to relocation bonus, and vesting 401K employer contributions.
Mr AE says
Thank you!
I will look into the ISP plan for sure
Makes sense on sticking with your current company to hit those milestones then moving on if you are stuck. The other benefit of sticking with my employer is our liberal vacation policies after 6 years.
Lily | The Frugal Gene says
You’re awesome Mr AE! Your wife’s income growth is amazing too. Graduating in 09 was seriously tough, the MBA was a great choice?? I think we share the #2 regret. I wish I continued trying to gain work experience so that I could have my employer send me to grad school. I was so pessimistic back then that I didn’t know it was common to do so!
Mr AE says
Thanks Lily!
Hope we can keep rocking our income growth over the next 4-5 years and expedite our net worth growth.
It was way easier to focus on just school instead of work and school but the bill was hard to swallow
DaveS says
Stay at your job if you like it and there are good mentors/leaders. Money is great, but so isn’t having work you enjoy with people that are decent. You have done great in a short time.
I don’t like daycare, your little guys will only be little for a while and you NEVER get those days back. Just saying.
Timing them market isn’t a viable option IMO. You are very young- stay on the course.
Mr AE says
Thank you Dave,
That is a really good point for staying as the people are generally great
I can’t knock your point on the kids only being little for a while, they are already growing so quick. We soak up as much time as we can every single day to make up for working full time and have found a good balance.
Will be staying the course
Phillip says
Research carefully before going for an MBA and paying for it yourself. I was fortunate to land a job at double my pay post graduation (management consultant) so my investment paid off. Also, I think AE is doing the right thing by focusing on building his career to grow wealth. When you are earlier and more junior in your career, the ability to grow salary rapidly is greater. IMO, one should think about side hustles after you gain more expertise in an area and/or plateau in your career earnings.
Mr AE says
I already paid for one myself, unfortunately 馃檪
Building income is our number 1 priority – it makes every other financial goal so much easier we can’t pass it up.
Mi-77 says
You are exactly right about student loans. I was 23 years old and I was already 150,000 in debt! I ended up with horrible FICO score until my mid 30s, after I was able to negotiate it down about 40% then was finally able to pay it off. It was brutal! You were also right about not buying home too early. I rented and saved as much as I could, then when housing market crashed in the late 1990s, I got aggressive and brought a home as well as some rental properties. One of my suggestions is to look into rentals. Good luck!
https://esimoney.com/millionaire-interview-77/
Fred says
It’s impressive how well you’ve done at such an early stage in life. And I’m pleased that you aren’t so obsessed with cutting expenses that you forget to enjoy life today. I wish more people had that balance.
Here’s a concern I would share that may sound like a broken record for anyone who knows me. Yes, you’re young and have lots of time to recover from a downturn. Here’s a question to consider.
Why would you want to subject yourself to a potential 50% loss in portfolio value? Mathematically (as you obviously know), you have to gain back 100% to recover a 50% loss. Depending on the forward returns, that could take ten years or more. Why would you want to do that if you could mitigate the risk?
Younger investors berate bonds as bad investments. And you know what. They’re right. I don’t look to bonds to gain returns. That comes from stocks and real estate. However, in a market downturn, like 200-2003 and the last financial crisis, short to intermediate-term high-quality bonds helped dampen the losses of an all-stock portfolio. If you have a rebalancing strategy in place, wouldn’t it make sense to reduce the loss and recovery time of this kind of market?
I’ve written about this recently. Yes, you can survive and get through a down market financially. Wouldn’t it be better to dampen the blow and recover more quickly? You’d be surprised how little return you would be sacrificing to do that.