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 28 and my fiancé is 27.
We are engaged to be married October of 2019.
We’ve been officially dating for about 4 years and have known each other for 10+.
We live in the Midwest, in a suburb of a metropolitan area of about 2 million people.
What is your current net worth?
Net worth is roughly $172,000, and is broken out as follows:
Note: We were both extremely blessed to come out of college with no student loans.
Asset Breakout:
Retirement accounts: (His and Hers)
- His: Company 401K: $30,000 (contributing 12% with 4% company match)
- His: Roth IRA: $31,500 (contributing $150 per month)
- Hers: Company 401K: $29,000 (contributing 11% with a 3% company match)
I have a separate Individual taxable account currently at: $18,000 (contributing $200 per month)
Cash: $38,500 ($22,000 emergency fund).
The reason for the larger amount of cash right now is the following:
- Immediate: Wedding rings, wedding and honeymoon spending. I tend to air on the safe side and want to have more than necessary. I really hope to not spend the $16,500 on all those items (it would be beyond ridiculous), and plan on investing into the individual account with the leftover savings.
- Future: I have a 5-10-year outlook on how much cash we will need when children come and a future down payment on a new house (right now I am not factoring in the sale of the home). Our current goal is to save around $500-600 per month, (Should I keep the cash, rather than invest into the individual account?)
Debt Breakout:
- Home Value – 280K
- Mortgage Balance – (240K)
- Car Loans – (15K) I did not include the value of the car loans as they are depreciating assets.
We have revolving $500-1000 balances on our credit cards predominately from monthly expenses, but we are extremely diligent about paying them off to not incur interest charges.
For the purposes of this interview, I would like to focus on accounts and savings rather than debts.
I would like to seek advice from readers on how I am structured/what else they would recommend.
How did you accumulate your net worth?
The accumulation of our savings has come from mainly company 401K’s which are a mixture of index/mutual funds.
Two years or so after graduating college in 2013, I had begun saving, and wanted to do more with my money.
My dad took me to see his financial advisor and through discussions it was decided that opening an individual account investing in mutual funds/index funds, and an after-tax Roth IRA (structured the same) was the best course of action.
At the time I invested $5,500 into each account. and elected to add $100 a month.
At the same time I was putting aside about 10% into a company 401k.
I entered the technology field (more to come below) and at the time didn’t truly understand the core meaning of saving, investing and compound interest. (Thank You ESI Blog!!)
I have slowly increased the monthly contributions, although I’m sure we could do much better.
In total (401Ks, Individual, Cash) we are putting aside 22% of our combined income. Everything to this point that I have read suggests a 15-20% savings rate.
We are not on the FIRE bandwagon because we enjoy what we do and both have goals to work in higher levels of corporate America (or for ourselves).
We also have similar upbringings being in the area we live in, spending freely (while smartly) and not being constrained to where we can’t enjoy life is very important.
I have started explaining to the future Mrs. about the power of saving and compound interest and understanding that becoming a millionaire means having enough money to last in retirement and enjoying our lives.
Now, nobody knows what the future holds, and we could become very lucky at work and make much more, or luck could not be on our side, hence why saving is important.
EARN
Tell us a bit about your career.
I am a part of the cyber security team for a Fortune 500 company.
My annual income is $92K with a 10% bonus depending on company and individual performance.
I have been here 3 years and have averaged 12% bonus the past few years.
The future Mrs. works for a smaller marketing agency and is a senior manager. Her annual income is $55k plus 5% bonus.
My first job out of college paid $52,000 annually in 2013 as an IT Auditor, which transitioned into senior roles and a lateral move into IT Security.
At the time, coming out of college I didn’t particularly know what I wanted to do, With an information systems technology degree in hand, I wanted to get a feel for what the tech world was like. I am not a developer or programmer, but I always understood the flow of data, classification of data and how to keep it secure, hence Information Security.
About 3 years into to my first job, travel started to take a toll, and I wanted to settle down. I changed jobs and left making around $65K.
My new position took me back into the IT Audit world starting around $75K. Through a combination of hard work, gaining certifications, helping remove the negative misconception of “auditors are the watch dogs,” and proving my worth/market value to my employer; raises came. This job gave me an incredible understanding of the business, IT environment and future strategic IT initiatives.
Opportunity presented itself at my same employer for a position with the Cyber Security team. After hard deliberation, attempts for me to stay, again I made a lateral move within my company, back to the IT security world, and another small raise came with that.
Ultimately, I made the change because I recognized that this is the future of our business and the cyber world is growing increasingly complex.
This is where I currently sit, and continue to work hard and go above and beyond to demonstrate what I can do. I have visions of more strategic work, but I also understand that fresh into my career, these positions take time and experience.
I could change companies again and increase my salary anywhere from $10-15K by my estimates, but right now I value the flexibility in work life balance, no travel and great people I work with.
Do you have a side hustle?
We do not have any side hustles.
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?
From a specific “Earn” standpoint I would rate us an 8.
For myself, a 76% income increase in 6 years seems pretty good. I honestly don’t know what the average is.
I would like to work on confidence in asking for more at my current employer, but with experience restrictions on how salaries are calculated, I need to be more strategic here.
For my fiancé, she has slowly increased over her short 5-year career, but as long as she is doing what makes her happy, that is all I care about.
In my mind money/earning will come with experience and time. If we continue to be goal oriented and are diligently saving, that is where my focus is.
What are your future plans regarding growing your income?
Continue to be goal-oriented, strategically ask for more when performance evaluation time comes around and continue personal development and gain knowledge inside and outside of our specific fields.
At the risk of sounding cocky, I like to live by the phrase: “Job security is knowing you’re good enough to get another one.”
SAVE
What percent of your gross income do you save?
As stated above, we currently are at a combine 22% savings rate between 401Ks, individual accounts and cash.
How did you get to this level?
Being completely transparent, I can’t tell you what my employer match was at my first job.
I knew I was saving 10%, and when I left I rolled over that 401K to my financial advisor into my Roth. It was about $13k at the time after I paid taxes on it.
The discussion here was, let him manage it, pay taxes now at a lower rate.
Now I fully understand my company 401K and with company match I am at 16% savings rate, with an auto annual increase of 1% each year. This offsets our company annual salary increases (2-3% per year).
I won’t repeat the structure laid out above for each account.
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 rate us at a 6.
I know we have more money to save, we do not have a budget, but we know our monthly expenses.
I am working on saving more and more each month until we start to feel uncomfortable, but I could expedite this process much faster than I am.
What are your future plans regarding saving your money?
Keep increasing savings on a yearly basis when raise time comes, stay automated, and keep reading ESI Money Blog!
INVEST
What are your main investments?
Here is a recap from above:
Retirement accounts:
- His: Company 401K: $30,000 (contributing 12% with 4% company match)
- His: Roth IRA: $31,500 (adding $150 per month)
- Hers: Company 401K: $29,000 (contributing 11% with a 3% company match)
- Individual taxable account currently at: $18,000 (adding $200 per month)
- Cash: $38,500 ($22,000 emergency fund)
Performance:
- Life of the Individual Account (2015): 6%
- Life of Roth IRA (2015): 4%
- Life of Company 401k: 7%
I do not know performance of fiancé’s 401K at the moment.
I should mention from the above, when my company pays out bonuses I try to invest a chunk of the after-tax amount to my Roth pre-tax 401K deduction is automatic. (I have not hit the $5,500 max the last two years).
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 rate us at a 5.
Factors here include: I need to get better in understanding the mixture of funds and any other vehicles I should be investing in.
I don’t fully feel confident to manage and trade index funds myself on say Fidelity. Can anyone suggest a good course/website here?
I have asked my advisor what other options are available which I could benefit from, and the responses always seems to be: “well if you add more accounts, you will start to overlap in the funds/indexes, and you won’t see a major difference.”
At the sake of repeating myself over and over: I don’t know if I am properly structured, the retirement accounts appear to be right from what I have been reading as far as percentage and automatically saving. What else?
What are your future plans regarding investing?
Seek more advice from readers and continue educating myself. Adding more to monthly contributions vs. taking away.
WRAP-UP
What money mistakes have you made that others can learn from?
So far, I have not come across any major money mistakes.
I’m betting I will hear if from the readers about car leasing (fire away!) 🙂
I am looking to prevent mistakes by doing this interview and reading this blog.
I do have about 800 bucks in individual stocks, but I don’t actively play with this or in this space. I am trying to take a set it and forget it approach.
Are there any questions you have for ESI Money readers regarding any parts of your finances?
What am I missing with my investments/savings?
Do I need different account vehicles for saving? Is our combined percentage too low?
The Roth and Individual accounts are index/mutual funds with fees (I’m seeing about $10 a month in fees from each account) – is this way too high?
I know I need to be more transparent with my advisor, but since he is not actively managing individual stocks, we only speak on a quarterly basis, unless I actively reach out.
What are cash savings recommendations? Should I keep it in cash in a savings account that has 1% growth, or transfer more funds into my individual account and deal with the ebbs and flows of the market?
You are in a great position! Congratulations!
First, get out of debt. Plenty of cash. Stay out of debt. (with a mortgage exception…15 yrs 20% minimum down and work to pay it off early)
Budget, budget, budget.
If your fiance/wife decides to stay home with children some day, you need to prepare for that option. With paying home off in under 15 years you should be able to cash flow college expenses. By a reasonable home and stay there as long as you can. Trading up in home has gotten a lot of my friends in trouble.
Max out Roth first, then work on tax deferred accounts. Income taxes are not going down in the future. You will be in a high bracket, even in retirement. Work toward 15% of household income toward retirement. Employer match is a bonus.
Enjoy life!
You have a great start. Your income is healthy with a lot of potential still, and you appear to live in a relatively low COLA.
Life is about balance. Your wedding costs seem very reasonable, the most important part of the experience is the friends and family you share the day with. Have a spectacular wedding and honeymoon as you start your lives. Your relationship with her and God should always be the center of your lives.
Some recommendations based on my own habits and mistakes I made. Save as much as you reasonably can but enjoy today just as much as tomorrow. Avoid lifestyle creep – this is very difficulty as your income increases. Before buying anything large or small, assess if it’s worth the cost, ongoing associated costs and how much happiness it brings you. As a rule, I have generally never purchased anything I could not pay off in 5 years including my house – but I know that’s not possible for everybody. Do not make large purchases in haste and check your emotions. Cars are fun, but a terrible investment. Houses are a good place to park equity long term, but generally not a good investment. Early investment into the markets are very important due to compounding, liquidity, historical returns, and relatively passive than other investments. I have personally done well with commercial real estate, but the opportunity came to me – I did not seek it out and it’s relatively expensive. Some have done very well with residential at the right timing, but it seems to come with a lot of tenant hassles, so I have avoided personally. I have also invested in my own business, but that’s not necessarily a consideration for most, or for you may be at least a few years away before considering – it requires a great deal of patience, grit, time, money and so forth but is one of my most lucrative investments.
Stay passionate about what you do for a living and if you wind up in a bad situation at work, change companies without burning bridges. Do what you do for a living with the focus on the people you help, the money comes when the employer sees your value, so make yourself stand out in a crowd when it comes to work ethic, dress code, behavior and mannerisms, offer to help a struggling colleague, etc. – this is how to test your employer. A quality employer will reward with promotions, a questionable employer will try to get anything out of you for no recognition. Don’t underestimate your understanding of your self worth as you accumulate skills. Don’t let little hiccups in your life affect you, but correct them. Communicate well. Be charitable with not just money, but kind actions every day and share good advice you receive.
Maintain your physical and emotional health. Utilize your vacation time and date nights are important. She will appreciate you doing your part in maintaining a clean house.
Regarding your accounts, it’s okay to have most of your money in index funds. Buy them after a good correction, last December, for example, was a good time. You asked about some better returns. You can consider putting some in good sector funds like technology, healthcare, biotechnology, consumer staples – Fidelity has some very good funds. I am however, waiting until after the next major correction until I commit more. You likely have not been through a 50% market correction yet. Do not let it shake your investing foundation by selling at a bottom out of fear. I don’t do individual stock investment, if you do at least stick to the biggest and best companies in favorable sectors.
Regarding your question about cash savings, several online account offer savings rates over 2%, at CIT Bank I’m getting 2.45% currently and up to 3.2% on 18 month CD at the local credit union. A 6 month emergency fund is probably good at your age, I am currently at 1 year.
I firmly agree with all that MI-119 said. Especially the part about evaluating *all* purchases. My rule for things I buy/subscribe to is whether it’s worth how much I will actually use them. Don’t need access to a streaming service if I only watch one or two things, etc. Avoid paying convenience fees as much as possible. It’s easy to think, “Oh, it’s only [x small amount]”, but small amounts add up quickly.
My first thought when I read this was FEEs. How much are the expense ratios of the mutual funds you’re in, are they actively managed? How much is your financial advisor costing you? Do you know about the “silent fees” that you don’t see, that come out of your earnings (expense ratios as opposed to obvious service fees, 12b-1 fees, etc). Those are places you should look to cut, if possible.
I understand you don’t want to focus on debts, but aggressively paying off those car loans is also a big form of savings.
I believe everyone should jump on the FIRE bandwagon specifically for FI. The RE is secondary to that and doesn’t have to be part of the plan. You don’t have to go as extremely frugal as some, but there’s a lot of good advice in the community for how to keep more of the money you’re working hard for.
I learned about etfs through Fidelity’s educational videos (to the point where at our appt with our acct financial advisor, I realized I knew a bit more than he did when he tried to say Vanguards etfs weren’t as tax-advantaged as the ones offered through Fidelity). Investopedia and The Balance are great places to start learning the broad overview of investing. Googling unfamiliar terms will help build your knowledge, too.
Your strategy of buy and hold is a good one. I usually go for dividend stocks and use DRIPs to increase my holdings. Once I’m as invested in an individual company as I want to be, I turn off the dividend reinvestments and use that income to buy other stocks/etfs.
Business Insider just had a great article yesterday about places to keep your emergency fund so it’s accessible while earning as much as you can get for it.
Because Fidelity has access to brokerage CDs you have a lot more options than just your local banks. (Though avoid the secondary market if you don’t understand how it works. Just stick to new issues. There’s no fees/commissions to buy/sell them, and I’ve noticed the rounding works in your favor more than CDs bought elsewhere.)
You have a solid start. My advice is to continue to educate yourself. Read financial books like Rich Dad, Poor Dad; keep reading blogs like this one, but don’t forget to take all advice with a grain of salt. Articles usually have to gear it toward a wide audience, and some of it is frankly bad. You’ll learn to spot the difference the more you grow your knowledge.
Reevaluate your monthly expenses. Just because you can spend the money on something doesn’t mean you should, and you also don’t have to pay full price or a premium for it. Shop around and bank the difference. And make sure you’re getting good rewards for the credit cards you use.
Thank you Jenni. You are very wise as well and have offered the gentleman many golden nuggets as well. Wish I had access to advice like this when I started my career in my late 20’s, it’s like gold for those who heed it.
Agree with 99% of what MI-119 and Jenni stated…. with only one exception…
I would take what Kiyosaki says (Rich Dad, Poor Dad or any of his work) with a very very big grain of salt. I believe the man to be a decent writer but a complete charlatan, and frankly just not that intelligent, on the topic of finance. Not that there aren’t some good takeaways in the original book, but that he is most definitely not qualified to dispense financial advice.
Yes, I know that’s a rather strong opinion, but I’m a career finance guy and a successful r.e. investor myself, and I’ve noted some really bizarre and just plain wrong ideas he’s recommended in the past.
Notwithstanding the above, there is a lot of FI material to read out there and much of it is by folks who are more in the business of publishing (and pushing seminars) than they are in the business of finance. Each of them has something to offer, but you must approach all with a skeptical eye and only take away what feels correct and fits your specific goals/situation.
In my 20’s I started out with Suze Orman’s books, like “The Courage to be Rich”. These days Suze gets a lot of scorn from the FIRE blogging community, and admittedly she has strayed far from those original books – so I’m not recommending her. But, at the time, she was the only writer addressing the “personal” in personal finance, explaining how our emotional baggage and societal pressures get in the way of wealth creation. These were revelations to me, as I grew up relatively disadvantaged and thinking the reason for making money was so you had more to spend, lol. I truly wish I’d had all this knowledge and role models educating me on time value and frugality when I was your age.
Anyhow, #49, looks like you’ve got a great start on your financial future! Congrats
I have never read a single financial book. I have no idea what’s in Rich Dad Poor Dad or any of Suze’s books. In this regard I personally stick to the Good Book in conquest of treasure, not wealth which anyway for me has too generously accelerated as a by product of a growing commitment to a higher pursuit. I’ve found no need to take it with a grain of salt either! I know you may prefer other books, but I don’t have the time to weed out bad advice/information, at least in a whole book so I stick to articles otherwise.
Educating yourself with independence of thought in decision making is critical – often a lonely road as you do not travel with the herd but boy do you stumble on that which is hidden from the masses seeking alternate gratification. That has not worked for me – my biggest possessions are often the source of my stresses, and experiences to escape an unsatisfying reality in our lives ultimately prove a false happiness when not coupled to a greater purpose for me.
You don’t need to do what I did but make sure you trek your own course and not puppeteered by a society telling you who you are and what to believe in order to make money off of you. I feel I fell into this trap in my earlier years, I am after all imperfect when relying on myself. No more disenchantment, regardless of NW, FI, possessions, experiences, and that is the ultimate freedom!
Apologies Jenni, rereading, I see that you did say “don’t forget to take all advice with a grain of salt” so we are more or less on the same page.
Oops. Ignore the sell part about CDs. I meant when they mature.
“Job security is knowing you’re good enough to get another one.”
That’s not cocky, it’s practical. And don’t be afraid to jump ship if it makes sense. I’ve gotten all my best pay raises jumping ship to another company even if it’s for pretty much the same role.
You’re in a great position. Making more than you spend is the recipe for success. I have a couple of suggestions:
1. Pay off the car loans early (unless your interest rates are very low). You get a good rate of return on your money and the peace of mind when you no longer have the loan.
2. After getting the company match on the 401k put more in the Roth account and if this is fully funded then contribute more to the 401k. (Also see if you have a Roth 401K at work)
3. Don’t worry about trading funds. Get index funds and stay with them.
4. I’d move my accounts to Vanguard. Their low-cost advantage becomes greater with time (I have been with them for over 30 years).
5. Like the auto loans – consider paying extra on your mortgage. Good rate of return and you build up equity.
With respect to job security, while I don’t doubt that given how hot a topic “cyber security” is, I would recommend you give some thought to what an unexpected job loss (you or future Mrs) would mean to your finances. In other words, do you have the cash savings to get through 6 months of expenses (assuming only on of you is unemployed). It’s hard to tell from your post, since you don’t focus on the expense side of the equation.
When I used to run these worst case scenarios for myself, before reaching FI, I assumed we’d cut back on certain things – housing is hard to cut back on quickly, but other spending categories (eating out, clothing, etc.) are easy. At my current age (mid-50’s) and stage in life (FI but not RE), I like to know that I’ve got about 2 years of cash liquidity because I want to have plenty of time to figure out what comes next (RE, relocate, new job, new venture, sell assets, etc.).
The conventional recommendation seems to be 3 months, but prior to reaching FI, personally I would generally target 6 months. My philosophy is that when it rains, it pours (i.e. multiple things go wrong at once). Having lived through the credit crisis, in a role that put me front and center to its effects, taught me a thing or two about risk.
Up to that point, I had generally relied on my HELOC (home equity line of credit… think really big fat credit card that uses your house as collateral) as my emergency fund, so that I could keep less cash on hand, and more of my funds invested. Of course, during the crisis, banks canceled many of those lines right when folks needed them the most.
I thankfully did not lose my job or anything like that, but it was scary. Had I lost my job at the point in time, it could have taken well over a year to replace it. I’ve only lost my job once in my entire career (over a disagreement on business practices I felt were less than ethical), though I have been through (and survived) more lay-offs and reorgs than I have fingers and toes to count. I was even responsible once for completely shuttering a department and finding everyone new internal jobs (including myself) – literally the last guy to shut the lights off with no guaranty of a job. That worked out just fine but I had to have the intestinal fortitude, backed up by adequate emergency savings to play out the situation without developing an ulcer.
The point of all this is that you want to prioritize having enough readily available funds to anticipate emergencies or job loss, or medical issue, and then some. Having to tap investments or 401k for this sort of thing is incredibly destructive to wealth. And, being prepared has side benefits – it helps you sleep better at night, and it gives you greater confidence to take career risks without worrying as much about the downside.
Good perspective and insight. I agree that as a society, we greedily rush towards accepting excessive risk. I’m relatively young and have never really experienced a recession but I do understand that being leveraged out the ass can be a bad thing. We have recently made moves to significantly deleverage ourselves and sure, we may miss out on some potential gains because of that. Either way, if something happens, we would be ok and we do sleep better at night (for now anyway). Every move doesn’t have to be a home run to generate wealth and personal finance isn’t the same for everyone. However, I do believe MMiguel has a solid point that isn’t always considered.
You guys are off to a GREAT start! You are making me flashback…oh, to be in my late 20’s again, at the beginning of deepest love for my bride…now over 30 years together. We started out with less than you guys and ended up with assets on par with ESI while I had the “opportunity” to get a layoff package at 53. While you enjoy work now, don’t assume that will always be the case. As others here have said, plan for FI. As the late John Bogle repeatedly said, “stay the course,” and minimize fees.
I really enjoyed this interview because it is very similar to my way of thinking and somewhat mirrors what my wife and I tried to do together over our last 26 years of marriage. I was 35 and she was 32 when we got married and our combined NW was about $350K at that time. We both focused on our careers and fairly aggressive saving and investing but not with a frugal mentality. Once we invested the savings we were comfortable with each month, we didn’t worry too much about how much we spent after that, within reason.
Our goal was FI but never RE. Like this couple, we enjoy work and see our careers as a challenge and an opportunity to continue to learn and grow. I am now 61 and my wife is 58 and we are approaching an 8 figure NW. We didn’t inherit any money and we didn’t hit the lottery. We took chances in our careers, made some tough choices on positions and geography if we felt they gave us more opportunity to increase our incomes, and we steadily invested with a long-term view and a buy and hold mentality.
Most of our investments were low-cost index funds and a fair amount of company stock due to option grants and RSUs. We have tried to maintain a diversified portfolio and have mixed in some Alternative Investments, Bonds and REITs over the last few years. We bought too much house 15 years ago but we do plan to retire here and now have a healthy amount of equity in our home and a little over 5 years left on the mortgage.
We only have one child but she has been a real treasure. She will be a Junior in the Fall and attends a well known NE Public University and is doing very well.
My wife and I continue to work and plan to keep going for another 5 years. By then, we should be ready to ride into the sunset and enjoy the fruits of our labor. Many will question our sanity for staying in the game this long but to each his own. Happiness comes in all shapes and sizes.
Good luck with your pending nuptials and your life ahead. You are off to a great start and I see many things in your story that will help you be successful through the years to come.
I think you have a great start! There’s nothing wrong with not wanting to retire early. I think it’s actually wonderful that you enjoy working and climbing the corporate ladder. One benefit is you won’t have to worry about maintaining a typical 50%+ savings rate like typical FIRE folks. That being said, if you do want to save more, it’s good to try establishing a budget. Good luck!