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’m 33 years old and my wife is the same age.
We knew each other in high school, but weren’t sweethearts in case you’re wondering. We ended up in the same college town, one thing led to another and we’ll be celebrating our 10 year anniversary next year.
We have two kids and a cat and live in the Midwest (Indiana).
You can read a bit more about me on my blog.
What is your current net worth?
We comfortably have a two-comma net worth, but not quite able to put the multi- prefix in front. I’m still working on that. 🙂
Our net worth roughly breaks down as follows:
- 45% retirement funds (401ks and IRAs)
- 15% taxable funds (brokerage and real estate crowdfunding)
- 30% home equity (no mortgage, but we have a HELOC currently drawn to a ridiculously low 7% LTV)
- 10% other net assets (checking/savings, 529 college savings, a car, credit cards, etc.)
How did you accumulate your net worth?
There are three primary drivers of our net worth accumulation:
1. Above Average Earnings. My wife and I both have professional careers and have been able to earn north of $100k total every year since we’ve been out of college. Some years were much better than that, but we’ve never been part of the 1%. Those earnings came will a lot of baggage attached, however, mainly late hours and stress. I consistently worked 80+ hours a week for almost a decade in finance, which takes a toll.
2. Post-Great Recession Bull Market. We got married right before the bottom fell out of the markets and didn’t have a lot of money in the market then (I had only been out of school for two years and my wife had just finished a graduate degree). We basically started really plowing money into the market since 2009 and have rode the wave ever since.
3. Luck (with a dash of discipline). We’ve been incredibly lucky, there’s no denying it. I have a very supportive spouse, survived a couple rounds of layoffs, changed jobs multiple times and made some good real estate investments. The dash of discipline primarily refers to the fact we’ve been diligent savers throughout or working years. We did struggle to keep a budget month to month, but always managed to save in our 401ks and bank any bonuses received. It didn’t seem like much at the time, but when I look back it’s crazy to see that we’ve managed to save hundreds of thousands of dollars so far.
EARN
Tell us a bit about your career.
I’ve worked in finance my whole career.
I started out in investment banking M&A and lasted there 8 years (impressive considering most burn out after 2 years).
I worked on dozens of deals worth billions (with a B) of dollars, so I guess that’s…something.
I still work in finance, but in not nearly as fast paced an environment. That was the decision I made to spend more time with my family.
Do you have a side hustle?
No side hustle other than the army of little green dollar bills working for me 24/7.
I’ve dabbled in some crowdfunded real estate and P2P, which I guess could be considered a side hustle.
I also blog about personal finance/FI, but that’s just a creative outlet for now. I may try to monetize in the future beyond just covering my costs, but that waits to be seen. I mainly just want to get my thoughts out there on finance topics because I think my experience and perspective are unique.
How happy are you with these results and what future plans do you have for growing your income?
In general, I’m happy with it.
None of it came without significant sacrifice, I’m just glad we’ve had the good fortune to turn our earnings into savings then into investments (see what I did there?)
I’m not focused on growing my income substantially at the moment, because I’m not willing for my lifestyle to take the hit if I were to go back to a really work-driven focus.
SAVE
What percent of your gross income do you save?
We use the rule of thumb of spend one-third, save one-third, pay taxes with one-third. That works out to a 50% net savings rate. I’m guessing we’ve been close to that over the long-run, but not quite.
Our income is a lot lower now that I made a career change, so taxes take out a smaller bite, but spending is higher as a percentage of income.
That said, we’ve been able to keep savings on track and we’re at 45% net over the past 12 months including employer matches.
How did you get to this level?
It’s one of the silver linings of having a lumpy income.
In my prior career, I could see as much as a third of my total income in a single paycheck as an annual bonus. We had the discipline to live within our means for the other 23 paychecks and then bank the 24th big one.
As an aside, I had co-workers who were cash flow negative every month and needed the bonus to bring them back to even. They spent it before they earned it. I can’t imagine how stressful that must have been.
How happy are you with these results and what future plans do you have for saving more?
I’m pretty happy with the results, but also recognize that because of what I’ve done to date that savings isn’t going to be primary driver of my net worth growth from here on out.
It’ll help (and I’m not going to stop doing it) but most of my growth is coming from investment gains. Our savings relative to the size of the portfolio just aren’t that great any more.
INVEST
What are your main investments?
Almost all our investments are in plain old index funds with a handful of exceptions like real estate crowdfunding.
Here is the breakout by asset class:
- 50% US Equities
- 25% International Equities
- 15% Bonds
- 10% Alternatives (mainly real estate crowdfunding and P2P)
This mix is consistent with both our target allocation (based on our risk tolerance) and the mix of contributions we make from savings.
I try to broadly track with the S&P, and this allocation has come pretty close this year.
How happy are you with these results and what future plans do you have for investing?
Once again, I’m pretty happy with where things are at.
I’m a little concerned about what will happen when we inevitably will have another correction, but feel good about my downside exposure.
If you remember from above, I have a HELOC that’s basically undrawn, so if/when we do have a big decline, I’ll jump in feet first.
The one other investing action I’m going to be taking more of is in the real estate crowdfunding space. I like that it’s more diversified than just the stock market and provides some cash returns too. My plan is to draw down a portion of the HELOC over time to invest here, which has the added benefit of diversifying my net worth away from my primary residence (lower home equity, more investments).
WRAP-UP
What money mistakes have you made that others can learn from?
My biggest money mistake has probably been second guessing myself and my decisions.
Should I have invested extra money vs. paying down the mortgage? Should I reshuffle my asset allocation again? Should I…fill in the blank.
In all instances I was so focused on fine tuning things that I probably didn’t need to worry about. Why worry about saving $100 a year when the market could move 20x that much in a single day?
As long as I got the big stuff right (saving and investing) the rest would pretty much take care of itself.
Are there any questions you have for ESI Money readers regarding any parts of your finances?
I guess I’m just looking for some validation that I’m not doing anything stupid.
I don’t think I am, but other than my wife, there isn’t anyone else who knows the details of our finances.
While I’m sure some have inklings, I bet our friends and family would be absolutely shocked if they ever peeked behind the curtain and saw the real numbers.
Lily | The Frugal Gene says
You don’t need any affirmation silly. That’s also a very healthy and balanced portfolio. You are not much older than us but we have only 3% bonds and nothing in P2P or crowdsourcing things. We’re weighted in tech as of right now.
John@PVF says
I’m pretty sure my bond allocation is largely due to the target date funds we have in our 401k. If memory serves, they are targeted for 2040 retirement (age 56 for us), so they have probably started shifting a little more towards fixed income than is typical for our age.
I’m still on the fence with crowdsourcing and P2P. The former is just too new to have a decent track record and the latter has underperformed expectations even when economy is doing good. Still tying to wrap my head around that, but counterintuitively I wonder if it will perform worse when times are good since the good borrowers regain access to more traditional lending through banks, etc. Will wait to be seen, but it’s only a few percent of my overall portfolio so I’m not stressing over it.
Wealthy Content says
Very nice and well done. Being the same age this is inspiring, although circumstances are different in many cases in others they are the same. I think a very good decision was reducing income for more family time. Good luck making the army of little green dollar bills work for you. I will check out your blog.
John@PVF says
Thanks, Wealthy Content. While I’m happy we made the decision to step back from my career for more family time, it came with a pretty big economic cost. The present value of my future earnings took a big hit when we pulled the trigger on the job change. Think millions of dollars.
That said, I was able to eat dinner at home more in the past year than I did in the prior decade and it’s tough to put a value on that.
I could be a good dad or CFO, but not both. I think I made the right decision.
Cody @ Dollar Habits says
I have so much respect for your decision. I made a similar decision after our oldest was born and haven’t regretted it since.
John@PVF says
We gave up a lot to make it happen, but we gained a lot too. Overall experience has been a net positive.
John@PVF says
Thanks for giving me the opportunity to tell my story, ESI. It’s an honor to share it with your readers. I hope they can get something valuable from my experience.
John@PVF
The Physician Philosopher says
Thanks for being willing to share your story! It takes a lot to step out on a branch and share your personal investing and saving information!
Looks like a very reasonable plan to me! Just keep on truckin’
Only question I’d have is exactly how you plan to “jump in with two feet” into the market. Planning on timing it? Is that money well spent if you get it wrong?
John@PVF says
My jumping in comment is related to the HELOC we got a year ago. We currently have only drawn it down a little bit (14% LTV as of today) to use selectively for investments. I was able to get it with no closing closing costs or annual fee and it has a 7 year draw period before I have to refi. The way I think about it, that’s a free six year option on a couple hundred thousand dollars of capital that I can deploy opportunistically.
Yes, that’s technically timing the market, but it’s not like I have a bunch of cash sitting on the sidelines as the cost of doing it either. Like I said, it’s a free option.
I agree it wouldn’t be money well spent if I do it wrong, so my bar is pretty high for when I would jump in (a repeat of ’08, for instance). Unless and until something like that happens, I’m more than happy to keep paying a pittance of a mortgage payment and just let it ride.
Mike at Balanced Dividends says
Thanks for sharing. Congrats on your progress and success thus far.
Living nearby, I sometimes wonder why we haven’t considering moving across the border into Indiana…so many co-workers live closer to Chicago than other friends and family actually in Illinois.
I could relate to you point about the bonuses. I’ve never received up to 1/3 of my pay in a single bonus or pay check, but it is interesting to hear how others literally bank on that one check to keep things in order at the bank.
Overall, you seem to be in great financial shape. Congrats again on your progress. – Mike
John@PVF says
Thanks, Mike. There are definitely pros and cons of living in Indiana. Compared to Chicago, taxes are lower and the pace isn’t as frenetic but no beer sales on Sundays either.
On bonuses (which were completely discretionary BTW) guys would be doing the math a few weeks before to see what they had to make to stay afloat. Reminded me of that scene from Boiler Room where they talk about making millions a year but we’re overdrawing their checking accounts.
Mike at Balanced Dividends says
Ah yes, no alcohol Sundays… I went to Purdue, so I have fond memories of stocking up for the weekends.
Thanks again for sharing your story. -Mike
ESI says
Uh, did I know you went to Purdue?
Mike at Balanced Dividends says
Hi ESI – I’m not certain.
I did spend four years along the dirty Wabash and plenty of time at the Chocolate Shop.
You didn’t go to IU, did you :/ ?
ESI says
I’ll email you…
Mrs. Adventure Rich says
Awesome job, PVF! It sounds like you have a solid strategy for your family’s future!
John@PVF says
Thanks, Mrs. Adventure Rich. Just have to keep on truckin!
Chris @ Duke of Dollars says
Just subscribed to the blog – love that you changed positions to get more time with the family. 8 years with 80+ hours takes its toll!!
Thanks for sharing your story!
John@PVF says
Thanks Chris. It was taking a toll. I’m not in great shape by any stretch, but after a while you can just physically feel the downhill is accelerating. I was lucky that we were able to get out of the rat race when we did and hopefully before too much permanent damage was done.
Arrgo says
One point you mention that I think is important, is the ability to hustle when you are young. Whether it’s 80+ hrs weeks, overtime, side hustles, or working 2 or 3 jobs – putting in that extra effort early can really make a big difference. This goes for any income level. The trick is to use that extra money wisely by investing etc to try and set yourself up good down the road. I think when you are younger (20’s and 30’s) you have more energy and tolerance to do it. But as you get older to keep going at that pace isn’t sustainable. Then you can cut back to a more manageable and balanced job situation that allows you more time for yourself and family.
John@PVF says
I agree completely, Arrgo, and couldn’t have said it better myself. I had the energy to do the hustle in my 20’s, I just don’t have it now. Or maybe it’s just that I prefer the extra effort and energy go to things other than a job like my family. An old co-worker of mine used to say that everyone had to work a set number of hours in their lives and he was just frontloading it. I guess I kinda did the same.
Kristy says
Hello Fellow Hoosier! It sounds like you’ve done very well, for being in your early thirties. You have plenty of time for all that build. Continue to save for college – cause there are lots of expenses and fees that are unknown, with certain programs, and such.
Maybe that Sunday Sales bill is going to pass this time!
John@PVF says
Hey back at you, fellow Hoosier. We’re putting away $5k a year for college now to get the great state tax credit. It’s one of the better ones I’ve seen: 20% of your contributions up to max of $1k. It takes a huge chuck out of our state tax bill every year and, at Indiana’s ~3% income tax rate, has the same impact as shielding more than $30k in Indiana income tax.
The other trick we did with the 529s is opened and contributed to them under our own names before the kids were even born. Got to harvest more tax savings and lowered how much we would need to contribute each year because we were spreading it over more years. Assuming we maintain the $5k a year we’re doing now, I estimate we’ll be able to fully fund public school degrees for both kids and a decent chunk of private if they choose to go that route.
Fingers crossed on the Sunday sales, but I’m not holding my breath.
Sean @ Frugal Money Man says
Sounds like you’re doing just fine to me!
Having a over a million dollar net worth by your early 30’s places you in small company. You and your family have done a spectacular job in building your families wealth, and it appears that you all have been disciplined and followed a plan for years. I can only imagine how quickly your families net worth will be by 40!
Keep up the great work!
John@PVF says
Thanks Sean. My desire to work is inversely related to our net worth, so I’m hoping it doesn’t grow too fast or I might just throw in the towel! A good problem to have, I know, but I want to be productive for a bit longer before my beach/mai tai phase kicks in.
If I really had to guess, continuing on this path with lead to something more like a mini-retirement in our 40s vs. a full stop in our 50s. I can see myself working part time work a few days a week or, better yet, take off for a month a few times a year. Guess I’ve got some LT strategizing to do!
SMM says
Thanks for sharing your story. You have made tremendous progress already! I don’t know what your retirement plans are, but if they are in the long-run, you will be not only golden but platinum!
The higher income definitely helps and it’s great that you capitalized on it.
John@PVF says
It’s my pleasure to share my story. Still trying to figure out what retirement will look like for me, but platinum sounds nice!
Jeremy says
Well done, John. How are you able to invest in crowdsourcing real estate? I might be missing something, but your implied net worth seems low to qualify.
John@PVF says
Hi Jeremy, we meet the net worth test for accredited investors, barely. I had a line in my net worth tracking spreadsheet to let me know when we crossed the line.