Here鈥檚 our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.
Let me know if you’re a millionaire and would like to be interviewed for this series.
My questions are in bold italics and his responses follow in black.
Let’s get started…
How old are you (and spouse if applicable, plus how long you’ve been married)?
My wife and I are both 42. We will have been married 20 years in May, 2017.
Do you have kids/family (if so, how old are they)?
We have three kids, a daughter (12, almost 13), a son (9), and our youngest daughter (6).
What area of the country do you live in (and urban or rural)?
Suburban. Suburbs of Seattle.
What is your current net worth?
About $1.1M.
What are the main assets that make up your net worth (stocks, real estate, business, home, retirement accounts, etc.) and any debt that offsets part of these?
Here’s a summary:
- Home, worth $650,000, owe about $320,000 at 3.875%. Bought it in 2006 near the top of the bubble for $489,000 and had to do an 80/10/10 (80% first mortgage at 6.25%, 10% second at 8.50%) to get into it. By 2009, I was under-water, as the house was worth about $350,000 and we probably owed $400,000. With one of my stock bonuses a few years back, I paid off the second, and that plus the rebound in home prices plus ridiculously low interest rates led to a perfect time to refinance in 2013, which we did.
- 401(k), a little over $300,000 (I defer $18,000 per year into it – the max – and my company matches $9,000, increased from before when it was just 50% of my first 6% of salary)
- IRA’s (wife and I both have a Roth), a little over $300,000. I also max these out via back-door conversions, $11,000 total per year ($5500 for my wife and I each).
- Coverall ESA’s for my three kids total about $100,000 (risky to include that in net worth as it’s going to a future expense – college – that I know about, but they are real assets today)
- Cash (some in stock, some in a brokerage account, some in a 5-year CD ladder) totals about $60,000
No other debt other than we carry revolving debt each month to about $4,000 or so for daily expenses, which we get anywhere from 2% to 6% cashback for and pay the balance monthly
What is your job (type of work and level)?
Group Finance Manager, meaning I am a mid-level finance manager (manage small team of 4) at a global software company.
What is your annual income?
Depending on bonus and stock price, around $200,000 per year.
How did you grow your income so high (if over $100k per year)?
Studied my tail off in MBA school, got a good entry level job at a large company, and since then, have not been afraid to take risks, including changing companies twice. I’ve also worked to ensure that my job performance is strong and is recognized as such. I first hit $100,000 per year back in about 2006.
What is your main source of income (be as specific as possible — job, investments, inheritance, etc.)?
My job is substantially all of our income as my wife stays home. I actually prefer it that way versus two incomes. We had two incomes back in the day, and it was highly stressful, plus we developed unhealthy habits like eating out a lot. I realize not all families can do this (especially with 3 kids) but we are blessed to be able to. My wife may go back to work at some point. I do have interest and dividend income that comes to around $2,000 per year, basically a rounding error in the grand scheme.
What is your annual spending and what are the main expenses you have?
We budget around $7,000 of expense per month:
- $2,500 mortgage (payment is actually only about $2,300 per month but we pay $200 extra … guaranteed 3.875% pre-tax return … can’t get that anywhere else … and I’m not hurting for liquidity)
- $1,000 Church tithe (need to keep increasing this)
- $500 utilities (electric/gas, water, cable, smartphone service – my company offsets $75 per month of the smartphone cost since they require me to have data and be contactable … double-edged sword)
- $1,000 groceries (going up … we pay more to eat very healthy, which is important to me … I know we could save here but I choose not to … going up mainly because kids eat more and more every month it seems)
- $100 gas (short commute, and I bike in the summer months)
- $100 gym membership (my company pays a membership for me but I also pay for OrangeTheory Fitness, which I swear by – wife and I go once per week as our “date night” – I know, we’re pretty lame)
- $1,300 miscellaneous items (travel to our parents’ homes in the Midwest every so often, insurance, car maintenance, incidental household necessities, clothing, etc, etc, etc)
- $500 entertainment
Nice thing is, if I really had to, I could reduce this by a pretty large amount pretty quickly. Axe the $1,000 tithe and $200 extra mortgage payment and we’ve cut $1,200 of $7,000 instantly. We could also probably get groceries to $600 or $700, miscellaneous to about $600 or $700, and entertainment to about $200 if we really had to. But at some point, you also have to live life and enjoy your years here.
How did you accumulate your net worth? Also, please share any mistakes you’ve made along the way that others can learn from.
Pretty much your exact principles at ESI. We’ve been playing boring baseball, but we’ve been playing it with discipline and consistency for years now. When the housing market tanked in 2009, it didn’t bother me, I didn’t panic and sell the house, I could still afford the payments and liked my company and our area of the country. I also didn’t panic and sell stocks, in fact, I took it as an opportunity to up my retirement contributions to the max, which I have held every year since then. We’ve always had a budget and while we haven’t always stuck to it, it at least gives us a conscience about our spending, and also lets us track where money is going and make tough decisions together if/when we need to. And our budget has always had at least $500 or so of “gap” in it to either allow for unexpected items, or to have some cash savings to stash away each month.
What have you learned in the process of becoming wealthy that others can learn from (what can others apply to become wealthy themselves)?
Don’t be ashamed or afraid of spending money on things you value. For me, that means the gym membership and the healthy eating. For years, I used to eat frozen dinners for lunch at work (it became a joke among my co-workers) but I figured at $2 per day versus $5 to $8 I would spend at the cafeteria, that savings added up. And it did. But it got to the point that it impacted my health, and also to the point where I could not bear choking down another one of those things. So I started spending more money on a healthy, fresh lunch, and I don’t give it a second thought.
We also remodeled our house to add a fourth bedroom last year. My wife cried when she got the final invoice, and I was upset for about a day. Then I said to myself, I love the end product (we have a beautiful master suite), I can afford the amount paid, so I decided not to give it another thought.
However, the converse of this is, know what you’re spending money on and make sure it’s on things that you value. Where there’s a mismatch – you’re spending on items that don’t add value or enjoyment to your life – take action and cut back or eliminate. Your budget should reflect your values.
Take advantage of everything your employer gives you – 401(k) match, insurance, gym memberships, discounted stock purchase plans (etc). For years, I didn’t take advantage of a discounted stock purchase plan at my employer. Today, I defer 15% salary for a quarter to buy my company stock for a 10% discount, which I can immediately turn around and sell. So I make an extra 1.5% (less an $8 trading commission). Be on the lookout for little opportunities like that.
Also, when you’re young, take risks in your investments. Even at my age, I’m not going to be touching my retirement funds for another 17 years anyway. There is plenty of time to lose some and recoup it – over time, you are better off with more risk.
And always, always, always invest in yourself. Get experience, but more important than that, build capabilities in yourself, and build a network. And don’t be afraid to take a big career leap (to another company if needed) if one is indicated to you. You can’t cross a chasm in several small leaps.
Do all of those things, and you can be confident that you will be a millionaire. It won’t happen overnight, but it will happen. With a very high percentage chance.
What are you currently doing to maintain/grow your net worth?
Same old boring baseball. Doing my best to grow my career (it gets harder the higher up you go, by the way). Keeping a gap between earnings and spending. And invest aggressively (but appropriately).
Do you have a target net worth you are trying to attain?
Not really. There are enough unknowns in my future (where the kids go to school and get jobs, how my career goes, if my wife goes back to work, etc) that it’s hard to plan too far out. At some point, if I can hit a good number, maybe $2.5M by mid-50’s, I may leave my current career and either become a teacher or a pastor as a second career. Either would be a big pay-cut, but that’s the beauty of building wealth, you afford yourself flexibility to do things where money is not an object.
What are your plans for the future regarding lifestyle (for instance, will your net worth allow you to retire early, downsize jobs, etc.)?
See above. 馃檪 Job downsizing is definitely something I’ve thought about in my mid-50’s. By then, my youngest will be college age, and I’ll have some clarity on whether I want to stay where I am at or not.
Is there any advice you have for ESI Money readers regarding wealth accumulation?
You don’t have to have a high income or flashy job title to build wealth. In fact, your friend or neighbor who has a bigger house and/or nicer car probably has less wealth than you. Know your values, know your budget, know your plan, and stick to it. Control what you can control, everything else, let go and let God. The ESI formula really does work over time.
Laurie@ThreeYear says
I love hearing all the different ways millionaires are made on this series! I’m pretty impressed that his company gives out a $9,000 401k match! That’s huge!! I think it’s smart that #11 recognizes the value of his wife staying home. I work part-time as a teacher and most of the rest of the time as the director of the house. There is definitely a threshold of hours over which we get diminishing returns with my job. Congratulations for such disciplined saving (and giving!) over the years. Sounds like you’ve found the right balance for your family between spending and saving for the future!
Bad_Brad says
Yes, the match was previously just 50% of your contribution up to 6% of salary, now they match 50% of your contribution up to the IRS maximum which is $18,000. And call me old-fashioned, but yes, I do like my wife to stay at home, at least as long as the kids are young. Our youngest just turned 7 in May, which is the age where we are starting to consider her going back to work. The thing is, with tax brackets being what they are, it’s really just not worth it. The spending/saving balance is always a tricky one, I’ve always been ridiculously frugal (to a fault), she had credit card debt when we got married so she was more of a spender. I’d say we’ve kind of met in the middle. I got her sold on the merits of saving, and she got me to a more moderate place to where I don’t mind spending significantly on things that are important to both of us.
sfbernal says
It terrific to see how to have achieved that balance and also met your wife in the middle in terms of spending wisely and saving for the long term. There are so many short term temptations that mess up financials in the long term.
Mrs. Adventure Rich says
I like the focus here on determining things of value to spend on and allowing yourself to spend on those items/goals. It takes a good amount of self-knowledge to determine what you or your family really value, but I like this aspect of the interview.
And the boring baseball investing is great! Another example for all of us on the road to a million that discipline and consistency are the real “investing secrets” out there.
Bad_Brad says
Anyone who tells you that they got significantly above market returns in some short-term investment is either a cheater, a liar, or took oversized risks (whether they realize it or not) and got lucky. I agree that discipline, consistency, and patience are the real secret sauce when it comes to investing. Also, knowing what your money is invested in and what it’s costing you.
Mrs. Groovy says
Words to live by: Play boring baseball with your money and watch it grow. Spend it on things you value. Study and work your tail off. Invest in yourself.
I’m inspired — and I don’t think a date night at the fitness club is lame. Great interview!
Bad_Brad says
The OrangeTheory Fitness “date nights” have actually done a lot to bring us closer together as a couple. We push each other and encourage each other. And while it’s a tough workout, it’s also energizing and a lot of fun. I look forward to that every week.
Amy @ Life Zemplified says
Nice work on the Roth’s and 401k, that employer match is great. Thanks for sharing your story and congratulations on your 20-year wedding anniversary!
Erik @ The Mastermind Within says
“Your friend or neighbor who has a bigger house and/or nicer car probably has less wealth than you. Know your values, know your budget, know your plan, and stick to it. Control what you can control, everything else, let go and let God.” – great advice.
Dennis says
Good Interview. I would be interested if anyone could shed a little light on what he is referring to as a back-door-conversion for the Roth IRA contributions. My wife & I have a combined very similar income to this interviewee and a few years ago when I was doing both Roth IRA’s as well as myself making “Roth” contributions of 18K to my 401K we started to creep into and over the contribution limits to allow the $5500 per person Roth annual contribution. We ended up having to have money pulled back out of the Roth at tax-time due to our earnings. With my wife being an accountant and doing our taxes – the complications of this made her a little hard to live with for the week or so she was working on doing the taxes! I like the Roth concept as it allows me to pump a little more savings into the 401K (even at the same 18K contribution limit). What is this “Back-Door-Conversion” loophole? is it something to get around the contribution limit phase out (which begins at 186K and is completely phased out by 196K).
ESI says
Here’s a good piece on a back-door Roth:
http://www.madfientist.com/after-tax-contributions/
Bad_Brad says
It’s pretty simple actually. It’s simply making the maximum contribution to an after-tax traditional IRA, and then converting that money to a Roth IRA. The only trick is that you need to have all of your pre-tax funds separate from your after-tax funds. I had to move my pre-tax IRA to a different investment company so that my after-tax funds were isolated in one place. Otherwise, the conversion would have only applied to a pro-rated share of my traditional IRA funds, and I would have owed taxes on the pre-tax portion being brought over.
Jeff B. says
All PreTax money is calculated on a back door IRA, so unless you don’t have a bunch saved PreTax, it still is hard to make the back door work. We had too much saved PreTax before we did Roth 401Ks and it isn’t worth it to us to convert until we retire.
Joe says
What the heck is a church tithe and why are you wasting 1k/month on it?
ESI says
If you don’t know what it is, how do you know it’s wasted?
Here’s a piece on tithing:
https://en.wikipedia.org/wiki/Tithe
Bad_Brad says
Leviticus 27:30. A tithe of everything belongs to the Lord. My faith requires that I give 10%. I’m well short of that, my $1,000 per month should be more like $1,600 per month. I’m working on it.
JD says
Great to see healthy eating a priority… pay the farmer not the doctor!!!
Paper Tiger says
Nice job MI #11. You follow a straightforward plan of managing expenses and investments and have smartly invested in yourself to compete for higher paying opportunities. Your company offers some great benefits so that is a real plus and a boost to your investments.
You are on a great road to wealth creation so continue to “keep it between the lines.”
Debbie D says
Really enjoyed this interview. He is down to earth and normal life like Millionaire Next Door. There is so much wisdom in creating a budget on what one values. Cutting back on areas that don’t matter but funding areas that are important making budgeting doable. Also liked his budget included tithing. I do not go to a church but I too tithe to where I am feed spiritually. Balance is a good thing and makes the long steady road of wealth acquirement more enjoyable.
Bad_Brad says
Budgeting is like dieting. Too many people get too hardcore when they build it to the point that it’s neither realistic nor sustainable. You have to allow yourself to be human. Otherwise, you are set up for endless failures and frustrations and frankly, the budget (or diet) does more harm than good at that point.
Dave says
Great interview. You reached a high net worth at a young age, with children, and a stay at home spouse. Your story is truly motivating. It is also great that you are focused on health and nutrition. That will help to keep you around longer to enjoy your family and wealth.
Bad_Brad says
I guess 42 is a young age, I have to keep telling myself that. Both of my grandfathers passed away of heart attacks before age 50, and my own father had an episode that almost killed him in his early 50’s (he’s alive and kickin’ at 72 today). So I’m a bit fanatical about my health. Ask my wife, I get the shakes if I miss a workout.
Jenn S. says
Great to see people who have giving/tithing as a priority in their budgets. My experience has been the more you give, the more you get! Thank you for sharing your story!
Bad_Brad says
Way back in 2003, my company at the time was going through a rough patch and I had to take a paycut. At that point, we were young, we had no kids, we already had some savings, and our expenses were low, so instead of reducing our giving, we decided to take a leap of faith and increase it. As long as you give with a grateful heart, and give to something that you feel good about giving to, it’s an absolute boost to the giver. It forces you to keep perspective on what’s really important. I’m also blessed to work for a company that has giving in its culture and DNA. They not only match my giving, they also support me going into the community and coaching, volunteering, etc.
Tim Kim @ Tub of Cash says
Great interview, thanks for sharing. I always like reading how others have done it / or are doing it. Everyone’s circumstance and their method of tackling their situation is so different, it adds to my perspective.
indio says
I don’t see any mention of HSA, flexible spending or dependent care deductions. Those are another great way to save and offset taxes. Usually publicly traded companies are large enough that they offer these options to employees.
As we learned with Enron, owning too much company stock can be a disadvantage. Having said that, I’m still hanging on to ESPP from my previous employer but it isn’t a huge chunk of my net worth.
Regarding the home renovation, you’re in a market where you will likely recoup a 100% of the renovation budget. If you stay in the same house long enough, you will definitely get it back. Was a good investment.
Bad_Brad says
I do have an HSA, it has about $5,000 in it. I max it out each year, and my employer matches $2,500. I didn’t explicitly call it out because in the grand scheme it’s not that big, but it’s another great example of an opportunity to be cost efficient. Good call-out.
I agree on owning too much stock. My wife has argued that I should hold the ESPP stock that I get if for no other reason than tax treatment of qualified versus non-qualified ESPP sales. I disagree, and I have won out so far. And my argument is similar to yours here. I am already long my company’s stock simply by virtue of my career being here. I don’t need more exposure. The money I defer is simply to get the 10% discount in my pocket right away. It’s effectively 1.5% more money each year. It’s $2,000+ per year, and that adds up over time.
I agree on the home renovation. We only had 3 bedrooms. With 3 growing kids, that math didn’t work any more. I couldn’t keep asking my 9-year-old son to share a bedroom with his little sister. We had to build out a master suite. I spent a lot of money on it, and I let my wife blow the budget in-flight on a couple of items that I had mixed feelings about, but I don’t regret any of it.
Justin says
We’ve been considering a long term plan of adding a 4th bedroom to our house as well (we also have 3 kids). Do you mind sharing what it cost? I suspect it will be very different in Seattle than where we are (Memphis metro area) but still nice to have an actual figure that someone else paid.
Enjoyed the interview. Working on those singles everyday. When I take my eye off and try to hit HRs is when we take a step backwards.
Physician on FIRE says
I must say I’m impressed with your budget, Millionaire #11, especially for a family of five.
Subtract the tithe and mortgage and you’re living on $42,000 a year. We’d have to cut $20,000 of fat out of our budget to match that (no mortgage and charitable giving comes from our DAF).
Keep that up and you’ll be a multimillionaire before you know it.
Cheers!
-PoF
Bad_Brad says
True, but subtract the mortgage and I’d have no roof over my head. 馃檪
For what it’s worth, property values in my area have gone up significantly even from the time I did this interview, which I believe was back in March or April. If I got rid of the house, to rent a comparable place in my area would run me north of $3,000 per month. A house in our neighborhood recently listed for $749,000. It had 27 offers that day that it listed – the first day – and it sold for $834,000 with no contingency, no inspection, no appraisal, and the buyers didn’t even look at the house. That’s what’s going on in our crazy real estate market right now.
Jason says
I think one of the most important lessons from this (aside from being a good interview) is spending money on things you value. I am still grappling with this. I need to eat healthier and it costs a little more, but spending more money is sometimes hard for me, but I have to begin evaluating the good and the bad of those decisions, particularly since we aren’t doing too bad financially.
PhD on FIRE says
I think you are well ahead of the pace you need to get to 2.5M by mid fifties. congratulations!
Richard says
When it comes to eating healthy in my house, just the gf and I, the costs are significantly lower compared before. Just to shed some light, during the Great Recession I became serious about gardening, more as a healthy distraction from the terrifying news, not so much we should grow our own or starve, which did (unfortunately) motivate some others. I came to the former conclusion alone, thinking I had some special insight or something, only to find out later that many others turned that way, for either reason, and then some beyond, like the spread of factory farming, frankenfoods, high fructose corn syrup, etc. Anyway, all these years later, I spend $20 a week or less, basically vegan bread, organic eggs, and some first class beer to get me through the work week. The rest comes straight off or trees, out of a garden, or pulled from cold storage in the garage. Just sayin’, wasn’t born a farmer, just a backyard project I got serious about, and that on just a fraction of my 1/3 acre oversized city lot. Compared to before, eating out and filling the cart with beef, pork, dairy, processed foods, etc., it’s like night and day, both health-wise and financially.