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’d like to be considered for an interview, drop me a note and we can chat about specifics.
With that said, let’s get started.
My questions are in bold italics and his responses follow in black.
OVERVIEW
Please tell us a bit about yourself.
I am 34 years old. My wife is 32. We’ve been married a little over a year now. We’ve been together over 5 years.
We just welcomed a baby boy in August.
We live in a suburb of Western New York. My wife was born and brought up here. I moved here when I was 18 for school and have been here since.
What is your current net worth?
Our current net worth is 216K and breaks down as follows:
- 401 (k) – 162K
- Roth IRAs – 13K
- Cash – 14K
- Home Value – 135K
- Mortgage Balance – (93K)
- Student Loans – (15K)
How did you accumulate your net worth?
As you can see the biggest portion of our net worth is our combined 401 (k).
I have always contributed towards my 410(k) since I started working in 2006. It started with 8% of my income then gradually went up over time to 10%, 15% and now 20% this year.
My wife contributes 10% towards her 401(k) plan at work.
I just recently learned about the benefits of Roth IRAs so both my wife and I have just started to contribute towards our Roths. I plan to max those out starting this year before adding more to our 401(k)s.
EARN
Tell us a bit about your career.
I work as a senior accountant for a manufacturing company and my wife is an interior designer for a commercial furniture dealer.
Our combined household income is 120K. Last year it was 105K.
The reason for the big change was that I accepted a new position in January which helped boost our household income this year. However, with the arrival of our new baby my wife will be on maternity leave for the rest of the year which will probably adjust our income down to somewhere in between.
I started working full-time in 2006 for a manufacturing company as a Financial Accountant making 35K a year. After a few years I moved to a cost accounting position making 46K.
A few years later I moved into my new role in Operations as a Production Planner which further helped me grow in my career (up to 54K).
Recently I moved to a Senior Accounting position with another employer (after 12 years) and this really helped boost my income.
Do you have a side hustle?
I currently do not have a side hustle, except the occasional Ebay / Craigslist sale of stuff we don’t use.
I would like to get into something that provides a little passive income that can help with debt payment / additional savings building.
I have always been interested in investing in real estate and bringing in some rental income but don’t know how to make that happen.
Any tips would be greatly appreciated.
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 would say I am at a 7.
I know I could have done better in my earlier years but not knowing the effects of compounding back then I feel like a have missed out a little when I first started.
When I first started working full time I know I wasted a lot of money on “things” that didn’t really bring me the satisfaction that I had thought it might. Now, every “want” is analyzed and compared to the opportunity cost of what it could earn if invested at 8% during the life of the “want”.
Can you tell I’m an accountant??
What are your future plans regarding growing your income?
Like I said, I recently switched employers and this was a huge shift for me. I worked with my previous employer for 12 years from a smaller private company to a much bigger public company.
With this new opportunity I can definitely see more growth possibilities where previously I had hit my ceiling in the time I had worked there. I plan to continue to work hard and look to grow my career as time goes on.
SAVE
What percent of your gross income do you save?
Between our 401(k) contributions and our Roth IRAs we are saving around 22% of our gross income towards retirement. And another 14% of our gross in savings.
How did you get to this level?
It helps that we are a two-income family. It allowed us to put more towards retirement and savings by splitting our bills in half.
Before we got married, we lived together for 4 years so we got a head start on living on two-incomes and savings more and paying fewer bills.
Recently, it helped that I made a career move, but what helped in addition to this was not adjusting our standard of living with this move. We knew we had a baby on the way, so we stuck to a budget and put away as much as we could in preparation for my wife not working for a few months.
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?
Here I would give us an 8.
We really buckled down this year and socked away as much as we possibly could. Now we have a cushion built into our savings in case my wife doesn’t end up going back to work as planned.
We were able to build up enough savings to cover 4-5 months of expenses.
What are your future plans regarding saving your money?
Depending on how things go in the near future, our savings rate might decrease so we can cover our expenses related to the baby and whether or not my wife goes back to work.
Just my income can cover our expenses, so I know we wouldn’t be depleting our savings, only adding to it less than we previously did. I plan to continue to max out both Roth’s but maybe bring down my 401(k) contribution temporarily (to 12% down from 20%) to cover our expenses.
INVEST
What are your main investments?
Almost all my investments are in Vanguard Index funds.
I am heavily invested in stocks with a very small percentage in bonds (some of my money is in a Target Date Fund & a Balanced Fund – about 10%). I figured I have time to ride through any downturns and come up on top in the long run.
I do have a portion of my Roth (30%) in the Vanguard Healthcare Fund only because I think with the rising costs in healthcare, there may be something to gain from investing in Pharma & Health Insurance companies. But for the most part I have bought into the entire stock market on 90%+ of my investments.
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 would give myself an 8 in this category.
Along with all the readers of this blog, I am a firm believer in buying the entire market.
I am a huge fan of low cost Vanguard funds so almost all my investments are through them. (Disclaimer: My new employer’s 401(k) plan is through Fidelity so I am invested in their index funds. However, since I only started here this year it is a small percentage of my total investment).
What are your future plans regarding investing?
I plan to continue investing the way I have (through low-cost index funds) and own the entire market. I agree that trying to beat the market is a fool’s errand and having the peace of mind that the market always goes up over time helps me sleep at night even through the downturns. I am not sure at what point I would start to invest more conservatively.
My opinion is that even if you are at retirement age you have 25-30 years to withstand market downturns and still continue to receive higher gains.
Maybe someone with more experience can correct me if I’m wrong. What is the right mix?
WRAP-UP
What money mistakes have you made that others can learn from?
My biggest mistakes earlier in my career have been taking on credit card debt when I first started out. Buying brand new clothes for work, going to the mall every weekend and dinners out all racked up a huge amount of debt that put me into the negative net worth category.
Not having any savings for emergencies, everything went on credit cards until it became too much to handle. I was able to get out of this burden by really cutting down on my spending and living on a strict budget (tuna on toast budget, no socializing, watching every penny spent).
It took a few years but when I was finally out from under it, I vowed that never again would I let the credit card companies make money off me. Now I only charge what I can pay off right away (gas, groceries, bills) and cash in on the reward points / cash back.
I know there is a stigma between some folks that credit cards are bad, but I believe that if used the right way you can make money from the banks rather than them making money off you.
In retrospect had I known what I know now (famous last words), I would have decreased my spending on things and increased my contributions towards my 401(k) and started a Roth sooner.
Are there any questions you have for ESI Money readers regarding any parts of your finances?
I would love to hear from readers on how I am doing:
- I have started contributing to a 529 plan for my son. Is there anything I should do in addition / different so he never has to take on student loan debt in his life?
- All my investments are mainly in retirement accounts, which will not be accessible until 59-1/2. My goal is to retire by 55 so my wife and I can travel the world. Any suggestions on how to invest in a way we have money to cover the years between when I plan to retire (55) and when I can start to take distributions without penalty (59&1/2)?
- I currently plan to max out both of our Roth accounts but am making additional payments towards our mortgage. In order to do this with one income, I would need to decrease 401(k) contributions next year with my wife possibly not going back to work. Is it advisable to cut some of the 401(k) contribution down so I can make additional payments towards the mortgage? We currently live in a starter home that we purchased 3 years ago and plan to purchase our “forever” home in the next 5-6 years. I know the mortgage would not be paid off by then, but would you still pay more towards principal if you don’t plan to live in your current home forever? Is it worth losing out on the growth of your retirement to have the peace of mind of owing less in debt?
- I would love to take on a side hustle to bring in some extra income to help pay off our student loan balance or even make additional payments on our mortgage. I love to help people and guide them to making the right financial decisions early in their career to avoid making the mistakes so many (including myself) have made. However, I am completely clueless on how to get something started. Can anyone recommend anything I can look into to help educate the youth of today to get on track early and live a life of Financial Freedom?
- Any recommendations on how to invest in real estate? I have heard a lot, about people earning rental income but I have no idea how to put something like this in place. I am consider keeping my current house and renting it out if I can save up enough by the time I turn 40 (6 years) to put down 20% on my next house and manage a 15-year fixed mortgage. I’d like to be debt free before my early retirement goal of 55.
The Physician Philosopher says
Keep up the good work! Here are some of my thoughts on your questions:
1) A 529 is fine. If stuck in a pinch, you can also use IRA money to fund a college education for a kid.
2) “Bridging the gap” in early retirement before 59.5 can be done in a lot of ways. This includes using money from a taxable account, 457, cash savings, making a roth ladder conversion (have to wait five years to use the money), or creating a Substantially Equal Period Payments (SEPP) from your 401K.
3) Tough to answer the house question. You are sacrificing pre-tax money (that lowers your taxable income) by using money that would go to your 401K pre-tax, getting taxed on it, and then using that to pay down the house. If you have an employer match that you’d be missing out on, this is doubly bad. That said, everyone has different priorities. Money you put into paying down the mortgage faster is equity that you’d actually be able to access when selling the home (unlike the 401K money that cannot be touched til 59.5). That said, look at all the pro’s and con’s and make the best choice for you and your family.
4) You could consider money coaching. This is an up and coming field where people help others with the basics of personal finance (budgeting, making goals, etc) without completing a degree in financial advising (because money coaches do not offer investment advice).
5) Gonna leave the real estate questions up to other people who have more knowledge in that area!
Keep up the good work. It’s all gonna pay off eventually. And congrats on the baby!
TPP
ESI-44 says
Thanks for your feedback!
– We are building up a decent 529 plan for my son. I am making automatic deposits monthly as well as any monetary gifts he receives are going into that account. I am confident that we should have a good portion of his education saved up by the time he turns 18.
– Regarding your comment on “Bridging the gap”, I read that contributions made to a Roth can be withdrawn without penalty. With our goal to retire in the next 20-22 years and maxing out both our Roth’s we should have around 250K contributed which could be used to “Bridge the Gap” for 5 years.
– Currently, the plan is to hold off on the extra payments and put more in 401(k) (Stocks being on sale at the moment). I am still putting in more than enough to get my employer match in addition to maxing out both Roth accounts. I usually at the least make one extra mortgage payment a year.
– I love the idea of money coaching!! I have been doing this already to help a few family members but never thought of it as bringing in secondary income. I will definitely look into this because this is what excites me and what I enjoy.
– As for the real estate portion, since this interview, I have read up on rental investments and this seems to involve taking on more debt. I am not a fan of this, I currently have just one debt in my name (my own mortgage) so I’d rather continue to invest in index funds.
Thanks for your comments. I really value the input.
ESI-44 says
Thanks for all your feedback!
Mil says
Do your best to get to a point where you MAX out ROTH/401K combined. That’s a 25k/year savings for one person. Compounded over 20yrs is well over $1M!
If your plan is to move into a “forever” home then I’d say hold off on additional payments. If you sell you have enough equity at this point plus you’ll have tax free money you can roll over into the next house.
Keep improving your income potential. Side hustles are great but unless if they’re truly passive you’ll be spending time away from the family. Might as well work on finding a HIGHer paying gig.
ESI-44 says
Thanks for your feedback!
I am 100% in agreement with being able to achieve wealth in the next 20 years and becoming financially independent.
Currently, the plan is to move out of our starter home in the next 6-7 years so I can line up the next 15 yr mortgage just in time with my early retirement target age.
Helping others with money is more of a hobby of mine than anything else. I have done it with close relatives but I agree with time away from the family. Not a day goes by where I’d rather be home with my wife and little one. That is something I can never get back.
Cammie says
I live around the Western / Central NY region as well. I have one rental property in the Finger Lakes which makes a good clip and is constantly rented through VRBO. I’ve tried to keep an eye on real estate on Rochester / Syracuse and everywhere in between but I’m curious if there is a way to make money outside of the city centers. I’d love to own another lake property because the demand for short term rentals is extremely high but apparently everyone is thinking the same thing and prices are too much for my budget and the 1% rule. I feel like a novice though, if you have any insight into realtors that deal with investment properties it would be nice to bounce ideas off of someone knowledgeable.
I’m just dipping toes in the financial coaching as well. There are soooo many that need this when you start talking with people and hear the crappy advise they have received. Please consider it. There are ways to build that side hustle on your timeline with low overhead and solid backing (including training) of an international company. You just need to dig around.
Congrats on taking control of your finances while time is on your side!
ESI-44 says
Hi Cammie,
Thanks for your feedback! As I mentioned I did do some reading up on the rental investing topic and the idea of taking on more debt doesn’t seem to be very appealing to me. Unfortunately, that was the extent of my research.
I’d love to know more about your financial coaching journey and how you got started. This is a topic that is very interesting to me and up until now, I have only done it for family to help them get on track. Maybe we can talk some more and I can pick your brain on this topic.
Thanks!
Cammie says
Feel free to reach out by email: [email protected]
I’m always happy to connect with a like minded person. Cheers!