Millionaire Interview 161

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.

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 am 47 years old and my wife is 46 years old.

We’ve been married for 20 years.

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

We have two kids, ages 14 (boy) and 15 (girl).

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

Northern Virginia…very much in the hi-paced and expensive DC suburbs.

What is your current net worth?

$2.67M

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?

The list below is all factored into our net worth, but as for tracking our retirement pot of $$, I do not include the 529 plans & home equity.

• $1.58M – Retirement accounts (401k, Roth IRA, Traditional IRA)
• $284k – Brokerage accounts (mostly at Vanguard)
• $187k – College 529 plans
• $11.5k – Health Savings Account (just started this in 2018)
• $320k – Home equity ($824k home value – $504k mortgage)
• $283k – Cash (stashed at credit union in savings account; portion of it earmarked as “rainy day fund”; portion of it earmarked for screened in porch that we will be building soon on the back of our house)

EARN

What is your job?

Myself – defense industry, executive level.

Spouse – pilot, major airline.

What is your annual income?

2018 — $480k ($292k + $188k)

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’ve really only had 4-5 employers in my life. In high school, I cut some grass and had a typical “no brain required” job at a department store, doing such things as restocking boxes and taking out the trash from all the register locations throughout the store. I made minimum wage or maybe a bit over that. I’m guessing it was in the $4/hr range.

I never worked in college, mainly due to being on a full ride scholarship and playing collegiate athletics during both the fall and spring. During my college summers, I worked at large hotels where they have big banquets and company dinners. My sister got me hooked up with those jobs and I made between $15-25/hr. It was excellent money at the time, but it wasn’t full-time work. The hourly rate moved around quite a bit and was very dependent on how “fancy” the dinner/banquet was.

My weekly hours also varied quite a bit which is why I tried to stay connected to that income stream via 3-4 hotels. I probably wound up working between 20-30 hours a week during those summer jobs.

Upon college graduation, I was commissioned into the Army and spent almost 6 years traveling the world and doing some of the most rewarding jobs and missions I’ve ever been associated with. I started out at about $24k/year and finished up at $55k before punching out and entering the civilian world. My time in the Army wasn’t big $$, but it provided me a phenomenal college education and gave me real world experience/networking in an emerging field within the defense industry.

I got married and exited the military all in a 30-day span at the end of 1999, so it was an extremely exciting (and challenging) time for me. Because of my Army experience and networking ties, I went straight into the defense contracting world. I believe I started out with a salary of $80k/year and quickly began working my way up the ranks.

I worked for a very small company that was growing quickly, so within my first 8 years there, my salary grew to about $130k/year (and they paid for a Masters degree as well). The founding owners then sold the company and I became the #2 guy within the wholly owned subsidiary ($160k/year). Two years later, I became the president and was making $200k/year.

After going thru a second acquisition, I transitioned to the new, acquiring parent company and then changed employers. The new employer started me at $200k/year but they had a significantly better bonus plan and a tremendous 401k match. Since that time, I’ve grown my salary to my current level of $252k/year plus the possibility of up to $40k/yr bonus.

As for the question “what you did to make your salary grow” – some of that is answered in the question immediately below this; however, I’ll just state here that it’s a combination of education, career choice (the more niche you are, the bigger the risk/reward), and over-performing, all the while being a great “teammate” and expanding your network. If you’re an ass in life and not a great co-worker, it’s going to be very difficult for you in a lot of career fields.

Spouse career….typical pilot route outside of the military (not common for airline pilots). The majority of airline pilots come from the military, but there is a decent percentage of pilots that make their way to the big airlines the hard way, building their flight time flying small aircraft in the civilian world.

The most difficult part of that path is you move backwards in life (financially) and much as you move forward. Practically every jump up the totem pole comes with a pay cut from your previous job, so it can be a very frustrating and time consuming career path early on.

An example of what I’m describing – she went from flying the corporate jet for a small, private company ($80k salary in 2000) to flying commuter jets for United Express (and a $24k salary). Simply put, the path to becoming an airline pilot at a major carrier is cratered with financial hardship and career risks. Until you get established with the big airlines and have some seniority, nothing is secure.

For instance, following the 9/11 attacks on our country, the airline industry was decimated and employees were shown the door during massive downsizings. My wife was furloughed (more on that later) post-9/11 and didn’t return to the cockpit until 2008. Talk about missed income!!

Today, the airline industry is fairly healthy and pilot salaries have increased, although they are still well below the salary levels that existed in the 90s. Once our kids go off to college, she will probably upgrade to captain, which will be an instant bump in income on the order of $50-70k/year.

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

• Education – this is the foundation for the future. It’s one of the first things a hiring manager looks at on your resume, which partially becomes their first impression. My initial incomes after exiting the Army were closely tied to my aerospace engineering degree. Another major income bump occurred after a got my masters degree in aeronautical science. Those type of “gap up” salary bumps make a big difference when playing the long game.
• Under promise, over deliver – fairly self-explanatory. Volunteer for the tough and challenging jobs. I made an immediate impact upon entering the civilian world because I volunteered for the tough assignments, traveled to some unpleasant parts of the world, and got the job done. Establishing your reputation is critical, especially early on.
• Challenge yourself – this ties in closely with the first two items above. Get outside your comfort zone. Improve your capabilities through both formal and informal education opportunities.
• Market yourself – no one else is going to do this for you. No matter what your career choice, you are the best qualified person to broadcast your capabilities. Whether it’s writing a resume or talking to your boss, you must always sell yourself (but don’t be arrogant!).
• Networking – this might just be the most important item in my list! Even with minimal education and average performance, if you’re likable and establish a great network, you can have some incredible opportunities placed before you. In my career field, I see some folks that are completely average performers, but they progress thru life on a good course because of networking and the “likability” factor.
• Stay healthy and attractive – I’m not saying it’s a beauty contest, but it’s a proven fact that good looking people are promoted quicker and earn higher salaries. Stay in shape, dress nice, and combing your hair is all it takes.

The above laundry list has served me well, as I’ve moved from $24k income in 1994 to $292k income in 2018. If my math is correct, that’s better than 10% annual salary growth, and that doesn’t even take into account the 401k matching that I’m now receiving (almost $28k in 2018).

What’s your work-life balance look like?

I’d say it’s good to excellent….lots of travel and vacations, but at the expense of an earlier retirement. Not losing sleep over that since we’re essentially doing a lot of “travel when I’m retired” type of trips now while we’re young and healthy.

I’m sure a lot of the extremely frugal types that are all-in with the FIRE culture will frown upon a lot of things we do. I only recently learned what FIRE is….some of the things I love, but others not so much. I pick & choose the portions of FIRE that are applicable to our lifestyle and family culture.

We eat together practically every night unless one of us is on a work trip. Even then, we still have a family dinner as a trio.

Our family is very sports oriented. Both my wife and I were college athletes and our kids inherited those genes and tendencies, so there are practices and/or games about every night except during the summer.

We could both move higher in our respective careers if we desired….VP for me and Captain for her, but it would impact our home life OPTEMPO, work-life balance, tight family dynamic, and excellent quality of life.

Another benefit of our work-life balance is that we don’t feel like we need to pinch every penny in order to “retire early” or “get out of the rat race”. We both enjoy what we do; we both knew what career path we wanted at early ages.

For me – military, and now just an extension of the military (also gotten to travel to some very exotic, and not so exotic places). My work travel also provides us a ton of airline miles and hotel nights for personal travel.

As for my wife, she knew she wanted to be a pilot from about age 14 and she followed that dream thru to today, where she works about 7-8 days a month, brings home some excellent bacon, and has job benefits that allow us to do a lot of free traveling.

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?

None. No side hustles, no rental properties, no blogs or podcasts.

Our income path is very boring within the FI community.

We do have equity dividends but I don’t count that as income at this point in our life.

SAVE

What is your annual spending?

Average of $184k over the 3 year period (2016-2018).

It has fluctuated between $170k and $202k, mainly due to travel and vacations.

We’ve done some high-end trips in the past 3 years that can definitely move the needle on expenses (Hawaii, Africa, Bora Bora, Rhine River Cruise, Alaska, Amalfi Coast of Italy).

That being said, both kids are now in high school and heavily involved in athletics, so our days of pulling them out for a week are over. I’m guessing our expenses for 2019-2022 will drop as a result.

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

I do not track expenses in detail, but I perform an annual roll-up by adding credit card bills (paid in full every month), random checks, etc.

Like many of you, we cash flow a huge portion of our expenses thru our credit cards in order to accrue points, miles, etc. My wife was a travel hack before I even knew what the term was!

• $47k – Mortgage (to include property tax, HOA)
• $146k – Credit card payments (this is a catch-all which includes food, utilities, travel, insurance, etc.), which are paid in full each month. We primarily run things thru two credit cards with each one providing travel benefits
• $9k – Charitable donation

There’s no doubt that we could find some areas to reduce cost, but in general we spend $$ on what we value and we save the rest. Out of the $146k expense item listed above for 2018, more than $45k of that was on travel.

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

No budget has ever been kept for us. I guess you could call us lucky that we’re both semi-frugal and we both have a good sense of what is affordable and what is excessive.

It all comes down to needs versus wants.

When my wife was furloughed from the airlines, we learned to live on one income. Once she went back to work, we kept living on that one income and didn’t make any drastic ramp-up in our spending. Today, her income basically gets saved for either investments or travel.

I will say that we’ve relaxed the purse strings a bit in the past couple years – we eat out a little more, our travel has gotten a little more exotic, etc. Outside of our mortgage, utilities, and basic needs, our largest expense by far is vacation travel.

We don’t waste a lot of money on vehicles – haven’t had a car payment since 2003 and our philosophy on transportation is to buy it and then drive it for at least 10 years.

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

• 2015 – Invested $119k ($76k + $43k company matching) on $340k earnings
• 2016 – Invested $133k (85k + $48k match) on $380k earnings
• 2017 – Invested $117k (66k + $51k match) on $400k earnings
• 2018 – Invested $154k (97k + 57k match) on $480k earnings
• 2019 projected – $185k (125k + 60k match) on $480k earnings

We do get killed on taxes, at the federal, state and local levels. In 2018, close to $150k went to taxes, which put us at an after-tax earnings of $330k.

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

This one is easy – travel. Outside of that, we’re not high “daily spenders”. We don’t drive new cars and own boats and vacation houses. Unfortunately, we live in an area with a very high cost of living, but that also contributes to the nice earnings in my career field (of course, Uncle Sam also gets to enjoy a big chunk of those high earnings).

Travel for us is typically one of two extremes – either an extremely high end vacation halfway around the world (with a cost of $20-30k) or something that’s done really cheap. We just recently traveled to Colorado for a week and it probably cost us less than $1k total for the 4 of us. We went hiking, white water rafting, rock climbing, biking, and got to a Rockies baseball game. All those activities and our meal costs were about $1k. Hotels were all covered with rewards points and the airfare was zilch since we flew standby.

As for eating out – we’re more inclined to eat really nice meals versus going to McDonalds or Chick-fil-A, so when we do eat out it can get a little pricey. As you can see from our expenses, we don’t restrict ourselves in a couple key areas, but we place a lot of value on those items. It’s an interesting balance that we try to maintain, although I’m sure the extremely frugal crowd within the FI space is cringing with that statement.

INVEST

What is your investment philosophy/plan?

Always had an interest in investing. My father became a CFP when I was in high school and he planted the seed with me. As soon as I went into the Army and had income (not much at $24k/year), I setup an IRA and parked $166/month into it.

I invest for the long haul, typically a buy and hold philosophy although I will do some tax harvesting on losers. We are 100% equities (although a portion of those equities are in REITs).

I’m not a believer in bonds at this age, although I’ll start to transition some small piece of the portfolio over at some point.

I’m predominantly a passive investor….401k in mutual funds; brokerage account is mostly low-cost ETFs and index funds from Vanguard…a few individual stocks.

I am extremely disciplined with asset allocation, although for myself, that term doesn’t mean what it means to the rest of the world. Since I’m 100% equities, my asset allocation and re-balancing is from US to Int’l, small to large, etc….not stocks/bonds.

I would have loved to gotten into real estate years ago, but didn’t have the desire/bandwidth to dive in….and my wife doesn’t want to have anything to do with rentals and tenants, so that’s a missed opportunity.

What has been your best investment?

I don’t have a single “I hit the jackpot” type of investment. It’s a marathon, not a sprint.

I guess I’d have to say my best investment was starting the $2k/year IRA when I went into the Army. It’s not the “best” because of the annual return or the total value today – I call it the best because it got me started on the road to investing and it showed me the value of saving that $166/month is just the beginning.

From a non-investment standpoint, I’d have to say my education was my best investment (even though I didn’t pay a dime for my undergrad and grad degrees – Army paid for the first and my employer paid for the second).

What has been your worst investment?

I’ll equate this to our worst financial mistake. Although we navigated it financially, looking back at it over the years….it was really stupid!

In 2005, our second child was an infant and we decided to upgrade to a larger house. The housing market was on fire so we “sold high” but also “bought high” into our new home. Our mortgage went from about $1700ish to $3700. Our rationale was the following:

• We were going to be cramped once the kids started getting older
• Our current home value was going to provide $300k in equity toward new house
• We were living off a single income (wife was furloughed) comfortably and it looked like my wife would go back to work in about 1-2 years

In hindsight, we could’ve stayed in the house and put some $$ toward enlarging the back of it for more room. Don’t get me wrong, we love our current home (been in the same one since this 2005 event) but it’s more than we need.

Financially speaking, the $24k/year difference in mortgages could’ve been invested and put to work quite nicely over the past 14 years. Until my wife went back after her furlough, we had to really watch our expenses.

What’s been your overall return?

Considering the fact that we’re close to 100% equities, and the majority of that is in passive, low-cost index funds, I’d say our overall returns have matched the total stock market.

I’m probably a little heavier weighted toward small and value versus the overall market, but not by much, so for the sake of this answer, I’d say we’re in the 8-9% range.

I’m carrying more cash than normal right now, but that’s mainly because we’ve saved up a nice chunk to build an outdoor living area off the back of our house.

How often do you monitor/review your portfolio?

Although I check how the “markets” perform on a daily basis, I only review our entire portfolio on a quarterly basis.

I have a pretty detailed spreadsheet that I began in 2008 and over the years, it’s taken on a life of its own with the various investments that we’ve made.

When I input the quarterly numbers and run the analysis, as long as my targets (ie. US vs Int’l, value vs growth) are within 4%, I let it ride. If it gets beyond that 4% window then I’ll do some re-balancing.

NET WORTH

How did you accumulate your net worth?

Our net worth accumulation was driven by earning good money, living within our means, carrying no debt (other than primary mortgage) and understanding the power of compounding interest.

While our savings rate has varied thru the years, it has taken a steady turn up over the past 8-10 years as our incomes have started to peak. All of those savings have been poured into equities.

Additionally, I’d say my investing philosophy, combined with a long bull market, has contributed to excellent returns on our money. Neither the dotcom bubble nor the mortgage crisis and resulting “great recession” swayed my investing philosophy…..we just kept trying to buy equities throughout.

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?

Earn – I’d give us 9 stars out of 10.

Becoming an entrepreneur or having a successful small business can provide incredible incomes (and I applaud those that go that route), but the path that we took and the incomes that my wife and I are realizing these days are excellent.

We still have some upside to our overall salaries (more so for my wife than myself) in the next 2-3 years and then we’ll plateau. The great thing is we’ll be on that plateau for an additional 5 years before we hit that imaginary finish line and start going into partial retirement.

If all the stars align, that timing will also coincide with our youngest finishing college and us looking to migrate to warmer climates.

Save – I’d give us 7 stars out of 10.

Could we do better? Absolutely! But at what cost to our work-life balance? That’s the question that we all have to answer for ourselves.

On the upside, we both started saving and investing early in life, even if it was small sums. We also have done a good job of living within our means, resulting in a solid savings rate thru the years.

On the downside – we don’t budget, we don’t live an extremely frugal lifestyle, and we travel a lot. All in all, I’m happy with where we are at on our financial glide slope and I love the work-life balance that our family enjoys.

Invest – I’d give us 8 stars out of 10.

Contributing factors to this: early investing education from my CFP father; learning the power of compounding interest at an early age; taking advantage of good 401k programs and excellent employer matching funds; never going for the “home run” investment that your buddy tells you about; investing philosophy that is 100% equities, 100% long-term horizon, and 100% committed to those strategies, even thru bear markets and recessions.

When you combine all those factors, we score pretty well on getting solid returns on our invested dollars.

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

Our biggest road bump was when my wife got furloughed for 7 years post-9/11.

We handled it by simply changing our lifestyle and expenses. We lived off my single income for those years.

The upside to that was when she went back to work, we didn’t drastically change our spending habits and the result was that our investment portfolio really began to accelerate.

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

Increasing our savings rate, keeping our expenses flat while our incomes continue to grow, staying true to my 100% equity investment strategy, and continuing to learn about investing and financial education.

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

Somewhere between $5-6M in retirement savings. If we hit that, our net worth will be north of $6M in total.

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

Looks like the summer of 2015 was when we hit $1M in retirement savings. That would’ve put me at 43 years old.

Looking back, I’d say two things have really happened since then – I realized that we needed to accelerate our savings/investing because of our income ramping up; and second, we made a conscious decision to have some great family vacations in the years prior to our kids hitting high school. I think we’ve accomplished both of those tasks over the past 5 years.

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

Try your best to not get overwhelmed with America’s heavy consumption culture – bigger houses, new cars, monthly subscriptions for everything under the sun, etc.

Along with that, don’t try to “keep up with the Joneses”. We made that mistake in 2005 when we “upgraded” to a bigger home. That was a true lightbulb moment for us and we have learned from that mistake.

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

Strive to get all three facets of the “earn-save-invest” trifecta into the “above average” category. You don’t have to be exceptional at all three, but you MUST be better than average at all three.

For the younger readers out there (folks in their 20s) – budget and invest; figure out what “live within your means” really is at an early age; pay yourself first; find a good earnings path and career field that you enjoy.

If you’re in your 30s and just discovering the FI and FIRE culture, you can probably just do the same things as I outlined for the 20 year olds above.

For those in their 40s, it’s all about achieving and extending your peak earning years, not letting lifestyle creep erode your savings rate, and investing for the long horizon.

For everyone in their 50s, 60s, and beyond….you’re older and wiser than I am, so I’d be seeking your advice!

Also, read all those books that are on everyone’s “best of the best” list for financial education and personal finance IQ – The Millionaire Next Door, Rich Dad Poor Dad, anything by Warren Buffett.

FUTURE

What are your plans for the future regarding lifestyle?

I believe our net worth will allow us to achieve our dreams in the next 8-10 years, possibly sooner.

Once that happens, a series of events will be set in motion: sell our home and move to a warmer climate, increase our travel, ensure our kids are “off the payroll” and on their own independent paths, increase our volunteering to charitable organizations (mostly in Africa).

What are your retirement plans?

I will continue to expand my knowledge on investing and financial education. I don’t think you can ever have too much of that.

I’ve even kicked around the idea of getting my CFP in the future, even if it’s just for my own education. Who knows, I could turn it into a side hustle for a few years.

As for activities, we will spend a lot of time traveling, a lot of time outdoors, and a lot of time staying healthy. Our kids and where they settle down will drive some things for us as well.

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

Health insurance, our national debt, tax rates, and other factors outside of my control that could have big impacts on our financial independence.

While these things do concern me, I don’t spend much brain power on things I can’t control. I won’t lose any sleep at night, but they do make my list of “concerns”.

MISCELLANEOUS

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

My father switched careers when I was a young teen. He went from being a professional musician to a CFP (I know, I know….that’s quite a career change!).

By the time I was heading off to college, he was well established as an independent CFP and his education/experience were starting to impact my knowledge and views on investing.

Even then, I don’t think it really “clicked” for me until I was out of college and earning my first real paycheck. That’s when I opened by first IRA, began investing my own money, and realizing what compounding interest could do for me.

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

My parents inspired me to excel in life. I couldn’t have asked for a better childhood. We didn’t have a lot of money growing up, but our situation and the values that my parents instilled in me are the reasons why I have succeeded today.

As for a hero, that’s gotta be my wife! She is the hardest working person I know and I aspire to be a better person because of the example she sets in life.

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?

The Millionaire Next Door – It reinforced my way of thinking and made me realize I need to do a better job of teaching my kids about money and financial independence.

Learn to Earn – Very old book from the mid-90s; it’s nothing fancy but it introduced some of the very basics about investing. I’ve read many books about investing since then but Lynch’s book was the first.

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

We give some to charity but we could do better.

We recently went on a trip to Zambia with a non-profit and it was eye-opening. My wife called it “life changing”. As a result, we will start giving more money to that cause.

We have also talked about spending more time in support of that non-profit. We both have some unique talents that could really help their anti-poaching efforts, whether it’s flying their aircraft for them or providing them intelligence and reconnaissance training to support their scout patrols.

My wife and I are both committed to doing better in this department.

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?

We don’t plan on leaving a major inheritance to our kids.

There’s no doubt that if we achieve our targets, there will be money left for them, but that’s not our mission in life. If we do our job in parenting them and providing them the financial education needed in life (our schools don’t do that for sure), then they will be successful and establish their own financial independence.