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’m 41. My wife is 35 and earlier this year we celebrated our 15th wedding anniversary. [Editor’s note: This interview was conducted in October 2019.]
My wife is naturally frugal and even though she’s never been very interested in setting our budget, she’s managed expenses very well and has been crucial to our success thus far.
Do you have kids/family (if so, how old are they)?
Yes, a boy and a girl. 13 and 11.
What area of the country do you live in (and urban or rural)?
We live in a moderate cost of living, suburban area in the Southeastern US.
What is your current net worth?
$1.47 million.
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 equity: $371,000
- Primary Residence: $425,000
- Rental Property 1 (former residence): $175,000
- Rental Property 2 (mom’s former residence): $125,000
- Mortgages: -$354,000 = -$253k -$54k -$47k
Liquid Investments: $1,094,900
- Retirement Accounts: $1,016,800 (401k: $212,300; IRA (wife’s): $61,000; Roth IRA: $736,600; HSA: $6,900)
- Cash: $14,000
- Taxable Brokerage: $58,100
- ESPP: $6,000 (I’ll cash this out and roll into the taxable brokerage account once it’s available in January).
Note, my mom is retired and living with us due to some health challenges.
I manage her investments and to some extent her finances. She has deeded her former residence to me (only child), which I included in our assets, although it is not terribly material. I am not including her IRA that I manage in our net worth, which currently sits at $782,500.
EARN
What is your job?
Director level managing a data analytics team at a large financial services company.
What is your annual income?
$130k salary + 25% bonus (max).
Based on recent company performance this year’s total salary + bonus will be closer to $150k.
Net rental income after expenses adds just under $8k.
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 went back and calculated my salary growth and it was close to the 8% growth Mr. ESI was seeing in his salary.
I started in research and development at a start-up making $37k (with the allure of stock options that could’ve been worth maybe $250k in an IPO). The first seven years of my career averaged $52k.
The next four were around $75k with a one-year outlier of $20k when I was unemployed. I crossed over the $100k threshold five years ago and my salary has grown steadily since then to its present level.
What tips do you have for others who want to grow their career-related income?
Make your boss’ life easier.
Communicate frequently on how you are progressing versus expectations.
Take on projects willingly and deliver.
My mindset has recently shifted to value work-life balance over rapid career progression and while I’d be interested in the ‘right’ VP level role, I would have to be very comfortable with the role & boss, as an extra $20 – $30k of income per year isn’t really life altering for us.
What’s your work-life balance look like?
It’s fairly reasonable right now as I’m usually able to make it to all my kids’ sports & school award ceremonies and finish up any work from home that I don’t get to in the office.
I typically put in about 50 hours per week and next year I’ll be up to 6 weeks of paid vacation – most of which I fully intend to take, as we did this year, taking several cruises and other family vacations to the tune of nearly 5 weeks.
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?
I stumbled into rental real estate due to the market conditions 10+ years ago, and this has been a positive experience so far due to working with an experienced property manager.
To this point I’ve done mostly unpaid investment management, as well as tutoring for a stint when I was out of work.
SAVE
What is your annual spending?
If I include giving, we will come in about $105k for the year.
Pure after-tax spending would be just over $85k.
This is a bit higher than usual due to a conscious effort to pay off vehicles and take more vacations this year.
What are the main categories (expenses) this spending breaks into?
- Giving: $19k
- Home: $21.6k [Mortgage, taxes, HOA & $4k+ of improvements and repairs]
- Auto: $12k
- Utilities: $4.3k
- Insurance: $2.5k
- Food: $16k [roughly 60:40 split between eating in and out]
- Vacations: $13k
- Kids Activities: $5k
- Miscellaneous: $11.6k
Do you have a budget? If so, how do you implement it?
I’ve kept an Excel spreadsheet budget and tracked spending for almost my entire working life – the only issue is I’m not very strict with adhering to it.
My wife and I are on the same page as we have been doing roughly the same thing for years now with some inflationary lifestyle creep along the way.
It wasn’t until recently, after we crossed the million dollar mark and we started to build up some savings outside of retirement accounts, that we ramped up the vacation spending.
What percentage of your gross income do you save and how has that changed over time?
I’ve always contributed enough to get the 401k match, so I would say our savings rate has increased from 15% to about 25% now.
What is your favorite thing to spend money on/your secret splurge?
Big surprise here – travel!
INVEST
What is your investment philosophy/plan?
Have multiple options for success. I’ve not hit the “E” part of the equation as hard as many of you all on here, and my “S” seems to be a little below average amongst my peers as well, but where I’ve really done well is in the “I” category by taking additional risks with double and triple leveraged ETF’s in my Roth IRA.
Since I have a 401k that I continue chunking money into and investing like everyone else does in equities (with roughly 7-8% returns by riding out the market highs and lows), which should end up being around $2 million when I’m 65 and since I have two investment properties that will provide me with $25,000 to $30,000 per year, I was able to increase my risk tolerance in my Roth IRA and achieve higher than normal gains to date.
A few rules I abide by: (1) never deal with single stocks, so I eliminate the “Enron” risk, and (2) zero diversification. I find an opportunity that looks like it could increase by 20% plus in the medium to long term and buy with the intent to hold it until it bounces back, however, I will sell if it makes about 3% to 4% in a couple days or 10% in a week or two.
What has been your best investment?
My best investment was in myself. By cash flowing my education and going back for my MBA, and taking some additional personal finance and investing courses at that time, as this increased my knowledge and confidence in the area of personal finance and risk, which I’ve applied both to my career and to my investing.
I was also blessed to be able to graduate from undergrad debt-free by getting scholarships, working and living at home during that time – this set the table for future success.
In addition, my best investment move was to take advantage of a tax deal the government had in 2010 which allowed you to roll over from a 401k into a Roth IRA and split the tax consequences across two years instead of a one-time hit. I had 24k in the 401k from my first job that had been sitting there for about 4 years that I rolled into a Roth and then began to invest in leveraged ETF’s, slowly at first, but then more consistently over time. I held positions for longer back then.
What has been your worst investment?
The stock options that went to zero (but that was really an opportunity cost and lost potential earnings as I stuck around without a raise for four years in hopes of an IPO while these options “vested”).
What’s been your overall return?
401k [buy and hold diversified mix of small & large cap domestic and international mutual funds]: 7.5%
Roth: 46% CAGR [other IRAs, such as my wife’s and my mom’s, and investment accounts that I manage with same principles have generally been in that same range but I typically around half that in my planning]
Real Estate: Our primary residence has gone up in value 35 – 40% since we bought it over 8 years ago, but we’ve also spent nearly $50k in renovations over that time, with another $25k on the horizon. After declining in value for a number of years, my first house has recovered to a 3%/yr return over the 18 years I’ve had it.
How often do you monitor/review your portfolio?
Nearly every day.
NET WORTH
How did you accumulate your net worth?
I’ve been blessed to make better than average money, I’ve saved ok and have been really blessed so far in the investment department.
I think it’s been proven out that if you can just be passable in two categories, and excel in one you will grow substantial wealth.
I’ve read a number of interviews where they’ve been extremely successful on the “E” or the “S”, so I was interested to share an example of someone who reached millionaire status by primarily focusing on the “I” from a stock market perspective (I know several business owners have probably achieved 40%+ returns).
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?
Investing, obviously.
If these types of returns are repeatable over another decade (or even two *gulp*), we could have an obscene amount of wealth in an account that, under existing tax law, will owe no further taxes in our lifetimes.
What road bumps did you face along the way to becoming a millionaire and how did you handle them?
The first was being laid off and out of work for nearly a year – that was an emotional and professional low. This was during the financial and housing crisis.
Secondly, after I was back among the W-2 earning workforce for a year, we upgraded houses (after not being able to sell our current house due to the market cratering) and we were ‘house poor’ for several years with a small amount of non-retirement savings and very little wiggle room in the budget – we really didn’t save any beyond the 401k.
Lastly, in 2018 when the market peaked in the first quarter our net worth hit $1 million for the first time and the Roth account was over $550k (and my CAGR was 70% at that point). Shortly thereafter the ETF I was in started plummeting and I saw the balance drop & stay below $300k for much of the year. That definitely caused me to question if I had any clue what I was doing and if my risk tolerance was really as high as I had initially thought.
Fortunately, I waited it out and ended up selling for a slight loss and then recovered from there; being able to accelerate the bounce back with the buy low opportunity that happened in December 2018.
What are you currently doing to maintain/grow your net worth?
Focusing on work life balance in my career and trying to decide if I want to expend the effort needed to get to VP level over the next couple years (as well as subjecting myself to the additional pressures and stresses associated with it). I’ve never stayed in the same role for very long – typically either moving laterally or getting promoting every two years or less.
I will continue to invest/trade using the same principles I have been, with more of a focus now on building up non-retirement savings.
When my mom retired about 6 years ago, she had a little over $100k in a couple 401k-type accounts and her SS check to live on. It was very tight for her when she first retired as she was nervous to spend any of her nest egg and still had a mortgage.
When we bought our current house, we did so with her in mind as it had a full in-law suite, so she moved in with us about a year after she retired. It has gone very well as she has been able to help out with childcare and we’ve helped her out when she’s had several health challenges.
Also around that time, I rolled all her retirement accounts into a traditional IRA and began managing this for her. By living with us she’s able to live off of rental income plus SS.
This IRA is now up to $780k after six years, even after withdrawing $50k for RMDs and some other miscellaneous expenses prior to RMDs coming into play. If the current trajectory continues, within maybe 4 or 5 years her RMDs could be enough to cover both hers and our living expenses and our family of 5 could be FI at that point.
But we haven’t had any discussion along those lines yet, as my plan and preference would be continue to on the current path to FI with my brokerage account independent of her potential income.
Do you have a target net worth you are trying to attain?
Just for fun I’d like to get to a 9 figure Roth.
How old were you when you made your first million and have you had any significant behavior shifts since then?
I had just turned 40, but since nearly all of it is in RE equity or retirement accounts, we certainly don’t feel rich.
The most significant change, as I mentioned, was taking more and better vacations this year.
I also sold my company stock out of my employee stock purchase plan and began building some wealth outside of our retirement funds so that we can truly be FI in the next 8 to 10 years.
What money mistakes have you made along the way that others can learn from?
Buying a little too much house, leasing cars for many years and staying in a job for too long with no raise when I was worth much more on the open market was an opportunity cost I’m not sure I ever have ‘made back up’ in salary.
What advice do you have for ESI Money readers on how to become wealthy?
Try to win from multiple avenues, create multiple paths to success and once you are well on your way to succeeding through a low risk method, take that additional risk and really go for it.
That could mean starting a business for some, building up a real estate portfolio for others or trading Bitcoin or triple-leveraged ETF’s in your IRA.
It’s really a matter of your strengths, the opportunities in front of you and your risk tolerance.
FUTURE
What are your plans for the future regarding lifestyle?
Once the kids are done with at least high school, I’d like to be able to take a sabbatical and/or scale back hours to part-time.
My wife is currently looking to reenter the workforce on a part-time basis and is exploring several entrepreneurial opportunities with a family friend.
What are your retirement plans?
I will want to stay active (maybe I’ll check out pickleball).
We love to go on cruises, and I would also like to participate more actively with charitable missions organizations.
Are there any issues in retirement that concern you? If so, how are you planning to address them?
I suppose healthcare. I plan to continue working at least part-time post FI, until I’m able to easily afford whatever the best insurance options available are.
MISCELLANEOUS
How did you learn about finances and at what age did it “click”?
I’ve always been a saver and have been interested in the allure of the stock market since middle school.
Who inspired you to excel in life? Who are your heroes?
My father and grandparents.
They all had excellent work ethic, and were working class/middle class successful in their careers but not great investors.
One grandfather tried several unsuccessful business ventures in his retirement years and ultimately was swindled of what little savings he had by financial con men. I wish I could go back in time and help him manage his finances better, but since that is not possible I enjoy helping others in similar situations when I can.
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 haven’t read much of the ‘required reading’ list that many of you all cite.
I have begun reading more of the personal finance blogs in the past 3 years or so and before that I used to read Money magazine articles about real families budgets and money makeovers.
I believe that learning about the power of compounding and intuitively understanding this impact has been crucial for me.
I’ve listened to Dave Ramsey here or there. I’ve also read The Total Money Makeover
(even though I’ve only recently become a little more debt averse), but if you gave me a couple hundred thousand I wouldn’t pay my mortgage(s) off, I’d invest it until I was fully FI and then pay off the mortgage – so you could say I’m not following his baby steps very closely.
Do you give to charity? Why or why not? If you do, what percent of time/money do you give?
We do – that’s one thing that was instilled in me from an early age by both my parents and grandparents.
I (and since being married ‘we’) have given 12-15% of our gross income to our church and various other missions organizations every year.
I know we are very blessed to be where we are at, at a relatively young age and look forward to being able to do even more in the future.
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 plan to leave very little for our kids to spend.
However, we’d like to set up a sizeable charitable trust for them to manage and distribute to worthy causes and organizations.
Update: A little over a month mom’s IRA crossed the million dollar mark. For someone who’s best earning year (including overtime) was in the low 40’s – she’s now going to see an RMD at that same level this year. When I had her log into her account and see the 7 figure total staring back at her for the first time, she could barely believe it. Making it to the million dollar threshold is nice, but bringing someone else along too is doubly nice.
“When my mom retired about 6 years ago, she had a little over $100k in a couple 401k-type accounts and her SS check to live on.”
How do you go from 100K to 1M in 6 years? If you are really generating those kinds of returns, I think you are sitting on the wrong side of the desk in your financial services company.
This past year was especially good with 89% return, so she started with a little over $500k and ended with just over $1M after 25 to 30 trades. Some BRZU early, some ERX late and the rest were mainly TNA, TZA, UDOW and similar etfs that track US stock indices. I have a feeling the CIO & investment department where I work would have zero appetite for the volatility, short term nature and perceived risk of my strategy.
Curious – How do you feel about the returns you are getting on your rental properties? My quick math on your numbers above say you have $199k in equity and you are netting $8k in rental income. A 4% return on equity. Is this return it worth the hassles of managing rentals? I am on the lazy side and have never done rentals as the above math is never compelling enough for me.
Good interview! Nice job at a young age
When you analyze the returns that way, they don’t look great – and I wouldn’t recommend them as the quickest path to wealth, we stumbled into rentals due to market conditions roughly 7 – 10 years ago. Also more than half of that $200k equity materialized in the past 3-4 years, so selling them for a profit hasn’t been an option we considered until recently. I do like the diversification it provides, and I do like that they should cash flow ~$25k – $30k per year once we’ve paid off the mortgages. I’m also lazy (and didn’t know what I was doing initially) so we’ve always paid a property manager to be that buffer between us and the tenants. As long as we stay local we’ll probably pay them off and keep them but if we move out of state, I would probably sell them.
M170, great interview. Very well grounded.
I like the triple leveraged ETF game, as well. I have not taken it to the levels that you have, but have been studying crude oil for the past 10 years or so. I was delighted when a couple of triple leveraged ETFs (DWT and UWT) hit the market.
I don’t have it down to a science, but keep an eye on world events and other various stupidity that drives swings. When oil gets “too high” buy the short ETF. When oil gets “too low” buy the long ETF. Usually sell when gains hit 8 to 10%, which with tripple leverage can frequently happen in a few days.
Have been able to average about 21% over that time frame with $10k of play money in an IRA. Nothing outstanding, compared to recent S&P results, but has been fun, anyway.
Just have to keep in mind that the sword of leverage cuts both ways, as I’m sure you know!
Cheers,
The Wease
I’ve noticed the oil & energy triples tend to do that – make multiple day moves that end up in the 10 – 20% range or more. I’ve been monitoring ERX/ERY and have traded them a few times over the past several years. Oil related headlines aren’t hard to find, so you do feel like you have some idea of which way things *should* move from a macro standpoint…I thought we might see a much larger spike had the Iran situation not diffused so quickly a couple weeks ago.
“I (and since being married ‘we’) have given 12-15% of our gross income to our church and various other missions organizations every year.” — Very commendable. Well done!
“I would have to be very comfortable with the role & boss, as an extra $20 – $30k of income per year isn’t really life altering for us.” — I’m also seeing that a 15% – 20% pay increase, and it’s corresponding additional responsibilities may not be worth it when you see your portfolio rise/fall by that much in a single day. I agree the goal is to get the “I” to be your dominant producer of wealth growth as soon as possible.
MI 170, wonderful interview, thanks for this.
I have a question. Can you elaborate on your exit strategy for leveraged investments? How do you handle the risk? Do you have a threshold percentage for cutting losses, or do you use options? This is more to understand your risk management philosophy rather than getting tips and tricks.
Do you base your investment approach on a book or model someone? If yes, I would appreciate any resource.
Wish you similar returns in the future as well, hope we will get your “millionaire update”s in the future.
Cheers, M.
see below…but to answer your question, I’d say self -taught.
Hi Mert – when I buy in, I hold until it makes money or at least comes close enough back to break even where it makes sense – the same way I would with a traditional etf or mutual fund. I’ve never used options or bought on margin. Currently I’m betting the market is going to drop at some point in the near future, but until then I’m ‘losing money’ each day the market sets new highs as it has the last couple weeks. If the market were to continue going up without dropping, I suppose my paper losses could be as much as 80%, but I can’t imagine that scenario happening.
Most books or other sources I’ve read say that leveraged etfs are a bad long term investment, but even with the high fees from the options / swaps the fund uses to approximate these returns, I’m not going to be left with an option contract that expires worthless. So even if the Dow and Nasdaq continues to rise all year, at some point I believe, it will drop below 28000 and 9000 respectively and at that point I would be back at break even (less internal fees the make it less efficient). The way I think about risk, I’m taking triple the risk of the index with a chance to make 2.75 of the return, annualized. But if I’m able to achieve my desired return, for example 5% in a week, its much closer to a full 3.0 multiple of the indices return so the inefficiency doesn’t hurt as bad.
When I think about where I hope to be in 6-8 years, perhaps close to $10M in the Roth, I would probably keep $1M in cash minimum and then progressively risk a lower percentage of the total as it grows higher…but for now I’m all in.
Definitely enlightening, especially this part:
“The way I think about risk, I’m taking triple the risk of the index with a chance to make 2.75 of the return, annualized. But if I’m able to achieve my desired return, for example 5% in a week, its much closer to a full 3.0 multiple of the indices return so the inefficiency doesn’t hurt as bad.” Thanks for the response.
“I find an opportunity that looks like it could increase by 20% plus in the medium to long term and buy with the intent to hold it until it bounces back, however, I will sell if it makes about 3% to 4% in a couple days or 10% in a week or two.”
How did you set these thresholds? What I can think is you fixed certain percentages so that these serve you as trading rules, or, these are ballpark figures and you go with the gut feeling.
One last thing is that I can’t imagine holding the majority of my portfolio in 3x ETFs, around which percentage are you holding (I assume almost all, when I look at your returns)? How do you stomach the risk? Might be gut wrenching at times, I guess.
Cheers, M.
Those thresholds are guidelines, but there is some gut feeling to it and understanding what is driving the changes. That’s why I prefer to stick with larger funds tied to larger economies & their indices. I have to be ok with leaving a lot of money on the table and I have to be ok with riding out a gut wrenching drop.
All of my Roth balance is traded frequently but I don’t go in with the mindset of holding my funds for the longer term – if everything goes as planned I’ll be in cash probably more than half the time during the year waiting for the next opportunity. In addition to my Roth I have a 401k that I follow traditional diversification advice with (plus real estate plus brokerage plus my wife’s IRA) and it’s up to nearly a quarter million and should around $2M in 20 years if I keep getting 8 – 10% returns. At this point maybe 60% of my wealth may be tied to these etfs, and that could grow to 80% in the future and I’d be ok with that as long as I have a stable base to fall back to.
I don’t this strategy is for everyone, but if you are able to divorce yourself from the emotions and treat it more like a game you are trying to win, it may be worth a shot with a portion of your (tax-advantaged) portfolio.
Wonderful, thanks for the responses, much appreciated.
Congratulations on your success! I just wanted to drop in and specifically say well done on the tithing and giving! 10% can seem difficult and surpassing that is truly a great achievement… and a wonderful challenge to the rest of us!
Thank you for the kind words – I do hope my fellow MI’s and other readers are challenged in this area too. I can’t make any promises about future investment returns (for myself or for you all), and some would certainly argue there’s no correlation, but I don’t believe my NW has suffered at all as a result of being intentionally generous in this area. I was fortunate to have this modeled for me growing up, and rather than approaching giving from a mindset of ‘can I afford to?’, I’ve just said “I can’t afford not to” and made that a priority in my budgeting.
Great info and perspective regarding the 3x ETFs–this is a new world for me, and something I hope to learn more about. I’m not sure I have the stomach to put all of my funds in these, but may consider putting a portion for higher risk / higher returns.
Inspirational story, I particularly enjoyed the ending where you showed your mom the 7 digit number in her retirement account. What a wonderful feeling!