Millionaire Interview 151

Here’s our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.

If you’d like to be considered for an interview, drop me a note and we can chat about specifics.

Today we are talking to Educator FI.

My questions are in bold italics and his responses follow in black.

Let’s get started…

OVERVIEW

How old are you (and spouse if applicable, plus how long you’ve been married?

I’m 44. My wife is 46.

We met in a college math class and this year celebrate our 20th anniversary.

We’ve worked hard to make sure we’re on the same page with our financial plans, so you’ll see that I intentionally use “we” in most of my answers.

Do you have kids/family (if so, how old are they)?

No, we’re not fortunate enough to have kids of our own.

Instead, we like to say we give all our time to other people’s kids through our careers in education.

Oh, and we love our four nieces and nephews.

What area of the country do you live in (and urban or rural)?

We live in a moderately high-cost-of-living city in the western U.S. Definitely urban, but we can get to rural for outdoor experiences really quickly.

What is your current net worth?

As of this writing, it’s ~$1.15m. That excludes any valuation of our pensions.

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?

Real estate: $229,800

Assets (I use 90% of Zillow estimates):

• Rental Unit: $331,000
• Vacation Home/Short Term Rental: $184,000

Liabilities:

• Rental Unit Mortgage: $139,900
• Vacation Home /Short Term Rental: $145,300

Paper Asset: $561,700

(Maintain 80% stocks, 20% bonds)

Retirement Accounts (both of us have access to the same options, so amounts are combined):

• 403b: $427,900
• 457: $59,100
• Roth: $19,600

HSA (a new option for me): $5300

Taxable Brokerage (VTSAX and International Equity funds): $46,500

Individual Stocks: $3300

Cash: $364,500

Note: The cash is so high because we just sold our primary residence. More on that later, but the majority of it will be allocated to other areas soon. We typically maintain about $30,000 in online savings.

We have no debt other than the real estate loans. We do use credit cards, but those are paid off monthly.

We are both vested in public employee pension plans. However, due to uncertainty both about how long we’ll work and exactly what level of benefit will be available, we choose not to include our pensions in our net worth.

As we get inside the five year window and decide how long we want to keep working, we’ll include it as future income. For now, we’re fine being conservative even though it’s likely a very substantial asset.

EARN

What is your job?

I currently work as an education administrator overseeing programs that serve students who have been pushed out of traditional schools.

My wife is an elementary teacher.

What is your annual income?

For the last three years, we’ve made a combined income right around $200,000 a year. Depending on how many extra projects we take on, we make $10,000 more or less than that. Unless we take on an extra side hustle, we’ll be right in that range this year.

That excludes rental income. Our rental house cash flows about $300/month but we put that all back into paying down the debt. The second home also generates short term rental income, but that’s a net loser of about -$6000/year.

Tell us about your income performance over time. What was the starting salary of your first job, how did it grow from there (and what you did to make it grow), and where are you now?

I had a number of jobs as a teenager. I vaguely remember picking berries for pennies a pound. My first real job was working for a friend’s dad in a cabinet shop job for $3.75 an hour.

Professionally, I came out of college and was working in an economics related field for a starting salary of ~$42,000. That same year, my wife was a first-year teacher making $34,000 a year.

I had a pretty good career path in front of me that would have led me to six figures in a relatively short period of time. In my first year, the company switched me to a four-day work week. I started volunteering in my wife’s classroom on the extra day.

Growing up in poverty, I’d been obsessed with the concept of making money and had always dreamed of working in a finance-related field. Near the end of college, I realized I preferred service over profit. So, I left that job, spent a year in college getting a Master’s in teaching and took a new teaching job for $36,000/ year.

That’s a bad equation on paper! Lost wages, increased education costs, and a lower starting salary. That was our first year of marriage — we were making a combined $73,000.

But, we believed in our jobs. My wife has stayed in teaching, getting the standard raises and will make about $76,000 this year.

I taught in a classroom for seven years. In most public teaching situations your salary is dependent on two things: experience and education. The experience just leads to raises every year. But, you can move “columns” and increase your pay rate up to a certain point. My wife maxed out her columns in 5 years by going to school to get endorsements (English Language Learner, etc).

In my third year, I noticed a “hack” in our contract that granted full column advancement for National Board Certified teachers. There was a program that paid for the cost of the certification and granted preparation days to do the work. It was a lot of self-directed work, with a relatively low first-time pass rate. Most teachers who pursue it wait longer. I wanted to accelerate my craft and the extra pay wouldn’t hurt. So, I dove in and worked hard to pass. I topped out my columns in my 4th year.

So, we both were making our experience maximums within 5 years of entering the profession.

I progressed professionally by being the teacher who was most flexible. Every year, some teachers have to change assignments. This isn’t a popular thing because it requires learning new curriculum, sometimes moving classrooms physically, and switching up teammates. Many teachers *hate* this. I’ve always been bad at sitting still, so never minded. This flexibility helped.

As leadership roles came up in the school, both administrators and colleagues would ask me to step into them. These sometimes came with extra stipends or hours of pay. In my 8th year, I found myself leading school improvement efforts under an ineffective administrator.

Since I was doing the work anyway, I decided to go through an administrative certificate program. The district would pay for it. At the time, I honestly wasn’t sure I’d use it. But, I ended up getting my certification for free.

The next year, colleagues encouraged me to apply for administrative openings and I felt inspired to make a greater impact. I got an elementary principal job that paid $95,000.

Since then, that pattern has basically repeated. I’ve been flexible and willing to do what it takes to improve outcomes for kids. While doing that, I’m learning about other opportunities. I was never actively seeking another job, but I was always ready if the opportunity opened.

As with everything, it’s effort and good fortune. Other opportunities opened for me very quickly.

From that first job I chose (or was pulled into) leading other schools and taking on school-district-level responsibilities. I’ve even briefly led whole school districts. If income was my primary driver, I’d do that again.

Now, I earn about 3.5x my starting income in education. I could make more, but it’s the right mix of interest, impact, and income for me. We feel good about making a solid living serving in public education.

What tips do you have for others who want to grow their career-related income?

In education, the levers are really experience, certifications, extra-duties. Other than that, you need to decide if you’re going to climb the career ladder into administration. I chose that route, but my wife has more than doubled her salary as a teacher through experience and education. Some years, she earns as much as an additional $10,000 through extra duty.

If you’re in education: know your contract. You can plan out your salary growth (and how to reach your goals) if you look at the pay schedule. There are benefits in many teacher contracts that can provide advancement. These include things like education credits, leadership stipends, and benefit hacks.

In general, I believe you should focus on performing at your best in your current role, educating yourself for the next role, and being ready to seize that next opportunity. This approach will serve you well in any profession.

I’ve also found that working for really good leaders is a huge benefit in two ways. First, you learn an incredible amount from them. Second, they’re more likely to be promoted or pursue other opportunities resulting in an opportunity for you.

What’s your work-life balance look like?

It used to be atrocious. For the early years of my administration career I probably averaged 80 hours/week, especially during the years I was also pursuing continuing education. Fortunately, my wife is a hard-charger too so that part of work hasn’t stressed our marriage.

Now, our work-life balance is merely ugly. I work a lot, and neither of us really “switch off” during the school year. We’re making progress though and have found a better balance of using time off to unplug and ensuring we take at least some of the weekends to ourselves.

For awhile, we were coping with this using a full work-hard play-hard approach. We’d push hard until a break, and then spend lavishly on tropical vacations. We’re now balancing it out by planning a little more into the future and expecting to back off our full-time work in the next 5 years. That’s brought its own sense of balance.

Do you have any sources of income besides your career? If so, can you list them, give us a feel for how much you earn with each, and offer some insight into how you developed them?

In general, all of our financial progress has come from our education careers. Primarily, base salary. But both of us have earned additional money by taking on extra duties: summer school, work groups, and coaching. We’ve each probably average between three and five thousand dollars a year this way. Some years, we’ve hit as high as $10,000 in extra income.

I’ve also worked as an adjunct professor for local universities. I’ve taught a variety of courses, primarily on leadership development. They pay in the $3000 dollar range per course. This isn’t actually enough for the work you do — but it’s extra income and provides great professional connections.

Our rental will eventually be income, but currently all the money we make goes into paying down the loan.

The second home would actually cash-flow if we used it as a full-time short-term vacation rental. But, we don’t and it doesn’t.

SAVE

What is your annual spending?

Our annual spending has been as high as $125,000 but with some intentional work we’re down into the $70,000/year range.

What are the main categories (expenses) this spending breaks into?

We’ve actually tried to get tight about tracking the details of our spending many times, and it has just never worked well for us. So, these are estimates based on our budget rather than actuals:

• Housing/Utilities: $30,000
• Food/Entertainment: $12,000
• Transportation (Gas, Insurance, Maintenance): $6000
• Second Home (net of rent): $6,000
• Travel: $12,000
• Misc (clothing, gifts, etc): $5000

That’s horribly non-specific. Tracking spending is one area where we could absolutely improve.

Do you have a budget? If so, how do you implement it?

Over the years, we’ve developed a practice that works well for us. We create an annual budget once a year. We use that to automate investments/savings. Recently, we’ve stretched ourselves a little farther each year and typically “beat” our budget by a bit and sweep our accounts into investments.

We do our annual budget and planning in a two-part process. We start by going out to dinner, having some wine, and talking about how we’re feeling about our finances. Are our goals still the right ones? Do we want to push harder or back off in the coming year? It’s really a great connecting moment and helps us stay on the same page with our goals.

The next day we spend time on our spreadsheets. We have one that tracks our progress to financial independence. We start by updating that. Then, we work on the annual budget sheet. After we’re comfortable with that, we make adjustments to our auto-withdrawals and we’re set to go.

Throughout the year, we have a monthly check-in where we do a short version of the process with a long walk out and away from the house.

It’s not a strict budget process, and we only have a loose idea on any given day if we’re hitting it. But it’s tight enough that we can tell if we’re slipping off track, and we can adjust as needed.

What percentage of your gross income do you save and how has that changed over time?

This year, we’re on track to save a little over 60% of our income. We didn’t really track it until four years ago.

For most of our marriage, it was under 10% and mostly accidental. Our lifestyle grew with our income.

Once we discovered financial independence, we started working intentionally toward saving. For the last four years, it’s gone 20% – 30% – 44% and we’re trying to hit 65% this year.

What is your favorite thing to spend money on/your secret splurge?

Easy answer – travel. It’s always been part of our work-hard / play-hard approach. But, we also just like seeing different places. We typically take week long trips 3x a year, and go to the second home for a weekend in months we don’t.

We also spend money on cycling events to help motivate ourselves for longer rides during the cycling season. This can require some travel and there are registration and donation fees.

Both of those are luxuries but add to our lives. We could cut them if needed extra cash or we wanted to accelerate our path to FI. For now, we’ve found an okay balance.

INVEST

What is your investment philosophy/plan?

Currently, we are maxing out all of our pre-tax options. As teachers, we are fortunate to have good options in both 403b and 457b vehicles. In 2019, we can each contribute $19,000 pre-tax to each of these for a total pre-tax investment of $76,000. Three of these are in stock index funds and the fourth is in a bond fund.

We contribute in a separate brokerage account to an international equity fund and VTSAX. We strive to keep about an 80/20 stock to bond allocation and adjust each year using new contributions.

We plan to keep the single-family rental and anticipate paying it off in 5 years. At that point, it will be pure cash-flow.

We are index fund investors with the real estate providing some balance. For now, we’ll continue contributing heavily to pre-tax and brokerage accounts while maintaining the 80/20 allocation.

What has been your best investment?

Two answers here. And this is where I have to acknowledge most of our success has been blind luck. We worked hard on income, but didn’t really think much about investing for years.

In 2008, I took an administrative job that paid into my 403b. We’d both had the option for years, but hadn’t done it. That job benefit caused me to put money in mostly at the bottom of the market, and I’ve increased the contribution every year since. Fortunately, I chose VTSAX back then (I’d read something about Vanguard index funds.) After big drops when I had very little in, I’ve been contributing regularly for the whole market climb.

The second is our rental home. In 2010, at the bottom of the market we stumbled on what we thought was our dream home. Our home at the time was right on the edge of underwater after the housing collapse. In order to make the new home work, we had to either sell quickly (at a likely loss) or rent it. We chose rent. It broke even initially, and has mostly cash flowed since. Since then, no vacancy longer than 2 weeks and appreciation of nearly 100%.

What has been your worst investment?

That bigger home we bought in 2010. We loved living there, and were fortunate that it appreciated. But, it was expensive and larger than we needed.

By the time we cashed out, we pulled out almost exactly what we put into it. So, we didn’t lose real money. However, we lost a whole lot of opportunity during the market of the past 9 years.

What’s been your overall return?

I haven’t really tracked this until recently. However, overall I’d say we’re just under 10% return.

How often do you monitor/review your portfolio?

I look at market reports about once daily with just a quick “Huh, up or down a bit” type look. I glance at Personal Capital for Net Worth once a month. We do a full spreadsheet calculation of our Net Worth quarterly, and a full financial assessment once a year.

NET WORTH

How did you accumulate your net worth?

We started tracking about 5 years ago, but can pinpoint a few specific points on our trajectory.

• 2001: -$130,000 | We were newly married, had student loans and consumer debt, and bought our first house on a zero down loan.
• 2010: $0 We upsized our house, still had some student loan debt, and a bit in investments.
• 2019: $1.15 m

A bulk of our net worth came as a result of increasing our income and accidental savings in terms of those first 403b contributions and equity in real estate. Had the real estate market not run up in recent years, we’d be worth less. Almost $300,000 of the net worth came from selling our primary residence, and another $150,000 from rental appreciation. The rest is investments and growth.

It’s not the same path I’d follow now — but it worked out for us when we were mostly financially clueless.

Our most recent net worth growth, and where we project growth for the next several years, comes from a high savings rate and contributions to index funds.

What would you say is your greatest strength in the ESI wealth-building model (Earn, Save or Invest) and why would you say it’s tops?

Our greatest strength has been income growth. That’s funny to say for public educators, but increasing our income about 3x from when we started out covered a lot of our spending stupidity. We increased our wages and have regularly taken other opportunities to make additional money.

If we’d been smart earlier and investing earlier, we’d have a lot more than we do now. But, we’re doing okay and will be doing better in the future.

Savings is now a close second with our new 60% savings rate.

What road bumps did you face along the way to becoming a millionaire and how did you handle them?

My road bumps were all in a childhood of poverty. They made me obsessed with money and spending in an unhealthy way. It created a drive to earn more, spend more, and never think about money.

Both this intentional unwillingness to pay attention to money and a lack of knowledge led to us wasting almost a decade of income growth by saving very little.

Fortunately, we didn’t suffer any real catastrophic losses or hardship and I consider myself incredibly fortunate.

Now, we’re able to use the income growth we’ve created and our strong marriage to accelerate our net worth growth. We could have been millionaires years ago, but hitting it in our mid-40s isn’t bad.

What are you currently doing to maintain/grow your net worth?

Right now, we’re contributing more than $100,000 a year to our investments. We also recently downsized our home to reduce our housing costs and free up equity.

We expect our second million to come much more quickly.

Do you have a target net worth you are trying to attain?

This is flexible due to the pension. Theoretically, the pension will pay out about 40% of our income. If that ends up being true, we’ve already got a relatively comfortable number. That said, due to financial fears from my childhood, it’s not really comfortable for us.

For now, we’re shooting for $2m + pension as a backstop, but may adjust that as we get nearer to 50.

How old were you when you made your first million and have you had any significant behavior shifts since then?

We crossed the million threshold in our net worth last year when I was 43. I didn’t really consider it as millionaire status because so much of it was equity in our primary home. Now that we’ve cashed that out, I consider us millionaires.

We’ve actually gotten more aggressive about wealth accumulation since that point. We’re spending less and investing more this year than ever before.

What money mistakes have you made along the way that others can learn from?

Of course, the biggest one was not using our tax advantaged investing options in our 20s. For our first years of teaching, we should have been investing at least half of our annual raises into our 403b options. Instead, we went almost 10 years without doing anything with investments. Ouch.

Even worse, I didn’t realize we had access to a second option in 457 investments. (I actually discovered it reading an earlier ESI millionaire interview!) The 457 is really FIRE magic because you can access it upon separation from work. Not contributing to that until recently was a huge benefit missed.

Finally, we shouldn’t have bought the bigger house in 2010. If we’d instead stayed in our previous home and purchased two rentals with the money, or even just put that money into the market, we’d be much farther ahead.

Basically, I made the most classic money mistakes: Started late and bought too much house.

Income growth really does cover a lot of blunders. Our work there has made it possible for us to recover and accelerate.

What advice do you have for ESI Money readers on how to become wealthy?

I think I’ve covered it pretty well above, but I’d say this: grow your income, buy (or rent) a reasonable house, start investing ASAP, and track your numbers.

FUTURE

What are your plans for the future regarding lifestyle?

We plan to continue at our current hard-charging for the next 3 -5 years, depending on how the market acts.

We both love the work we do, but also crave more balance. By 50, we hope to be able to cut back into part-time education positions until we feel ready to retire completely.

What are your retirement plans?

We’ll draw down our brokerage and 457 accounts for expenses until 59. At that point, any pension will kick-in and we’ll have easy access if needed to our 403b funds. The pension creates an interesting quirk in that we could theoretically have an explosion in income years after we retire.

Our retirement life will consist of travel, exercise, and volunteer work. We’ve always enjoyed traveling, but during our work careers it’s been hard for me to ever be gone for more than a week. I’m almost never disconnected. We’re looking forward to slow traveling both domestically (road trips!) and internationally.

We’ll do long distance cycling for leisure and exercise. We try to stay up on it now, but the rhythms of work cause our fitness and ride time to vary more than we’d like.

Finally, we know we’ll both stay involved in education. My wife will volunteer in classrooms or tutoring. I already serve on a number of non-profit boards and will continue or increase that service.

Are there any issues in retirement that concern you? If so, how are you planning to address them?

Healthcare is always the issue! Who can predict what the future of healthcare will look like in this country? We continue to monitor it closely. For now, we simply project it to be a large expense in retirement. It’s definitely one thing that will delay any full retirement until we have more clarity.

MISCELLANEOUS

How did you learn about finances and at what age did it ‘click’?

I was an economics major in school, so I learned about it in theory at a relatively young age. This is probably the only thing that kept us from making really stupid mistakes. We haven’t spent more than we made since we were married, and we never fell into any get rich quick schemes.

Sadly, it didn’t really “click” for us until about 5 years ago in our late 30s.

Who inspired you to excel in life? Who are your heroes?

My mom inspired me and is a hero. She was a stay-at-home mom until my dad left when I was 8.

Over the course of the next decade, she raised us while working full-time and getting her nursing degree.

It had its rough moments, but she always just got it done. Now all three of her children are college-educated and financially stable.

Do you have any favorite money books you like/recommend? If so, can you share with us your top three and why you like them?

I’m an educator so I have so many books I’d recommend! You asked for three, so here are the three I most often recommend in relation to money:

• The Simple Path to Wealth is the best simple overview of building wealth in a reasonable way. I’ve found it captures the biggest concepts well and does so in a very accessible way. I’ve taken to given this as part of high-school graduation gifts.
• Atomic Habits isn’t strictly a money book. However, it’s approach to changing behavior and being intentional about action creating outcomes makes it useful in a financial sense.
• A Random Walk down Wall Street is a classic that remains my favorite book for building a deeper understanding of investing.

Do you give to charity? Why or why not? If you do, what percent of time/money do you give?

We do. We give a significant amount of time in the form of board service and direct volunteer work. We don’t track the time well.

We also give money. We’ve always been givers but realized recently that our giving has not kept up with our income growth. We’re going to give about 5% this year. Inspired by a number of people in the personal finance space (including ESI) we have made plans to increase our giving each year until it hits 10%. 10% will also be included in our retirement budget.

Do you plan to leave an inheritance for your heirs (how do you plan to distribute your wealth at your death)? What are your reasons behind this plan?

Currently, our assets would be distributed evenly to our nieces/nephews. We’re okay with that.

However, we’ve talked about setting up a foundation (or contributing to an existing one) to provide scholarships with half of our assets. The rest would then be distributed to our family.

We’re fine helping our nieces and nephews some. They don’t really have any expectation of receiving anything and are moving through life without even knowing they may inherit substantial amounts someday.

We also know from our work that targeted scholarships can be life-changing and help break systemic patterns. In most scenarios we’ll end up with several million dollars in assets at end-of-life and know this could do substantial good.

Yes, this is all too nebulous for now. This is something we’ll work on once we reach retirement.