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…
How old are you (and spouse if applicable, plus how long you’ve been married)?
I am 51, wife is 49. We have been married 27 years, we met in college.
Do you have kids/family (if so, how old are they)?
Two daughters, 23 and 20. The oldest has graduated from college, the youngest will complete her under graduate and graduate studies in 3 years.
What area of the country do you live in (and urban or rural)?
We live in the Bay Area today, we are both from the Midwest and did not end up out west until after 2001.
What is your current net worth?
$12.2 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?
Assets
- Taxable accounts – $3.7 million
- IRA – $2.5 million
- 401k – $500,000
- Roth IRA – $340,000
- Vested company options – $2.5 million
- House – $3.3 million
- Deferred salary – $1.6 million (have deferred all cash bonuses for the past 7 years)
- Kids 529 – $100,000
- Wife’s Roth IRA – $25,000
- Cash surrender value of a whole life policy – $100,000
Total Assets: $14,665,000
Liabilities
- Mortgage $1,750,000
- Securities based lending / margin loan $700,000
Total Liabilities: $2,450,000
What is your job (type of work and level)?
Senior Executive in a publicly traded technology company with product and P&L responsibilities.
What is your annual income?
Will vary with the share price and job performance. Base is $325,000, target cash bonus is 50% of base, long-term stock compensation averages 2/3rds of base and vests in 3rds over three years from grant date.
How did you grow your income so high?
Invested in myself in terms of learning the details of my industry, asking for hard assignments, and learning how to lead and deliver results through empowering my team and others I had influence over. I made sure I sought out mentors professionally and in 30 years of continuous work I have worked for four employers (chance to grow). My wife was critical to my success by supporting me when the hours were long at times and by staying home to raise our girls even though it was hard to do. FIRE was always our goal when the kids were out of college, earlier if possible.
What is your main source of income?
Salary is all my income today as I reinvest all dividends. No inheritance and I make all my own investment decisions. Best advice I ever received “pay yourself first, save as much as you can as early as you can (compounding is your friend), you can’t finance retirement, and don’t pass up free money”. I have a Masters in finance and to this day those maxims are great guiding principles — and essentially all I remember from school.
What is your annual spending and what are the main expenses you have?
I decided to answer this by including my taxes as an expense, after all they have a huge impact on wealth creation. I just did my taxes and this year my taxable income was $570,000.
- Federal income taxes – $145,000
- State income taxes – $47,000
- Property taxes – $27,000
- Social security taxes paid – $7,347
- Medicare – $14,787
- Sales taxes – $4,000
- Total taxes – $245,134
Net available – $280,000 (excludes dividends reinvested)
LESS Vested shares retained – $75,000
Cash available – $205,000
- Mortgage – $100,000
- Utilities – $7,000
- Medical Insurance & expenses – $12,000
- Cars, Gas, insurance and commuting expenses – $18,000
- 401k – $24,000
- Life insurance – $6,000
- 529 – $15,000
- Other household expenses – $8,000
- Vacation & Travel – $15,000
When presented this way it’s easy to think two things: that I DIDN’T save anything and that living in the Bay Area is expensive!
However I added to my wealth $250,000. $75,000 in vested shares and $175,000 in deferred cash bonus. At an effective tax rate of 50%, if I had taken the cash bonus to invest the net (you can see I didn’t need it) I would have only increased my wealth by $162,500. Instead I get to invest the full amount and defer to a future date when my effective tax rate is lower. Remember compounding is your friend, taxes should be minimized at all costs.
How did you accumulate your net worth? Also, please share any mistakes you’ve made along the way that others can learn from.
I have been actively investing since I graduated. I maxed my 401k, when my income allowed for an IRA I contributed, when a deductible IRA was disallowed because of income limits I saved in my taxable account and in the kids 529’s. I believe I have invested well, I am a buy and hold investor making about 5 trades a year. I took advantage of harvesting capital losses in 2008 and making sure to abide by wash sale rules, bought back many of the stocks I sold. I still have capital losses from that time/event I use to shield gains today.
When I got raises I “paid myself first”. When we made less we drove older cars, had a much smaller mortgage (did not pay more than $2,000 a month until a few years ago) and took cheaper vacations. The secret for me was to always pay myself first and to “bank the bonus” — through deferral if available. Early on I invested more on buzz than fundamentals and investing in things you understand and as a result I made some bad decisions. I have never owned a bond or an income stock and I invest in growth segments and do my own research. About 5 hours a week.
What have you learned in the process of becoming wealthy that others can learn from (what can others apply to become wealthy themselves)?
Resist to grow your expenses as your income grows.
Save for retirement and other major expenses early, you can never get the time back.
Don’t try and time the market, but you can’t just buy index funds, you have to buy individual stocks. I have some investments that have returned 20 times what I invested. Find someone who can help you learn that is NOT interested in you because they benefit from what you do. This blog is a good example of that.
What are you currently doing to maintain/grow your net worth?
Still paying myself first and now planning my withdrawal strategies. I have found some good advice on how to plan on converting IRA money to Roth IRA money so that I can reduce my future taxes and grow tax free wealth.
Do you have a target net worth you are trying to attain?
I have achieved my goal ($10 million) and now it’s about a graceful exit strategy from corporate work and into a life of doing other things. Deciding where to live (NOT California) preparing for healthcare costs and long-term care costs, and structuring my estate are my focus now because next year the paychecks stop.
What are your plans for the future regarding lifestyle (for instance, will your net worth allow you to retire early, downsize jobs, etc.)?
Yes, we will have the freedom to do what we want. We will always be smart with money, we aren’t the over the top type of people. Call it a solid Midwest sensibility.
Is there any advice you have for ESI Money readers regarding wealth accumulation?
While none of us are guaranteed tomorrow, you have to think about the long-term. My wife and I designed this plan nearly 30 years ago and stuck to it. We had to move to make it happen, we had to endure long hours and a lot of time away from home and each other to get to this point in our lives.
We were blessed with no major life issues that could have derailed us. The first million WAS hard. My goal was to achieve that by 35 and I missed (the dot com bubble hurt) but I stayed in the market, I bought low, and had a million by 37. I didn’t panic in 2008 but doubled down and found value.
The last 10 years have been much easier to grow my wealth through solid fundamental investing in equities. The index funds my 401k and deferred income are invested in have not performed as well as my own diversified portfolio because I was fortunate to invest in some good growth companies with solid market positions and positive cash flow. I had to do my homework but as a buy and hold investor it is my belief that to get far ahead you need to hit a few out-sized winners. If that intimidates you there is nothing wrong in EFT or low cost index funds. I don’t pay any commissions, given the small number of trades I do my costs are low, and I don’t worry about market timing. I do look for good deals in good companies so I am always researching, even if I am not buying or selling.
Good luck. FIRE is an achievable goal for anyone with a 30-year work history you just have to be willing to commit to it. Improve your odds by standing out as someone who goes the extra mile and never sit around waiting for someone to give you something. Make your own opportunity by investing in yourself and the outcomes you want.
Thanks, ESI, for letting me share my journey.
Vaneita says
Wonderful article, and I am grateful for your story. Clearly, both you and your wife planned well. I think what impressed me most is your 27 years of marriage…you may not have accumulated such assets had divorces been in your history. Again, thanks for sharing. V
MI-18 says
V – thank you she is a blessing and the best thing that ever happened to me – there were times when the 60 hour + weeks would pile up and weekend time was compromised by work deadlines when she would say out of frustration “I would be just as happy if you were a delivery man working 9-5”. It wasn’t easy but we stuck with it and the outcome would not have been this good if it were not for her
RetireSoon says
$12M is truly impressive period. And, even more impressive for a w2 earner who pays 50% taxes in Calif.
Can I ask a question?
– have you stayed at the same company and has stock appreciation played a signifanct role in networth growth? I always sell my options(RSUs) day of execution and redirect to index funds. Looks like you hold on to yours (options vs RSUs?).
Great to see a high w2 earner breaking 8 figures!
MI-18 says
RetireSoon
Thanks it wasn’t certainly without sacrifice, and the high marginal tax rate has a lot to do with my investing / income recognition strategy, it’s why I have the deferral and long term capital gains strategy.
Over the past 29 years I have worked at 4 publicly traded companies, two of which are global Fortune 500 companies. I have never sold a share or exercised an option for the current company and did sell some of the other Fortune 500 firm which in hindsight was the worst sale I ever made considering its appreciation since then.
The tax consequences are brutal from my perspective and are lessened by the appreciation in value of the underlying asset – the bull run is another reason I have stayed long without diluting my investment assets via taxes. The two companies outperform the market. Staying long has proven better. If I wasn’t extremely knowledgeable of the industry I may have taken some gains but I feel comfortable knowing what I know about their industry
This is not to say I am not diversified, I own about 18 different stocks in my various funds and I tend to look at end consumer oriented companies, financial services and some energy stocks. also because of how my deferred income is invested through mutual funds at fidelity I think I am well diversified.
There is nothing wrong with your strategy – especially if all your eggs are in your employers basket. There are some good tools online to help with the decision of whether to exercise and invest the proceeds or to hold and pay later. Taxes have a big say in how wealth is created. It’s why I try to minimize mine as much as possible
RetireSoon says
Thanks for the thorough reply! I’ll do some googling on sell vs hold options.
Thanks again.
Joe says
I’m not sure how you can make the absolute right decision without being able to predict the future. I exercised and sold options in my company whenever the stock went on an extended run over the course of the past 15+ years. Sold off maybe 25+ million dollars worth. But if I held all of those shares until today, they’d be worth close to 200 million (pre-tax). The stock has had mutiple declines in excess of 80% though and has stayed at the lows for years at a time. Definitely not an easy stock to hold.
Mike H says
Thanks for sharing your story, it is really inspiring. It looks like having a high powered career role and keeping it for some time combined with the nice 20 bagger investment really propelled your net worth into the 8 figures. I’m behind you by 7 years and 65% on net worth so this is a very inspiring piece for me as I plan ahead. At first I was thinking of pulling the FI ripchord too early but will keep sticking to it for a little while longer.
-Mike
MI-18 says
Mike
I have to admit I fell victim to the “one more year” syndrome twice now but it turned out to create an unbelievable cushion. We had the plan and it was on track to occur when the last one was still in high school. I took the opportunity to put more into the 529 and as a result the two extra years returned much more than expected. Once you get a few million it can grow fast. Stay the course and feel ready to retire / transition only when you know that money will never be an option
I also waited until 52 because I knew I could replace my salary (not total income) for the next 7 years via the deferred income while all the other assets grew in value. Moving out of California and having that income will be more than enough we feel and will allow us to do what ever we want with our time.
If it takes 7 years for money to double at 10% (rule of 72) then we won’t have to touch any assets in either the tax deferred, taxable or tax free accounts. So I figure by 59 we will be giving it away to things we care about because we will never consume it all.
Good luck!
Lance @ My Strategic Dollar says
Thanks for sharing and emphasizing the importance of working hard at your job and continuing to increase your salary. This is a viable option for those looking to be wealthy. Most people think they HAVE to start a business but it’s just not true.
MI-18 says
Lance
I agree – everyone wants to be Mark zuckerberg or win the lottery. I spent my first two years at a junior college, earned scholarships to finish my undergraduate degree, had 500 in the bank and a 23,500 starting salary in 1989. my first employer paid for graduate school and worked hard. Anyone can do that. I never felt it to be a good strategy to job hop. Experience counts
Roger Allan says
“When presented this way it’s easy to think two things.” Actually it’s easy to think three things. I don’t see any charitable contributions. No church, community organizations, educational institutions, Salvation Army, etc. How can anyone blessed as much as you not have returned these blessings to God or others?
ESI says
I’m actually working on a post related to this question (though it won’t publish until November).
Charity seems very rare in the FIRE community and it has me wondering about the balance between helping myself (save so I can retire early) and helping others (so their basic needs can be met).
I’m sure we’ll have an interesting discussion on the topic.
Paper Tiger says
The danger of sharing “too much” information 😉 Seriously, I have a theory and I think it may be the difference between those who focus on FIRE vs FI. I’m in the FI camp where I’ve achieved FI but missed the RE window, (soon turning 60). If you look at the FIRE crowd, it seems you see an average net worth of 1.5-2.5M, retiring in their late 30’s, early 40’s and looking for their nest eggs to last another 40-50 years. They live well within their means but have to manage that money and lifestyle pretty tightly to avoid having to go back to full-time employment, so things like charity fall into their “luxury” bucket rather than their “necessity” bucket.
People like me with a larger nest egg but fewer years it has to work to cover me can better plan for legacy giving and charity because we have less risk to manage and we worked longer in order to have a larger nest egg to manage. Just a theory but something to consider among the FI vs. FIRE contingent.
MI-18 says
Paper Tiger
Charity is personal and I believe FIRE blogs are about a process one can apply. For us it is all about legacy (see below)
MI-18 says
ESI Money
I look forward to your post on charity. It isn’t covered often but I think it’s mainly because it’s not often thought as an element of CREATING financial wealth (though it can pay huge dividends spiritually). I look forward to your thoughts
Heather says
Hi –
To add a counter viewpoint…I’ll be pulling the trigger on RE in the next 6 months. I’m greatly looking forward to giving to charity – in the form of time. I can’t wait to volunteer, and I want to work with everything…Habitat for Humanity (a group I’ve volunteered with for 25 years), groups who feed the less fortunate, animal shelters, groups that encourage young girls…and who knows what else! I don’t think the gift of time should be overlooked when considering “donations.” I’ve given financial gifts until now; I’m looking forward to an enriching volunteer life, post-RE.
Just to provide a counter viewpoint, as I said. 🙂
ESI says
I should consider working on a Habitat house. We’ve supported them financially in the past but now that I have time, maybe it’s time to roll up my sleeves.
Thanks for the inspiration!
MI-18 says
ESI
I have done that hands on before, I am sure Heather can attest it’s humbling and fufilling helping to build a home for someone who you know will have their life changed by it. I hope you can find an opportunity to do so
On graduations heather – best of luck
MI-18 says
Roger –
I spoke in expense generalities – we are charitable via a DAF (which is not an asset of mine so I did not count it), wife volunteers a few times a week, we do give to organizations in terms of time and money, and since we have always sent our kids to faith based schools including college (lifetime tuition spent on all grades both kids is north of $500,000) not all charity but certainly a choice with a mission behind it. Life is a journey we give now what we can and we expect we will leave a lot behind for those causes we feel passionately about.
Good observation – I attribute a great deal of our success to good karma and our faith. I didn’t feel it necessary to discuss this portion of our lives on an FIRE site but would gladly discuss it further if you like because it has been a part of how we got here
Jeff B. says
We are going to look into DAF in a few years. Are you doing it through Vanguard or another company?
MI-18 says
Jeff B
Our DAF is through Raymond James. Very happy with the results
ESI says
FWIW ours is through Vanguard.
Having both our investments and the DAF with them makes it super easy to move appreciated index funds into the DAF.
George says
Sorry bit off topic – ESI- did you do a post on this specific topic (DAF) already? I could not recall / find one.. would be interested in learning more myself beyond Vanguard’s DAF page / brochure.
ESI says
I have not, but I have it on my (very long) list of potential topics.
Physician on FIRE says
I have DAFs through both Vanguard Charitable and Fidelity Charitable, and have written several posts on the topic:
https://www.physicianonfire.com/the-donor-advised-fund-a-win-win/
Fidelity has a lower startup minimum ($5k vs. $25k) and much lower minimum grant ($50 vs. $500). Costs are very similar.
Best,
-PoF
Jeff B. says
We will do it through Vanguard since all of our money will be there once I retire. 99% of it is there now.
Joe says
Certainly, some of his 245K in taxes helps others and he is paying more than his ‘fair share’.
Lily | The Frugal Gene says
Ha! Exactly Joe, that’s what I was thinking. He’s being taxed like a slave in California. And the guy knows how to manage his money properly so I’m going to go with that money can be much more productive (and grow) with him vs being donated (sunk cost).
MI-18 says
Lily
Since this interview was done I have announced my retirement and will be leaving work after the first of the year. In the run up to the announcement we sold the house and left California and the past few months I have been working remotely from the Midwest. Going forward our tax burden (income, property, sales) is considerably lessened by leaving California as are our living expenses in general. From an asset management point of view there was absolutely no case that could be made for staying – most importantly because it was never home to either of us
overall if you are a FIRE investor scrutinizing or agonizing over the small differences in fees you pay on mutual fund, or managed fund expenses, those pale in comparison to state tax differentials and now that it looks like state taxes will no longer be deductible, it makes zero sense to stay in high cost of living states if you intend to work even a little in retirement.
MI-18
GEM says
As a high paid employee in CA, I concur…the state and property taxes, housing prices and general expenses are beyond ridiculous and not long term sustainable or smart. We can possibly agree though that our ability to FIRE young, with significant and well beyond average wealth, is at least part due to having worked in the CA market where pay is very healthy and stock options are a foundational part of the package. I am not sure I’d have what I have without ever having passed through CA.
I am right behind you on exiting CA in retirement. Cheers and congratulations on it all!
Jeff B. says
I don’t agree you NEED individual stocks, because they increase risk and most people get emotionally wrapped up when the market takes dips. For every sucessful score there are numbers of dogs. I am OK getting the market returns and not trying to find the next Facebook or Amazon. I have zero individual stocks and getting almost 11%. I don’t need to stretch and get 14%-15%.
Gerard says
Jeff, please tell me what non-stock investment pays 10%+. Thanks.
Chadnudj says
I can think of hundreds of time where buying an index fund via automatic dollar cost averaging happened to occur during a dip in the market, where returns have exceeded 10% on that purchase per share. See generally any index fund bought in 2008-2009.
Jeff B. says
REITs can pay over 10%. Even buying ETFs when the market dips or buying consistantly can get double digit returns. I don’t have any stock due to the wifes job and am doing well in my brokerage account. It isn’t just one fund, but a diversified portfolio. Many will lose money on individual stocks because they can’t stomach the volitility on one company or several. If you buy a bunch dividend stocks, you are doing the same work as a mutual fund.
Paper Tiger says
Nice to see a career, savings and investment plan come together. You’ve done well to join the Deca millionaire club and at a relatively young age in your early 50s. Good for you to recognize “you’ve made it” and choosing to pull the cord on your career and start pursuing more fulfilling aspects of your life and enjoying the fruits of all of your hard work. Well played and well done!
MI-18 says
Paper Tiger
I like to teach, I like to coach. While becoming a full time teacher is likely not in the cards I do intend to find a way to spread financial literacy. It’s a non existent subject Practically on any rung of the educational ladder. I might see what the Khan Academy is doing with this. Stay tuned!
Mr. Freaky Frugal says
$12.2 million – yowzer! That’s truly impressive!
I’m already FIREd with a lot less so I’m curious about what keeps you working even though you hit your goal of $10 million? Do you love your job? Can’t figure out what else to do? Or what?
MI-18 says
Mr Freaky Frugal
It was a combination of things. One was I do enjoy my job and the people I work with and get the privilege to learn from. Leaving that is a little scary. Two I have had a few projects I wanted to see to fruition. And Third was that I wanted to make sure we were ready for this emotionally. It’s a transition that can be hard and for two years we have worked hard at the plan and started the transition in terms of our thinking about what we do next and how we ease into it. I never thought quitting cold turkey would work for me. Those I know who retired at any time said its best to prepare mentally first
It took a little extra time to get there
biggreydog says
Congratulations on a great accomplishment. Very similar circumstances for me and family.
Quick question: do you intend to diversify your asset base any further (e.g., away from individual stocks, or into different asset classes entirely) having “won the game”, or are you sticking with the investment framework that got you here, entirely?
Interested in that perspective. Again, great work!
MI-18 says
Biggreydog
At this time no. With the deferred income payouts lasting until 59 I don’t see yet a need to move to an asset preservation or income generating plan yet
I will however likely move some of the deferred income traunches to cash at the start of or during their payout cycles as a move against any short term declines for that payout period.
Looking at the countries finances – low interest rates are here for the foreseeable future so bond funds make no sense to me at this time (and frankly when and if they do go up to a rate of return that is higher than inflation) we will likely see that as a result of the economy overheating, inflation growing in general with assets inflating anyway but for now I see no fixed income in the next half a decade or more in my portfolio. We as a country couldn’t afford real rates in the 4 or 5 percent range without a massive budget deficit and higher job crushing taxes as a result. We will have a recession – I don’t know when so from where I sit I will ride it out for the next decade which means being willing to ride it down and then back up
Congratulations to you too by the way. I think your comment about having “won the game” is spot on. It is a game and it requires that you play if offensively. Defense may win championships in football, but in investing you have to approach it to score points.
biggrey says
Totally agree with you on the game. I played strong offense, earning well from business ownership and saving a large portion to seed our increase in wealth. My defense was relatively weaker, until more recent years where I had much better and more concious control of spending and total cost of ownership issues. However, we did avoid making too many mistakes and made no really brutal ones.
In more recent years, we pivoted to a much stronger “defense” and investing returns began to be notable relative to business earnings. This made the path to FI-RE much clearer and further clarified the strategy for financial transition. It is actually quite similar to yours. Spend down a large bank of deferred earnings to fund our lifestyle at a very good level, while tax-deferred and after-tax capital grows in the background. Refine and iterate the model as we go, adjusting proportions and pieces as needed.
Ben says
Just wanted to say I really enjoyed reading this. Fascinating food for thought, I hope you’ll keep them coming.
Jake says
A few questions:
1. How long do you defer your bonus? I too have this option..I’m 40 with 4 kids (8,6,3, and 1). I’m not sure we would qualify for student loans, but I do know they look at income. If i defer, it may fall when they apply for student loans. I’m also afraid to defer too long because the deferred income is not technically guaranteed, so if the company goes under, so does my deferred income.
2. Where can I find a $3.3 million dollar home in the bay area with only $27k in property taxes?
3. Is there a reason why you have life insurance? It seems that you have enough assets and your kids are old enough where you don’t need it.
MI-18 says
Jake
That will depend on what your employer supports. I had options to stagger each contribution in terms of when it started and how long it paid out. Some companies make you take it all at once if you leave before a certain age, others may require each deferral to start at the same time (though they can be of varying durations). Our program allowed for payouts to start immediately after separation of any year up to 5 years after separation and for payouts to be full or apportioned over 2 to 5 years. It was easy then for me to stagger them so they produced a near steady stream of income over 7 years. In some years I may have three deferrals paying out simultaneously. Also for estimated tax purposes and cash flow purposes I did them in quarterly installments as well.
Whether the company can pay in the future is always a concern, I don’t have that concern about my employer. I would guess that a student aid time if you were receiving payments it would be counted towards your income – I don’t believe it would be viewed as an asset – best to check the FAFSA website to learn more.
I bought the house for 2.3 million which is why my taxes are what they are. Prop 13 is a killer. But once you buy there is a lid on how fast they can grow. Thankfully the house has appreciated – the next buyer will wish he had a 27k property tax bill.
The insurance I have had for 20 years, it is paid up term, the cash balance has a decent return. My belief is the family might use it to throw the best party I won’t be a guest at (that is at least my wishes for them). I have a few more policies (all term) and insurance through work. As long as there is a mortgage (or the price is good) I will have some, and from a giving standpoint I can make the beneficiaries non family members. More to come on this issue because I know once we are debt free having it isn’t necessary and the premium dollars will go to Long term care insurance.
RetireSoon says
My deferre Comp also allows to push out the date by 5 years the year before it’s so. So, I chose 3 years out with the plan of pushing 5 years a year before it’s so. Many plans offer multiple options for payout date, install vs lump, and pushiut options.
Jerry Higdon says
Thank you so much for your willingness to share your experience here. Like you, my wife and I decided long ago that after she was educated and established in her career, then she would stay home with the children and support my career while the children were growing. Because of this, along with God’s blessings and wise Investments, I have been able to drawing the FIRE Club. Hats off to you and your wifes partnership in this endeavor. Question: what do you plan to do differently in regards to activities with your spouse and family in retirement?
MI-18 says
Jerry
Dream house on a golf course back in the Midwest near our aging parents, travel, volunteering and maybe being a stadium usher at a mlb park so I can watch games for free – lots of choices and I am sure, options I haven’t even thought of (learning how to cook for example comes to mind). I am pretty sure it won’t be the next great American novel and going to the gym together. From here on out health is our number one asset to grow and protect.
Carlos says
Thank you for sharing and congratulations on your achievements.
I’m curious what states you are considering for retirement.? I have grown a bit disappointed with California myself and am looking to move residency to other states.
I always learn something new from this forum, and the biggest lesson for me is to be mentally ready for retirement.
ESI says
There are a lot of ex-California people here in Colorado…
MI-18 says
Carlos
Like ESI I love Colorado though to get the most out of the time we have left with our three remaining parents we will move back to the Midwest where we both grew up.
If I had to choose a few places other than Colorado or our home town, I would look at Nashville, and Noth Dallas (frisco / Plano). i have looked at a bunch of options I can share in a reply later. I will say this, stay OUT of Illinois, the state is a mess.
ESI says
I lived in Nashville for 5 years and LOVED it!
If Colorado wasn’t so great we might move back there.
Carlos says
Thank you Both.
I have been to Colorado on more than one occasion and I like. I was at the GABF (Great American Beer Festival) a couple of years ago. I have also been to Nashville, and spent 2 weeks in Plano.
I guess I have to take some trips out there with the family and explore our options.
Dave says
Thanks for sharing your story. It was inspiring to read about how you became a deca-millionaire. The principles that you shared give hope to all of us who are working to build wealth. We all might not reach the level of success that you have, but we can all be successful based on our own individual circumstances.
MI-18 says
Dave
Thank you. It isn’t a difficult formula though the results might be different in terms of magnitude, I am convinced anyone could certainly give themselves a real shot at FIRE if they plan and stick with it. The FIRE world is full of people who made it earlier and with less than I did, making less than I did without having oversized investment returns. The best advice I can give is that the FIRE outcome is much more likely for anyone if they start early. Time can’t be banked, once it’s gone it’s gone and it is the critical variable in the time is money equation. Earn, Save, Invest (thanks ESI!!)
Dominic @ Gen Y Finance Guy says
This is my favorite interview in this series by ESI.
First, thank you for being so generous with your time to share your own path.
I really enjoyed your interview because I too have a goal of $10M. I’m about to turn 31 in a month and have a goal of $10M by 48 or younger.
I had the good fortune of entering the C-Suite earlier this year, which was really equal part luck and hard work.
I’m really interested in the deferred bonus program you participate in. The company I work for doesn’t currently off such a program, but as a fellow California resident with a marginal tax rate approaching 50%, it sounds very interesting.
Cheers,
Dom
RetireSoon says
ESI, you should do a deferred Comp piece. I didn’t do deferred Comp for my first 5 years at my employer which was a big mistake tax-wise. If someone would have shown me the xls I developed, I would have started on day #1!
ESI says
I might get to it someday, but I have a long list between then and now.
MI-18 says
Dominic
Congratulations on your career success and for your success year to date. Now you can use your influence to show your C Suite executive committee members why implementing a deferred income program is good for them and others in the company who are high earners. While I don’t know how big your firm is, a deferred comp plan isn’t hard to implement and the risks to making future payouts can be managed if there is a question of the companies fitness.
Having a marginal tax rate above 50% is like going to work on Monday and not paying yourself until after lunch on wednesday. Now around the holidays when you count your blessings let THAT sink in. A deferred income program can lighten that load and create a future cash flow stream that benefits from tax deferred growth and isn’t paid out until you retire. Look at it like a super charged IRA.
Good luck
Cindy says
I’ve gone through all 18 interviews and found this one the most relatable (and inspirational) for me. Not because of the $10MM+ network but because it’s a high income W2 post from someone living in the Bay Area. Thank you for sharing and this interview is being bookmarked for sure.
Can I ask how you funded the kids college education now that you’re almost done? Clearly you could cash flow it but opted on using 529 (likely for tax deferred earnings). How much did you fund each child’s 529 and likely you did it early? I’m looking at $150 for each child (I have 3) by the time they are about 9 each and then stopping contributions thereafter. Do you mind commenting on Your strategy?
Then lastly, our 1.1M Bay Area mortgage is a heavy weight on my shoulders. I understand concept of low interest and you could earn better with that money invested but at a cost of $100k a year, did you ever consider paying it off early or paying it down more than you have?
Thanks for the post and for sharing!
MI-18 says
Cindy
Thank you for taking the time to look through all of ESI’s interviews and to find value in my experience.
In 1998 we started putting 1,250 per month into the a 529 (529’s were created in 1996 the year our second daughter was born). We converted some other funds previously saved and a Coverdale education account to the 529 too. My salary had eclipsed 6 figures in 98 and we decided to use that money to fund the 529
We also put an equivalent into our taxable and savings accounts so we had savings outside of the IRA/401K. We hardly altered this approach until our oldest went to school in 2012 and we could reasonably estimate what both kids 4 year educations would cost at a private university.
We figured if we missed / underestimated we would have money in the taxable accounts to use too cover the gap (without the obvious tax advantage). The advantages of the 529’s tax treatment has been amazing and it’s like getting free money . Outside of free financial aid, there is no better educational assistance than free money via tax free growth.
Depending on what you want to fund your approach will work though With today’s costs that may only buy 2 years at jr college followed by 2 years at a state run university. I encourage you to save any dollar you can and remember you can finance an education, you can’t finance retirement. Make sure your 529 goals do not distract from your retirement funding. goals. Only increase the 529 amounts if you can afford to.
One other lesson I learned in college was “get the largest mortgage you can afford at the lowest price for the longest term when you know it’s not the last house you will live in”. Whether you rent or own you have an “economic rent” to pay for shelter. If you believe that after tax rent money and tax preferred mortgage payments would have been equal in terms of your monthly costs for securing shelter for the family, then buy the house.
Our tax laws prefer home ownership, and so does the time value of money. In the Bay Area we have an extra ordinary housing market, and I wouldn’t pay down that mortgage unless that house is where you will live the rest of your lives. There are some good housing rent vs buy calculators online that will factor in the effect of income taxes, capital gains taxes, rates of returns on assets and the pre and post value of money in terms of your net worth based on how you pay for housing. It’s worth understanding.
In the simplest of terms assume you either pay 100,000 a year in P&I&T or rent
That you have 1,100,000 in the bank
That you have 200,000 in home equity
That housing in the Bay Area appreciates at 8% a year
That your portfolio returns 8% a year
Your tax rate is 25%
Mortgage rate is 4%, RE taxes are 35,000
After 10 years you pay 1,000,000 in housing costs, the money you saved on taxes is invested and has grown to about 280,000
Your 1,100,000 in taxable investments that you would have paid off the mortgage with if allowed to grow tax free would be worth 2,375,000.
Your home would be worth 2,800,000 a capital gain of 1.5 million
your mortgage balance would be 850,000.
Sell the house and your Net worth (after capital gains taxes on the home sale at 15% with 500,000 excluded) increases from 1.3 million to 4.45 million
Now pay off your mortgage upfront so you own the house free and clear for 10 years.
The house is still worth 2,800,000 in ten years. 1.5 million capital gain, taxes paid of 150,000 so net proceeds is 2,650,000. Your 1,100,000 nest egg you had upfront wasn’t in the market it was in the house.
The 100,000 you would have spent on the house before tax isn’t entirely available to you since you still have to pay RE taxes of 35,000 and income taxes on the entire 65,000 left that would have gone to mortgage payments leaving 50,000 to invest annually. You get the 130,000 return on investing the advantage of the tax deductibility of the RE expense, but your 50,000 annual investment grows to only 725,000. Net worth at the end of 10 years equals 3,505,000
The decision to pay off the home and invest your “economic rent” money of $100,000 a year (because you stay in the house) costs you about a million dollars based on my high level assumptions and using the few numbers you provided. Do your own math but if you are going to stay there 10 years paying it off early wouldn’t seem prudent. If you want to give me numbers I would gladly help you do the math
Good luck!
Cindy says
Wow, thanks for taking the time to reply. Taking everything you wrote to heart.
Finance Stoic says
Thanks for dropping by and providing comments, I appreciated it and came over to read this interview. And, I’m glad I did. I loved your path, learned a few things, and the comments back and forth are great.
You were correct, there are a ton of similarities, even down to two children at a faith based school, though we aren’t practicing members of their church.
I replied to this answer because it’s something I am passionate about (Real Estate) and a topic there is a lot of challenging conversations on.
In general, real estate ought to only increase based on the rate of inflation, which would negate your example above; however, there are certain areas that do not follow this historical pattern. Generally coastal States, which do tend to increase, and hold, value more than their counterparts.
Given that, the benefit of home ownership, while expensive, can be enormous over the long run with little equity in.
As an example, 10+ years ago, one of our peers said to all of us, “given the cost of debt, I’m always going to buy the biggest, most expensive, home that they’re willing to let me buy”. In the last eleven years, he’s traded houses once, and he’s ridden an unbelievable wave of asset appreciation to millions of dollars in net worth accumulation on very little equity invested.
Obviously, there is risk to doing so; however, to the extent you plan to live in the home for 10+ years, or forever, and have steady income, a high mortgage may not be a negative.
Apologies if rambling in the end. Summary, I agree with your strategy, but caution against assuming values will appreciate at the same rate as stocks, without sufficient knowledge on historical returns of your location.
MI - 18 says
Finance Stoic
I hope this response finds it’s way to you. Thanks for stopping by and you are right real estate is one of those things that has a myriad amount of opinions and variables that make it hard to set simple rules of thumb to. The San Francisco market is an anomaly – I made $500,000 on a home I owned 27 months (tax free too)
My view of rent vs home ownership and how mortgage leverage amplifies returns assumes that the average home owner will lack the discipline if they rent to invest the difference between renting and owning (if in fact there is a difference)
For us (if assumed we would have spent the same on rent as we did on owning a house) we turned our $5,000 down payment in 1990 on our first house into more than a million when we sold the last house (4 homes in those 27 years). Not a typical return but if we had focused on renting early to save for a large down payment and then put extra money into principle reduction for a home we would never keep we would have deprived ourselves of investing in other things
Like most things each persons experience is unique. My views of leverage (especially tax advantaged borrowing) is that it was a useful tool in helping us build great returns
Finance Stoic says
I should have made sure it was clear I share your opinion.
Most of our net worth was generated by our personal residence and two rental pre-sale investments during Vancouver’s bull run.
We also had a significant equity investment in a development project that out performed.
Do you have a blog going yet? I’d love to read more of your story!
Phil says
Finance Stoic
Thanks for the follow up. No blog yet but contemplating one, not sure I would make it just about FIRE though it would have a financial literacy theme to it for sure. I applaud you for posting numbers, there are too many people who blog about FIRE who don’t or don’t go beyond “spend less than you earn”. In my opinion if you can’t measure it you can’t manage it – abstracts don’t work well with readers who lack context or a deeper understanding of a topic. I enjoy this blog because I tend to think a lot like Mr ESI who also had a high paying professional career.
I also realize as a guy with a masters in finance and a deep accounting background I am an exception in the FIRE community – I have the skill to analyze investments and a confidence in those skills many people who just buy mutual funds never develop and I understand the value of leverage & debt. They are not evil like many people who blog about FIRE believe.
Bottom line I will likely blog once I find a rhythm to my retirement. For now it’s golf, a few weeks coming up in Hawaii and then time to consider some consulting projects. If you want to exchange ideas you have my email address.
Feisty FIRE says
M-18 , inspiring article for someone like me.. I’m 29 years old again making over $200k in Technology in an expensive area – NY/NJ…It’s crazy how much you pay in taxes but great that you make what you make…I’ve always wondered if small business owners or independent consultants have a way to lower their taxes and would want to learn more on lowering taxes…
Congratulations! and would love to see a follow up post from you on how you climbed the ladder in your job!
MI-18 says
Feisty FIRE
Congratulations at your age to have the income and the desire to FIRE yourself down the road. While you are in a high cost area, you at least have a high income so that if you chose to live a spartan lifestyle you could save quite a bit. It is always a trade off but if you were making half of that in the middle of America your chance to save in absolute dollars wouldn’t be so great. As a result you have a chance to save early so you can retire earlier.
Based on your question I would say, depending on how you are paid you could set up a SEP -IRA and that would allow you to put away (2017 limits) 25% of your gross up to 54,000 – which is almost 10x an IRA contribution. Read about your options on the IRS website.
I think I did a few things well. I looked to stand out by taking on things no one else wanted to do or weren’t being done. They were visible a level or two above me and along the way I made sure I learned to manage projects and people – you need that skill so that you get more things to be responsible for. I decided I would become an industry expert not just technically good at my job, to learn it deeply commercially and operationally. It helped me find those things no one was solving and later gave me knowledge my peers didn’t have. Great background to have when negotiating a client deal and for understanding where value lies in the business
Since you are in IT, there could be 500 IT folks like you at work. Being the best coder wont accelerate your career. Learn how what you code drives business results and what systems drive the most value. Then learn the business and use that knowledge to separate yourself
Lastly, and this is most important, network. Network internally, network externally, pick people who do what you do and people who compliment what you do. Most important do not approach it as a “what can I learn from this person”, approach it from a “what can I do for this person once I know what drives them”. You will learn as a result.
Good luck
Feisty FIRE says
Thanks for your response , I’m actually in technology sales and am picking up the Insurance domain and business. Networking is part of my job 🙂 My challenge is the opposite , making sure I’m up to date with latest technology. This was probably the best interview in the ESI series! ?
Vaneita says
Excellent response. I am saving your response for the 17 year old daughter who has not yet entered the work force. Something she can use in the coming years.
Matt says
This has been the most fascinating MI for me as well – and I have a couple of questions and comments for MI-18 as well as ESI
A little background on me – I just turned 30, work for a large publicly traded company in the financial services industry. I would be considered a high performing individual contributor and moving towards a management role, although it seems within my corp that just takes a lot of time and hard work.
1.) I am all in for investing in your career, but I am finding it tough to figure out how to balance that, with family and giving priorities (such as giving of time, money, etc)
2.)You mentioned loving to be a coach and mentor – at what point did that become a part of your lifestyle? Was it after you had achieved an executive level role? How did you form these relationships and what advice would you give to a younger you seeking that from someone else.
3.) Can you comment on how to navigate corporate america while staying true to your morals and values while it seems many others throw them right out the window?
ESI – have you thought about a “climbing the corporate ladder” series? I would imagine with your expertise and readership there could be a lot of good content here!!!!!
MI-18 says
Matt
This is a great website & blog, continue following ESI and you will learn some great things. Thanks for your questions, I will answer them in order for you
1) this was an early issue for us. We decided I would finish graduate school before we started a family. That was important in terms of making sure (I went at night) that my wife wouldn’t bear the burden of parenting our baby by herself for long days or extended periods of time (or our parents who were our first baby sitters). I do think it is a little harder today and if you have already started a family it could be harder. I remember when our oldest was in her first year I took a few 21 day trips overseas. Hat was hard. Those investments did pay off over time so today we can look back and say it was worth it but it wasn’t easy. You can do things online but I also believe with today’s social media and online learning tools you can do this without burning the midnight oil or being away 16 hours a day. My advice would be do it with intention and do it in spurts, don’t make investing in your career a non stop high energy thing. Chunk it up. I put a few years between graduate school and some professional certifications.
2) I identified a mentor as an intern and eventually worked for him when I graduated. As he was retiring years later he worked for me. I started mentoring formally mba candidates where I graduated from when I was 30. And started doing it at work a few years later when it was encouraged. I think mentors in the middle of an organization are more important than executive mentors because you may learn something or connect with someone that can have an immediate impact on your career. In turn you too may find people seeking you out for advice. I found it almost always started informally until one of us asked if a mentoring relationship was something the mentee would like or want. Advice I would give here is so not always look up through your chain of command, look sideways first. Branch out.
3) golden rule, speak the truth – facts always prevail, be prepared and authentic NEVER BLAME OTHERS, don’t say I DONT KNOW (say I need to research that and I will follow up with you ASAP) and don’t gossip. You can be successful without needing to be in the executive cool kids drama clique because it is eventually about results. Deliver, do more, stretch yourself and step forward. And don’t just say yes or always agree learn the courage to have and speak an opposing view. As is often said, if we both agree, one of us is redundant….
Good luck!
ESI says
What would be included in such a series? How to get to the top? I think I have kind of covered that in my career posts, no?
Matt says
Certainly, you have detailed your career path quite well and I am thankful for that. I was just thinking it would be good to have other data points – much like your MI series but a deeper dive into career moves.
MI-18 says
Feisty FIRE
Congratulations at your age to have the income and the desire to FIRE yourself down the road. While you are in a high cost area, you at least have a high income so that if you chose to live a spartan lifestyle you could save quite a bit. It is always a trade off but if you were making half of that in the middle of America your chance to save in absolute dollars wouldn’t be so great. As a result you have a chance to save early so you can retire earlier.
Based on your question I would say, depending on how you are paid you could set up a SEP -IRA and that would allow you to put away (2017 limits) 25% of your gross up to 54,000 – which is almost 10x an IRA contribution. Read about your options on the IRS website.
I think I did a few things well. I looked to stand out by taking on things no one else wanted to do or weren’t being done. They were visible a level or two above me and along the way I made sure I learned to manage projects and people – you need that skill so that you get more things to be responsible for. I decided I would become an industry expert not just technically good at my job, to learn it deeply commercially and operationally. It helped me find those things no one was solving and later gave me knowledge my peers didn’t have. Great background to have when negotiating a client deal and for understanding where value lies in the business
Since you are in IT, there could be 500 IT folks like you at work. Being the best coder wont accelerate your career. Learn how what you code drives business results and what systems drive the most value. Then learn the business and use that knowledge to separate yourself
Lastly, and this is most important, network. Network internally, network externally, pick people who do what you do and people who compliment what you do. Most important do not approach it as a “what can I learn from this person”, approach it from a “what can I do for this person once I know what drives them”. You will learn as a result.
Good luck
Jason says
I don’t have anything else to add except congratulations on the achievement. I love reading this interviews. And I love the Midwest sensibility (I am also from the Midwest and look forward to getting back there someday).
DS says
“Pay yourself first, and save as much as you can as early as you can.”
Great advice!
Anders says
Hi MI-18
Hope this reaches you.
Your story really resonated with me, and in my opinion you sum up the most important financial advise you would need.
What I most admire about you? Your marriage and keeping your grounding. So inspiring.
Could I ask you to elaborate on “pay yourself first”? Especially how you have implemented “pay yourself first” in developing yourself as a person and your career?
If you ever find yourself in Denmark (Copenhagen), and want advice on things to do or company, don’t hesitate to reach out: [email protected]
Also, if you ever consider doing some mentoring yourself I would love to learn from you.
Best of regards,
Anders // Denmark
MI-18 says
Anders
Thank you for the note and the nice comments. Also thank you for recognizing that “pay yourself first” isn’t just about saving cash but putting your assets to work as a priority – that includes investing in yourself and your relationships, including networking. Of course as I have mentioned, my wife has been a fantastic partner in terms of her support and for reminding me every day that we are just two simple uncomplicated kids and that money doesn’t change that. She is still close to her gradeschool/ high school friends after 40+ years and they keep us grounded too. The fact we have maintained those ties and friendships with our entire wedding party is another reason we feel blessed beyond wealth. Good friends are hard to find. Cherish them.
I was fortunate to have great mentors and a few employers that provided executive coaching. That element of investing in yourself played an outsized role in my success because, unfortunately, success at a job isn’t always about tactical delivery. Developing your EQ is more important than your IQ. Communication skills are a great thing to invest in too. I think being a specialist helps as well. Experts are always needed, if you have a passion, master it.
I will be retiring early in 2018 and likely will do some traveling, consulting and mentoring after a little bit of post work down time / decompression. I have had the privilege to visit your fine country on a few occasions over the years for business but not as a tourist. I have always enjoyed my time there and I love the Danish hospitality that has been shown to me.
I have your email and when I am ready to take on some informal mentoring I will send you a note. I am pretty sure I cannot do a FIRE blog as good as this one but I do want to help others be successful so I need to figure out how to accomplish that.
Knowing that FIRE is yours to decide, execute and control is critical to success, I don’t think you can wander into it, it requires effort and sticking to the decision. It can be hard early on when you feel like you are sacrificing for little gain, but keep in mind what you are doing early is creating momentum that results in future wealth and a retirement that few may be lucky enough to experience. Some will say why sacrifice today for a future you can’t guarantee (none of us are guaranteed a tomorrow) but I am relatively certain that if you don’t purposefully pursue FIRE early that the odds are greatly stacked against achieving it.
One thing I did early was always have a wealth projection / net worth projection in 5 year increments that helped me focus on the goal. I did this when I received my first year end benefits statement and saw my 401k balance and (at the time) pension benefits being projected. It’s a great visualization exercise and while there are some great online tools I think a few simple time value of money calculations of your balance sheet in a spreadsheet is all you need to do to have a sense of how your assets can / will grow.
Good luck and thank you ESI for the interview.
Feisty FIRE says
I second that. Would love to sign up if you decide to get into mentorship. Any executive coaching, EQ, communication courses books you can recommend?
Jeff B. says
I have an excel spreadsheet with every IRA/401K with a 7% growth rate. I then have potential scenarios of spending to see the impact of spending at certain levels. Pluse the current tax brackets showing when I am going to end up in a higher tax bracket due to pensions/SS and RMDs when they hit when I turn 71. I am going to take money out of certain IRAs to reduce the RMD impact while we are in a lower tax bracket. It appears to be easy to stay in the 25% bracket when we have a ton of money 20 years from now.
MI-18 says
Jeff B
I have found an excellent tool online for the approach you are following that if nothing else will help you check your withdrawal and tax strategies. If ESI will allow me to list it here then I will. If not I will give you some key words to use in a Google search
Jeff B. says
That would be great.
MI-18 says
Fiesty FIRE
I will let you know on the mentorship thing in the new year. As for coaching I am a firm believer in 1:1 coaching to augment what you can learn and practice on your own or learn through mentors.
Depending on your age and profession the journey will be different but if you are still in your 20’s or early 30″s learning how to manage people and work through others is a critical skill to getting noticed and moving up. There are lots of books on this though there are a few I think can help someone learn how to amplify their natural leadership skills. Read about how Jack Welch transformed GE. His views on leadership are timeless. I will think of a few more and reply later.
MI-18
Finance Stoic says
I will throw out some suggestions for you Feisty:
Fierce Conversations
Fierce Leadership
The Coaching Habit
Good Leaders ask Great Questions
Seven habits of highly effective people
Good to Great
Built to last
Great by choice
Winning, by Jack Welch
Feisty Fire says
Thanks Finance Stoic. WIll check these out.
MN-27 says
Love your story and it is eerily similar to my own. My wife and I are about the same age and both grew up in the Midwest and moved to N. California in 1998. We have slightly younger kids than yours with one in college and one in high school. My wife and I also dated in college but took a break afterwards which makes it our 23rd year of marriage. We both work for Fortune 500 companies and through hard work, patience, and some luck have become deca-millionaires even with the crazy high CA tax rates. We recently solidified our plans to retire next year and move back to the Midwest by purshasing a home near where we grew up. The advice you give is the spot on. I will second the fact that having a strong marriage is the key to happiness and reaching your goals.
MI-18 says
MN-27
Congratulations! I will give you a hint, we will be moving back to Missouri. If you are in the “neighborhood” then the first drink is on me
I hope that the two of you are as excited about RE as we are.
MI-18
ESI says
We should chat. I go back to see my parents in Iowa and drive through MO to do so. 😉
MI-18 says
ESI
Would love to meet up. You have my email and contact info, drop me a line and let’s make it happen
Phil
MN 27 says
We are headed back to Minnesota and will also find a place on the west coast of Florida(maybe Captiva Island) for the winter months. We are both super excited and find it hard to believe that our next chapter is about to begin! Best of luck!
MI-18 says
Let us all know if Captiva is a buyers or sellers market post Irma. The few houses remaining Un damaged might now be over priced because of limited inventory. Once everything is fixed or torn down and replaced will create some rental opportunities because ultimately Captiva is a great location
Physician on FIRE says
Minnesota is a great place! Especially if you can spend the winter months on Captiva. 🙂
Cheers!
-PoF
a.k.a. Millionaire #5 https://esimoney.com/millionaire-interview-5/
Richard says
Excellent analysis and business philosophy . . . that ends covered, I’ll take over downstairs (lol). Even for a low flyer, it’s fascinating to hear a serious player wax pro on taxation and mortgage angles, and later it was actionable. I had to think awhile. Nice. I feel five times smarter for just reading along.
Farm says
Great lens and discipline! As to the last three years since this interview and you launching into retirement has it worked and evolved as you thought? Did you move back to Midwest?
Congrats to you and your wife for your accomplishments— perseverance is an essential trait as Sarah Stanley Fallaw has affirmed.
Thanks for the education
MI-18 says
Farm
Yes we did move back to the Midwest and about 2 months ago I did an update interview with ESI on what has transpired since the first interview. He should publish it in December
It took discipline and hard work and for us specifically the courage to actually walk away from an enjoyable career and a high paying job and all that provided. There is more to life than work so there have been ZERO regrets.
Thanks for taking the time to read this interview. It seems like a long time ago!
Alex says
Hi Phil,
Hope this message finds you well. Wow. Truly impressive. Especially knowing that you achieved everything in old fashioned way. Tip my hat to you. One question – would you be interested in connecting? I am in my id 30s and would love to ask you a few questions on career, choices and life in general. Hopefully can help in some way as well. My email is [email protected]. In any case, congrats and thank you in advance.
MI192 says
MI18, this is a great post. Thanks for sharing and congrats on your success. I have two questions for you:
1.) I noticed that you have (or had at the time of the interview) $700k in margin loans. What are you using this for? What is the interest rate? I have recently discovered the beauty of low interest margin loans to finance my rental real estate and purchase income producing stocks to create an arbitraged monthly income stream (paying 1% interest rate while receiving 9% yield). It has been great so far. I’m always curious how others are using margin loans.
2.) I also live in the Bay Area and the high costs just plain stinks. My oldest daughter will enter college next year. She will be in SoCal. I have two other daughters who may also end up in college in CA. When our youngest finishes high school (in 4 years) we plan on moving to a lower cost geo. But if all three of our kids are still in CA it will be hard for us to move to (let’s say) Florida, Texas or even Nevada. How much did your kids location factor in your decision to move to Missouri? Where are you kids today? Thx
MI-18 says
Mi192
I used the margin loans (4%) to fund some stock purchases as well as act as a bridge to my construction project so once my construction loan was in place I paid of the portion i took from the margin position and eventually paid off the remainder in 18 with the proceeds of a few appreciated positions / trades. I think your use is a smart one – low lending rates are here to stay but paying capital gains taxes to create your own liquidity is a really high cost of “lending”. if you have a rate arbitrage solution that works in an up market just make sure you have it covered in case there is a down market – you do not want to be forced to sell securities or properties (make sure you eventually get some traditional mortgages on them now that rates are forever going to be low
They are both here and working now so yes it was a factor for sure and with our remaining parents here we are sandwiched between both generations and enjoying that as much as we can. If the kids were not here we would have probably come back anyway but would have had a second home strategically located to support a short non stop flight for everyone to get together. I have some friends who (now that work from home is work from anywhere) moved from San Mateo to LA and using prop 13 at least did so without raising their property taxes. Not sure if age wise you qualify but it is an option (orange county would be my target landing area).
As for SoCal kids Phoenix is not far away to fly or drive. Very inexpensive travel. Yes it has an income tax but the cost of living is much easier than the Bay Area.
Best of luck and congrats on your success!