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.
Age: 27, male
Spouse: N/A – single
Geographic location: City on the east coast
What is your current net worth?
- Cash: $24,000
- Taxable Investments: $181,000
- 401k: $48,000
- Roth IRA: $43,000
- Traditional IRA: $2,500
Total: $298,500
Before the post begins, I’d like to thank ESI for giving me the opportunity to partake in the ESI Scale Interview series. As you all readers are, I’m also a huge fan of the blog. I’m glad that I have an opportunity to contribute to the community & content that ESI has built here.
How did you accumulate your net worth?
The net worth I’ve accumulated thus far has been mainly the result of solid earnings, excellent savings, stock market investment returns, and financial aid from my parents – both in paying for my college education, and gifting me a portion ($50,000) of inheritance they received from a close and cherished relative that passed away recently.
They have also let me know that they will be spinning of a small amount of money to me each year as part of their estate planning, as their portfolio allows.
The net worth I’ve accumulated thus far has been the direct result of my parents bestowing financial wisdom and frugal habits upon me from a young age. Their help has been invaluable, and I can’t thank them enough.
Add to all this a propensity to go toe to toe with Scrooge to see how much money I can save, bull market returns, a healthy work ethic, and presto – wealth is being accumulated.
EARN
Tell us a bit about your career.
After graduating college, I moved to a city along the east coast for work, starting out in IT consulting (where my career continues now).
My work as an analyst is to configure enterprise software for clients. I started out as a software tester and moved jobs 2 years in when it was apparent my role was boxed so to speak, and there was little room for growth.
I jumped to IT consulting company #2, where I have the opportunity to wear many hats, and projects move quickly. My pay has increased as the result of my job change and experience gained since then.
During my first year at company #2, I was able to provide them additional value with a niche skill-set I had by leveraging some coding skills I picked up in college. This earned me my first pay raise and has given me some tailwind in my almost 3 years there now.
Below I’ve outlined my salary history and years of work. Salary is representative of fair-market-value for my years of experience in my industry. I’m a hard worker, but don’t possess a lot of the natural talent I see in my coworkers.
- 2013: Salary – $65,000; $7,000 signing bonus
- 2014: Salary – $65,000
- 2015: Salary – $73,000; $2,000 signing bonus
- 2016: Salary: $83,000; Bonus: $3,000
- 2017: Salary: $90,000; Bonus: $3,000
Do you have a side hustle?
I sincerely wish that I did. This is something that I really want to have at some point in my life, but not sure that now is the right time for it.
I’m entertaining a career pivot right now, and very soon will find myself crunched for time.
With that said, I’m always mulling through ideas of what my side hustle would be if I had one. I would love to blog – but I think the FIRE blog market is pretty saturated at the moment. I’m not sure if there is a niche I could fill at this point – except maybe being one of the few younger voices out there. (On that note, keep it up, Gwen)!
Other side hustle ideas for the future, realistic or not:
- Low level software development for small companies or non-profits (after second degree from upcoming career change)
- Accountant / tax consultant. I think this would be great fun, and I think my mind is built for accounting (see comment above about data geek-ness). Would love to get another degree here as well.
- Photographer. This is an old passion/hobby of mine that I have an eye for.
How happy are you with these results and what future plans do you have for growing your income?
So far, pleased my earnings, but I’m reluctant about my future ability to grow my income like I have thus far in my career.
I had a strong start during the first four years of work – but I hit a rough patch this year and that made me question my future in my current role or at my current company.
After going through a mini existential career crisis (I guess that makes me a millennial then, don’t we all have these on a weekly basis?), I decided to pivot my career, and am in the process of applying to a part-time online computer science program. This will surely come at the expense of future earnings – both the cost of the degree and foregone income by switching paths at a time when most careers are starting to gain traction.
Future plans involve looking for work that is more in line with my skillsets / natural inclination for technical work, if things don’t work out with Current Employer. Although I have definitely had a very strong financial start since graduating, I don’t think this kind of progress is something I can sustain, as I don’t see much of an upward path for myself in my current industry/role.
Future plans after the potential career change and CS degree are to pursue an advanced degree (MBA, Economics, Behavioral economics, other), if not just for the intrinsic value I would gain from it. My thirst for knowledge and a broader understanding of the world at large is something I have never been able to satiate.
SAVE
What percent of your gross (and net) income do you save?
I only track savings net of taxes (take home pay). I optimize taxes where I can, but ultimately this is something far beyond my control. Percentages will be lower tracking against my gross, which I’ve included here as ESI originally asks for the calculation against gross income.
I’ve added in my net worth as well. Net worth jumps significantly later due to gifts from family (mentioned above) and the bull market.
- 2013: ???
- 2014: Net worth – ~$55,000
- 2015: Net saved – 68%; Gross saved – 47%; $ saved – $35,000; Net worth – ~$119,000
- 2016: Net saved – 62%; Gross saved – 48%; $ saved – $40,000; Net worth – ~$196,000
- 2017: Net saved – 63%; Gross saved – 47%; $ saved – $43,000; Net worth – ~$284,000
The above % savings rates and $ saved does not include the gifts received from my family regarding inheritance or estate planning. However, the net worth totals do include those amounts. I don’t let gifts skew my savings percentage – I see this calculation as a measure of how responsible I am with the income I earn.
How did you get to this level?
I got to this level in the first few years by upping my savings rate until it hurt. I was hyper focused on pushing down my expenses as far as they could go, and ultimately succeeded.
My parents let me live at home for the first year after graduation as well (once again, can’t thank them enough), which was an enormous help.
After that, I moved in to a glorified closet to get the cheapest rent possible. As my income grew, I continually focused on saving as much as I could each year, knowing I would thank myself later.
I now live in a normal sized bedroom, and although I miss the cheap rent, it’s nice that your door doesn’t hit the end of the bed when you open it. 🙂
Adjustments that I’ve made have been to throw out any budgeting whatsoever. I don’t like it, and found that I don’t need it at all. I typically save 60% of my income before I need to consciously focus on pushing that number higher. I’m frugal to a fault.
How happy are you with these results and what future plans do you have for saving more?
Beyond ecstatic with my savings rate.
This is the one area I feel I have been exceptionally strong in, and feel extremely confident that I can make work for any situation in the future.
I’ve made a conscious, concerted effort to keep my living expenses very low, and generally try to toe the line with being frugal until it hurts.
I’ve let up just a touch in the past year (just a little, mind you) and aim to hit a 65% savings rate moving forward. This savings rate will be cut if I get in to the computer science program, but I don’t see that expense as a bad thing, even if it does kill me inside to spend money on…. well… pretty much anything. 🙂
INVEST
What are your main investments?
Taxable investment accounts and % of assets:
- Vanguard Health Care Fund Investor Shares (VGHCX): 5%
- Vanguard International Growth Fund Investor Shares (VWIGX): 20%
- Vanguard Large Cap Index Fund Admiral Shares (VLCAX): 37%
- Vanguard Mid-Cap Index Fund Admiral Shares (VIMAX): 20%
- Vanguard Small-Cap Index Fund Admiral Shares (VSMAX): 17%
Everything else (401ks, IRAs) are in something similar to a Vanguard Total Stock Market fund.
They all perform well enough – the index funds relative to the performance of the market overall and the other funds similarly so. You’ll notice the first two funds in my taxable account are actively managed (heresy, I know).
I don’t do any stock picking. Never had the desire, likely never will. My whole focus so far has been to save as much as I can, and just keep piling it in to the stock market.
I did have a craving though to pick out a couple actively managed funds though. However, I manage how much of my net worth is exposed to those to combat fees, fund manager risk, and lack of diversification (specifically regarding the healthcare fund).
How happy are you with these results and what future plans do you have for investing?
Very pleased so far. The bull market is bringing everyone along for the ride, and I don’t think my returns are too far off from what the overall market has seen. Future plans for investing are to stay the course.
I currently max out my 401k & IRA, and throw everything leftover in to my taxable funds.
I’ll maintain my 12-month emergency fund until my life situation changes, as I have some large upcoming expenses with pursuing the second degree.
Once I make the appropriate changes, and am confident with my direction, I’ll reduce this to a 6-9 month emergency fund. This will likely be a couple years down the road.
WRAP-UP
What money mistakes have you made that others can learn from?
I don’t think I’ve made any glaring money mistakes at this point, but I may look back on this in a decade or two and think that I could have optimized my money management a little better. Things that could be a mistake now that I don’t realize are:
- Investing in 2 actively managed funds. Fees, lower than market returns, etc – time will tell.
- Not maxing out my 401k from the get go. As you can see, almost half of my net worth is in taxable accounts. I personally like the extra liquidity, but we’ll see if this becomes something I regret in the future.
- Not buying a house (will likely be in this area for a while, but houses are quite expensive and would eat up a large portion of my ability to invest in the stock market like I have thus far)
The only major money mistake I’ve made in my life is going in to debt for a pair of rollerblades when I was 11 years old. I decided to forego about 6 weeks of allowance, and my dad agreed to buy me a pair. My friends and I rollerbladed for about 2 weeks before the fun wore off. My income stream dried up for a month as the debt was being paid, and this became the catalyst for my undying hatred of debt. 🙂
A house is the only thing I will ever (begrudgingly) go in to debt for.
What do you plan to do with the wealth you have accumulated so far?
In my mini career crisis, I’ve put a lot of thought in to how I can make a positive mark on the world, and what I want to measure my life by. There are numerous things that I am passionate about that I think are engines for positive change, and although I enjoy a lot of aspects about my current company & field, my work does not fulfill this desire to make a positive difference in the world at large.
I’m planning on opening a donor advised fund by my later thirties, in order to give to non-profits whose values and mission match that of my own.
What do you plan on doing upon reaching financial independence?
Unsure at the moment. I have plenty of hobbies and personal interests though, and I suspect as I get older the temptation to spend more of my time how I see fit will grow in line with my financial security/net worth.
Diminishing amounts of income from my employer relative to returns from my investments will probably cause me to re-evaluate how I spend my time 15 years from now.
I can see myself taking a more relaxed career path – part time work, more time off – and having a more flexible lifestyle without eliminating work entirely.
I’m not sure completely cutting out work is something I want to do – but re-orienting myself towards an industry/mission I am truly passionate about may be something I entertain.
Are there any questions you have for ESI Money readers regarding any parts of your finances?
Lots of questions:
- What are your overall thoughts about taking my first year of savings and putting them in taxable investment accounts?
- What are your thoughts about my career change?
- What are your thoughts about the fact that I’ve committed FIRE heresy – I’m invested in not one, but two actively managed funds!
- I’m staying in east-coast city for the foreseeable future, but am reluctant to put down a large amount of cash for a property due to high house prices. Personal opinions?
Feel free to add in any other commentary or insights than what I’ve explicitly asked above!
The Physician Philosopher says
I am not exactly sure why you would start filling up a taxable account before filling up your tax advantaged retirmeent space. It seems like you save enough that you could still put money into a taxable account after the retirement space is full.
Also, it seems that you know about passive versus actively managed funds. So, no one can hate on you too much for that. You could be doing worse things (like picking individual stocks).
That said, you are doing extremely well. I don’t know that anyone can knock you at this point. Your savings rate is the major deteriminant of your early success investing… Then it becomes how much you are earning from your investments. Your savings rate has been massive. So, good job. Really good job.
Keep up the strong work!
ESI Scale #7 says
I appreciate the feedback! And I realized that I didn’t fully articulate in the article why I chose to put a lot in my taxable accounts vs. tax sheltered. I am on track to be FI by 40 or so, with no pay raises and the same savings rate. I really like the idea of being able to pull from taxable accounts, and not have to worry about being a magician with tax code. Most everyone who I have read (including ESI in one article I believe) all indicate that they ended up with more than they thought, and wished they had some more money in taxable accounts to take out before the government determined number of 59.5 years old. That’s the real reason that I am doing it, and do realize that I am giving up a potentially higher net worth (paying more taxes and the like) in order to go down this path.
There it is, that’s my genuine reason. Very interested if your opinion is the same or not! And if you still disagree – I’ll definitely have some thinking to do. I’m enjoying getting great feedback from people that have more knowledge and experience than I have. Thanks!
The Physician Philosopher says
Only caveats I would make are the following:
1) If you truly expect to FIRE by age 40, then the number you can access your retirement accounts is age 55. If you are separated from your employer you can get it early.
2) If you really wanted to access your retirement accounts earlier, you could set up a SEPP that would allow you to draw the money out (have to do it for at least 5 years or until age 59.5) without having to pay the 10% tax on the money. This way you’d get the tax advantage of retirement account without having to worry about the 10% extra tax on it during early retirement.
Aside from those two options (or much more grave options like disability or high medical payments), then a taxable is certainly a better option.
Check into the concept of making a SEPP from your retirement account money and then do the math. You may be right or you may decide this is a better option given the tax advantage.
I am all about having information and making intentional decisions! As long as you are making an intentional decision for your wealth and wellness, I am all about it. Keep up the strong work.
ESI Scale #7 says
Thank you for the advice! I’ll definitely have to look in to the SEPP option, as that sounds like it gives me what I would (potentially) want if I needed to access some of that 401k money. Thank you!
Mrs. Kiwi says
First, great work being frugal and saving so much when I know it’d be easy not to! I too am naturally frugal!
In terms of buying a house, would you house hack and rent out bedrooms to cover the mortgage? I jumped into buying a house pretty young (25), but I bought it with my fiancee. We were able to buy it while real estate prices were still suppressed from the crash (2013), so it worked out. If I was in the same place in today’s housing market I’d (hopefully) continue renting. I like owning my home, but it’s not the same type of asset as an index fund. Plus, renting comes with many perks and flexibility. (Which may be good with a career change.)
I think if a career change feels right for you, then you now best. My husband just went back for his PhD, taking a 60% pay cut. We’ve spent these first few years of our career growing our wealth (not fully FI yet, but we were <3 years shy when he quit), and suffering in a job when you don't need to isn't worth it. First he tried a lateral move doing similar work for government instead of a corporation, but that wasn't a good fit either so he headed back to school.
ESI Scale #7 says
That is a great idea, and something I have thought about. What I would need to (haven’t yet) is run the numbers for that scenario. I’ve done some napkin math on it before, and think that it would still be a little aggressive for me at this point, but probably something I need to consider for the long term if I am going to stay in this area (very likely).
Since you have done this before, rough numbers on housing in the area for a two bedroom condo in the area: 300k for one in the suburbs, 400k+ for one in the city. This includes some fairly steep (in my scrooge-like opinion) condo fees. This would be at least a 60k+ down payment, and a hefty mortgage on top of it. My current rent is $1,100/mo with about +$110 for utilities and a parking space. Obviously, house prices are very dependent on location and other factors, so I know I’m generalizing. Curious what you or others think of the situation!
Cheers!
Lily | The Frugal Gene says
A lotta people say they regret not buying a house sooner during the recovery. I remember in 2013/2014 there was all that talk about speculation and bubbles but compare to now, those prices seemed low. But you’re absolutely right, houses are fatter expenses, plus all that work to a point for a free agent like yourself you would have likely hated it! Great job!!
ESI Scale #7 says
Thank you!
Tom @ Dividends Diversify says
On bullet point question 3, I think actively managed funds can have a place in a well rounded and diversified portfolio. I have several, so don’t feel bad. I know what you mean though, say it to the wrong person and you will get told you don’t know what you are doing. Tom
ESI Scale #7 says
Thanks Tom – appreciate the feedback. And I know what you mean about actively managed funds, but oddly enough I haven’t gotten too much flak for it thus far in my life. I think that’s because most of my close friends and family know they don’t save as much as I do, and don’t feel they can critique my fund choice as a result 🙂
But they may have the last laugh – I’ll see how actively managed funds work out for me. In a decade I’ll have 20/20 hindsight.
Jason@WinningPersonalFinance says
This is fantastic “The only major money mistake I’ve made in my life is going in to debt for a pair of rollerblades when I was 11 years old.” It’s so cool that you remember this lesson.
I also saved some in a taxable account my first year as I wanted cash for a down payment. I filled up my employer match in a 401(k) (free money!!!) and Roth IRA (can pull out contributions penalty free) first.
You sound like a younger version of myself. I too was lucky that my parents paid for college and graduated focused on FIRE (although I did not know the acronym). I loved with my parents for two years and used the savings to buy a tiny condo.
I picked a career that would be safe and make money. I suggest you decide on you career change based on what you think will make you the happiest overall. Working an extra year or two at a job you like is much better than 10+ years at one you hate.
ESI Scale #7 says
Jason – appreciate your feedback, and I completely agree about the job situation.
As for the roller blades, I’m surprised I don’t have physical scars from that experience. I remember that horrible sinking feeling when the fun wore off, and I had to walk out the garage every morning to go to school – looking at those roller blades – and knowing I had given up another month of money so they could sit in a plastic bin. *shivers*
As for the 401k… don’t worry, I never turn down free money 🙂 I’m just not maxing it out at the moment.
Keep rockin’ it!
MrFIREby2023 says
I commend you for doing this interview and being candid about the gifts your parents have provided you (the portion of inheritance and annual gifts to come) because you’re aware that some people will judge you for being a recipient of this. Just because you’ve been gifted doesn’t mean you were born with a silver spoon in your mouth.
I also received an inheritance a few years ago and I’ve maintained discretion due to the fear of being judged. Also for fear of friends asking for a handout or to invest in their business, etc.
You have an impressive net worth and portfolio for your age, my advise is to maintain discretion about this, consider this; being discreet about your portfolio is a part of effectively managing it.
I like the fact that you have a large emergency fund, 12 mo’s is a good thing, it provides peace of mind.
Renting for now is fine but have a goal of buying & owning a residence by a certain age (30 for instance). Owning a home is very gratifying and it will add to your net worth and provide stability in your life. Good luck to you.
ESI Scale #7 says
2023 – appreciate the advice and wisdom. I think you’re spot on, on many accounts. Being stealth about your wealth is crucial. There are some who I trust that know the general ballpark I’m in, and others that I would never reveal it to. I’m definitely conscious of keeping it under the radar.
As for a house providing stability; something I hadn’t thought about. My job last year showed me the value of having stability in my life in the midst of things that were unstable. You’ve given me another angle to think about, I appreciate your insight.
2023 is on the horizon, best of luck in your final sprint!
Indio says
Good job! I know you will get a lot of responses about your financial questions so I will skip that part, except to say a house doesn’t always outperform market growth. It’s all about timing. Plus it ties you down.
I work in IT so feel qualified to comment on career shift. If you are going to study CS for 2nd degree and want a satisfying, impactful job, look at some of the moon shot projects that are happening now. You could apply for any job to get in the door and shift to the project you want to work on later. Once you’re on the inside mobility is very easy. There’s huge demand for engineering resources, especially if you have a diverse background, at these companies. Many of them offer tuition reimbursement too.
Good luck.
ESI Scale #7 says
Indio, that is great insight – something I thought of in a general sense but hand’t done more research in to. I’ll definitely have to take a look at the moon shot projects. I also fully recognize the demand for engineering (cs) talent, and feel very bullish about my ability to succeed and pivot to another role (regardless of whether that means going full-development or not). Technical things I pick up extremely quickly – and it sticks in my brain like glue.
Sincerely appreciate the insight and thoughts on the job market. Thank you!
Dave says
You are doing well. Your earnings are going up every year. You have a very high net worth for your age. Plus, you did not blow your inheritance. Keep it up and you will be able to retire early.
ESI Scale #7 says
Dave, thanks for the motivation. FI is the goal, RE is the plan, and by golly, I’m sticking it out till the end!
George says
IT can be a huge burnout, good on you for changing now. I did it for nearly 10 years, left, went back to school for five years, and now 2 years into my new career I feel like it is too similar to what I did before. I’m trying to reorg my department as a result.
ESI Scale #7 says
Thanks George, and I definitely see myself going in that direction. I love the competitive atmosphere, but also recognize that this much stress long term will eventually take a toll on me. I don’t know when that day will come, so I’m planning my exit / pivot strategy now. Freedom and flexibility are what I value most, and I’m using FI to get more of it in my life.
Best of luck reorging your department. At the end of the day, a worthy goal is what makes your time spent getting there worth it.
Kevin says
You are on the right path. Absolutely. Lots of ways to become FI and you have plenty of time. Would imagine by the time you are 40 you will have at least a couple million. Wish I had started earlier and had the mindset you have.
Keeping track as meticulously as you do lets me know that you will be successful. Companies that have better controls, etc perform 20% better. I believe this goes for managing our personal company (ourselves or our family).
Your salary increases and savings % are outstanding. You are on your way as I noted. So definitely find what makes you happy in your career.
I don’t own a home anymore. Live in a high-rise in a major city in South/Southwest. No more maintenance, repairs, my heat/AC is $50 month…no surprises, no restraining the fence, maintaining trees, AC repair. Dang, where I am now, they replace my lightbulbs. Ha. And appliances are provided. I took the equity out of my prior home and invested it. But before I made this decision I analyzed all these costs, tax impacts, etc and figured I would come ahead as long as my investments outdid property increases. In last year my trading account is up 32%. But is a job in itself. But I love it. So I think you will know when to buy a home. And as said before, do what makes you happy.
I like how grounded you are as well as giving and supporting endeavors that mirror your principles. Well done, keep it up.
It is a process, set you goals, keep a budget, manage and adjust as necessary. You will be able to live a truly wonderful life.
ESI Scale #7 says
Kevin – appreciate the thoughtful response. Your comment of “I like how grounded you are as well as giving and supporting endeavors that mirror your principles.” is much appreciated. At times I definitely question my decisions, and it’s reassuring to know that others see what I hope they do.
As for your house situation – I completely sympathize with not wanting to put up with maintenance, upgrades, and the like. It’s frustrating to feel like a lot of your time is spent performing maintenance on your life, and not actually living it.
With that – Keep living it Kevin, it sounds like you are on the right path as well. Cheers!
SavvyFinancialLatina says
As a fellow 27 year old, congratulations on your progress!!! You’ve done amazingly well.
I didn’t max out my 401K during the first two years out of college (Age 22-24). I wish I had. I missed out on tax savings. I started blogging and interacting with other bloggers at 21 and still feel like I made mistakes. The truth is it’s personal finance for a reason. Everyone’s situation is a tad different.
I do own a house, and I’m about to buy a second house with my spouse. Our first house is rented and has turned out to be a wonderful purchase. I’m not sure about our next house. It’s a hotter market than when we first bought our last house. We regret not buying earlier. We could have bought our first house in 2012 when the housing market was still great, but we didn’t know what we were doing. Our parents did not provide much financial guidance.
I know people are either on the rent forever or own forever map. I enjoy renting an apartment because it is low maintenance, but I enjoy owning a house because it feels like I’m slowly building up ownership.
I would love to connect on Twitter. It’s always super great knowing someone who’s the same age pursuing financial independence. Often times it feels as if most bloggers have made it, which is great for long term inspiration, but hard when you can’t relate in the moment.
Thanks for publishing these scale interviews Mr. ESI Money!
ESI Scale #7 says
I can’t imagine myself falling solely in to either a ‘rent forever’ or ‘own forever’ mentality, but I’m definitely trying to decide if I should buy in the next five years or so. I have the cash for a down payment, but it pains me to take that money out of the stock market where it could potentially grow. On the other hand, owning is a great addition to any portfolio.
At the moment I don’t have a twitter profile, but I’ll definitely keep you in mind if I get one. I also enjoy connecting with like minded people about saving and investing – it’s motivating to know there are others on the same journey. If I do get a twitter account, I’ll be sure to … mention(?) – not sure how it works – connect, something in your direction. 😀
Best of luck to you and your spouse on your second house purchase, and looking forward to reading your blog!
Jaosn says
All I can say is congratulations on your success so far. If we are in the secular bull market that I think we are in you should be hitting millionaire status by mid-30s. Congratulations and keep up the great work.
ESI Scale #7 says
Thanks Jason! I sure do hope it’s my mid thirties. I’ve calcula-guessed 40 years old for the 7 figure club, but I do error on the conservative side. High risk tolerance, low expectations 🙂
rcz58z says
Regarding the purchase of a house.. My son (27) purchased a 3 BR house in SC a year ago.. he rented out one of the rooms for $500 per month… that guy moved out a year later, now he rents it out on AirBNB on 3 month rents for $700 per month.. So far he’s had great luck in keeping the room rented with professional people and it covers his house payment. Granted SC houses are MUCH cheaper than east coast, but if I was you, I’d look at doing the same.. Rent out 1 or 2 BR’s to help cover the mortgage. If you don’t want to do that, then save up for the next housing downturn and be ready to pounce once housing prices drop.
ESI Scale #7 says
This is a fantastic idea, and something I have definitely thought about. I need to find a good resource to really help me analyze the numbers and figure out what is a good vs. bad price point. A three bedroom in the area is a little out of my price point, but a two bedroom I could make work.
Appreciate your thoughts!
crn1962 says
Wow – this is very impressive. You are most certainly on track for FI at an early age. I’m sure your parents are extremely proud of you since you have obviously taken their financial advice and capitalized on their investment in your college education.
Keep up the great work!
ESI Scale #7 says
I suspect they are – they tell me this more often than I suspect they realize. Thank you!
fiberguyr1 says
Awesome job on getting to where you are by 27. I don’t even think I knew what a 401k was when I was 27. Thank goodness I met my wife and she got me on the right path as far as retirement savings. I also have to say that luck plays a part in things, too. Your parents are able to dole out a financial gift each year if things are going well. My wife’s grandparents were huge believers in education and pretty much funded my three children’s college via 529s. Tack on my parents paying off the remainder of our mortgage this past Christmas, and the luck of having those people around have certainly paid off.
Keep up the good work, and you will certainly be able to retire by 40. I’m shooing for 54 I think which is another 10 years for me.
ESI Scale #7 says
Fiberguy – thank you for the good thoughts. It’s amazing how heavily we are influenced by those we are surrounded by, or choose to be associated with. I’m glad to hear you’re heading towards FI with the wisdom of your wife and financial aid of your family.
I think how much your family helps you out (mortgage payment, kids 529 savings) speaks to how much faith they have in you, your character, and your future. I’m always disappointed to hear inheritances and gifts getting a bad rap in some social circles. Giving gifts is such an incredible act of generosity – especially when one gives away their own money. It usually speaks to how much they (the gift giver) care about the person they are giving to – and 9 times out of 10 it’s because the receiver of the gift is a genuinely great person. It’s both a huge help, and sometimes, one of the largest compliments one can receive.
No one wants to see their money squandered. I’m positive that your character is part of what makes them feel that their wealth is helping make a positive difference to those that are deserving of it. My sincere congratulations to you – and best of luck in your FI journey!
Chris says
First congrats as you have done far better than any 27 year old I have run into.
I do have 2 suggestions for you to consider.
#1 is I would max your pre-tax items first. I did read why you have so much in your not tax advantaged accounts, and I understand your thinking but I disagree a bit. You can never go back a year and max out, but near the end of your working you could always elect to not max out the last few years of your working if your accounts aren’t the percentages you want them to be. This is just a suggestion, take it for what it is worth.
My second suggestion I feel a lot more strongly about. I have been a computer programmer for over 20 years. Before you go back to school, check out online resources like pluralsight. You seem like a go-getter and these courses are targeted and very well professionally done. Targeted is important. If at a current job you know they use .net/c# then you can learn those items and possibly work on something small to get you started at your current job. Why not work 50 hours a week for 40 hours a pay then 0-20 hours a week and go back to school (which will certainly not be targeted)
I go to continuing ed conferences for social and educational purposes multiple times per year. If it wasn’t for the social part, I would skip the conference and spend more time watching online content. I have no affiliation with pluralsight and I’m sure there are others just as good. That said youtube is generally not near as good, nor as structured. Channel9msdn.com is another great microsoft source.
Regardless, best of luck, congrats on your savings rate, great start on a career, and I surmise strong work ethic.
ESI Scale #7 says
Chris – appreciate the feedback. I’m definitely reconsidering my initial ‘don’t max the 401k’ route that I have decided down, so I’ll have to continue to give this some thought. As for the coding courses, I’ll definitely have to look in to pluralsight. I’ve found that I want the full CS background – and that is what has steered me away from online content before. None the less, I’ll definitely check it out.
Thanks!
MI in queue says
I took particular notice of your interview because I used to work in IT a long time ago. I’m one of the millionaires in the queue and ESI tells me that my interview is coming on May 4 if you’re interested. I’m more than twice your age, so maybe I can speak from experience about your questions. To say you are doing well financially would be a huge understatement. I’ve read a lot of interviews and I would have to say that for your age and income I have yet to see someone doing everything so right.
First question – I think you have plenty saved in retirement accounts so far. Make sure you continue to get any company match that’s available. If you want to retire early, it’s best to have some money that you can get at before age 55 for 401K and 59½ for IRA. Stocks and property are taxed at the more favorable long term capital gains rate. ESI has written about rental property as an investment possibility. Municipal bonds are tax exempt and pretty stable but not as good ROI.
Second question – For the career path change, it sounds like you are not going to actually quit your job to go back to school (which I think would be a mistake) but are doing it on the side. I think this is a great plan. I went back for an electrical engineering degree at night and never regretted it. When you work in technology you have to keep running just to stay in place. The more typical degree to pursue is an MBA to break into management. Just make sure that you are doing something you enjoy.
Third question – Speaking as one who invests primarily in index funds, I’m really not sure why you are beating yourself up on this one. You have 75% in index funds already. The 2 managed funds are Vanguard funds which usually have low management fees as managed funds go. The main problem with managed funds, as I see it, is not that there is anything inherently wrong with managed funds, but rather that most managed funds have outrageously high management fees. I think your investment allocation is fine – very well diversified.
Fourth question – I would be in no big hurry to buy a house if you don’t need to. They are nice to live in, a big time suck to maintain, and a lousy investment. You didn’t say whether you entertain the possibility of getting married and starting a family. If you buy a house and eventually get married, your spouse may not like your choice and want to move. Buying the first house is easier than moving to a second house. Then you have to worry about two purchases and closings which ideally happen at approximately the same time – otherwise you may have to qualify for and pay two mortgages for a while or worse yet end up without a place to stay until you buy the next house.
One parting thought: You’re doing so well with ESI that you will eventually have the same problem that I have. After so many years of being frugal, how do you start spending again?
ESI Scale #7 says
MI in queue – I appreciate your feedback and insight. More context and perspective from those older than myself, with more life experience, was exactly what I was hoping for. As for your MI Series Post, I’m definitely looking forward to reading your interview (calendar marked) – I read all of the Millionaire Series, it’s my favorite part about this blog.
You were spot on in all of your points/questions above; school for me is at night, and I was more poking fun at myself for the actively managed funds. As for getting hitched – that’s a great point in context with my rent vs. buy dilemma right now, and how said future spouse would feel about my housing choice. I genuinely hope that starting a family is in my future, but due to this pesky ‘single’ relationship status thing, it isn’t on the horizon at the moment.
My biggest dilemma that you touched on was my question of, do I max the 401k or back off a bit (still getting the match) and pile money in to taxable accounts. This question still eats at me a bit, because I realize that I am giving up a higher net worth to have easy access to this money earlier. Other readers have pointed out that I can use things like a SEPP to get at the 401k money, but something about this still doesn’t feel quite right. Maybe I need to get more comfortable with tax law, but I’d like to have access to this money sooner. I’m just unsure at the moment how much money I’m truly giving up (or willing to give up) in the long run to put it in taxable accounts.
Regarding spending money after FI… you’re giving me anxiety already!
Don1958 says
You’ve done so well. Congratulations…as far as the 401k match “eating at you” I’d offer this thought to consider:
If you are saving $40-$45K annually now, saving the max ($18K) is less than 50% of your total savings, thus you can consider even increasing your 401K savings amount each year until you attain the “balance” that you aspire to. You can even max it out currently and still have over 50% of savings go into taxable accounts, and still achieve the balance you are seeking.
So don’t fret over it – there is no bad answer here since your savings rate is so high. Also note that the percentage in taxable accounts vs. retirement is already very high and it will accumulate from that base with returns in that account. Another reason to consider adding to your 401K. If it’s a ROTH, you can access the funds also.
Your decision to invest in taxable accounts is not incorrect. Individual investment choices are just that – individual. There is no wrong answer, just choices.
You are well on track. Based on your continued practices, any invest difference (between taxable and non-taxable) will be negligible in the big picture. If the 401K builds up too much, you may be paying a higher tax rate when you must withdrawal it – so you may be the wise one on the blog!
You should be very proud…Congrats on the discipline.
TJ says
Looks like you are on a great path. Best of luck on retiring by 40. I believe you will accomplish this. I would recommend waiting to buy a home until you are ready to start a family, or later. I purchased when young and single and regret it since it tied me down and limited my choices. As we all know, everyone’s situation is different and your life may lead you in different directions.