Millionaire Interview 209

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.

This interview took place in July.

Today we chat with the author of Financial Freedom Countdown.

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

Let’s get started…

OVERVIEW

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

I am 40 years old.

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

No kids. Living the single life.

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

Live in the San Francisco Bay area.

What is your current net worth?

Current net worth is approximately $2.4M.

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?

To grow rich, one needs to not only accumulate assets but also diversify.

Since I live in one of the most expensive parts of the country; my primary home is a major component of my net worth at $1M.

Stocks including taxable, Roth, IRA are valued at $800k

Equity in my rental property (excluding debt) can be considered at $200k.

Other investments from Cryptocurrencies, crowd funded platform are $400k

Notes: I have over $300K in Roth contributions. I have been fortunate to work for large corporations in the last few jobs, a 401k with an after-tax contribution component is awesome. As a result, I contributed to the max 401k limit every year. In 2020 that was $57,000.

Given that I already have a large Roth bucket, I might not need to go for a IRA to Roth conversion in early retirement.

EARN

What is your job?

I used to work as a Technology Director mainly focusing on Data Science initiatives.

What is your annual income?

My total compensation was $250K.

Since this was my last job and I wanted to have a better work life balance, I picked up a easy role with lower compensation.

If I was in my usual career growth phase it would have been $400K.

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?

My starting salary was only $39,000.

I credit my early career decisions for the success in growing my income. When I took this first job in the U.S. at a consulting group based in the Northeast, it didn’t take me long to realize that many of the American born employees didn’t want to travel to middle America.

As an immigrant, I didn’t have family in the U.S. and little affinity for the Northeast. I showed my flexibility by taking the assignments in Missouri or Minnesota or another less desirable locations. Not only would I take on the role, but also I would often move to the location, which showed the client that I was invested in their success. Clients loved it and provided positive feedback to my employer which helped with annual raises and bonuses.

It also set me up for a big move to Silicon Valley, where I would see a significant jump in salary.

This might be an unpopular opinion but everyone needs to realize that life is unfair. You can either complain about it or you can figure out what is my unfair advantage and how can I use it.

Being an immigrant and not knowing anyone was a big disadvantage for me. But I turned it around by being flexible and figuring out how I could provide value to my client. In a similar manner, I am hoping that many readers try to carry out some introspection and leverage their unfair advantage.

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

I am a firm believe in maximizing your Human Capital. Often a lot of click bait headlines focus on frugality and not drinking lattes. All these efforts pale in comparison to the money you can make by growing your career.

The best way to increase your Human Capital is by investing in yourself. Here are 6 ways to accomplish this goal:

1. Learn new skills.

You need to make yourself more valuable at work and stand out among your competition. While your college major would have provided you with the technical skills needed; what is often overlooked is the soft skills needed to survive and thrive at work.

You need to either be self-aware of your short comings in this area or seek advice from others.

Do not ask your family or friends because they don’t want to hurt your feelings and will always mention that you are a great person who doesn’t need to change anything. That is just the nature of friendship.

You should ask someone at work who has a chance to observe you and is brutally honest about providing feedback.

You can also look at your own responsibilities and see what tasks you hate the most. If you avoid presenting at meetings then that is your cue for a skill to be improved.

If you dislike negotiating with vendors then you know what area you need to focus going forward. Influencing, negotiations, sales and communication are the ones you need to keep improving.

2. Add value outside of your team.

Besides making sure you are considered valuable to your boss and team; it is equally important to make sure you are well liked by other individuals outside of your team. In every organization for bonus or promotion discussions; your boss makes recommendations for individuals who went above and beyond.

Wouldn’t it be great to also have someone else advocating for your raise or promotion? How much more weight would that recommendation carry when it is a peer of your boss!

3. Ask for that promotion.

If you do not place a high value on your work, it is unreasonable to expect anyone else to also value your work. Gone are the days when you do a great job and expect someone will notice and reward you for it.

The best time to ask for a promotion is at least a year in advance. This ensures that your boss is well aware of your ambitions and can work with you on drafting your career goals.

Go ahead and enlist the help of your boss in highlighting your areas of improvement and a method to track and measure progress towards improvement. The plan should have measurable and quantifiable data to track along with dates.

Make sure you get this plan drafted and recorded (via email or in your company provided tool) in case your boss decides to quit or is let go before you. Review this plan periodically and update it along with recording progress in tacking the areas necessary for your promotion.

Use your 1:1 time for this explicit purpose. And if your boss has not setup regular 1:1 make sure you take charge and schedule it. Do not be apprehensive in having this conversation with your boss or enlisting his/her help in drafting your plan.

Your boss is getting paid to manage individuals reporting to them and it is part of their job responsibility! I’ve had the misfortune of working for several first-time managers who would utilize my 1:1s for routine work updates unless I steered them to this difficult but necessary career conversation.

4. Network with recruiters.

Build a relationship with recruiters who approach you for jobs even if you are not interested in the job offer. Provide referrals from your network to fill the job position they are working on hiring. This is a win-win for everyone involved.

Your friends/colleagues will appreciate you steering the recruiter to them. The recruiter gets more candidates to present to the hiring manager and will rely on you as an industry expert.

Over a period of time you can reach out to them when hiring for the next level. Even if they are not hiring for the exact role you are interested in, they can forward your resume to the appropriate recruiter or hiring manager. Recruiters are the most well-connected individuals. So don’t be surprised in you find your recruiter has contacts in your favorite company.

5. Attend interviews for jobs one level above your current title.

Even if you do not get the job you interviewed; consider it a practice. And we all know practice makes perfect.

You obviously don’t want to start with the company top of your list but look at their competitors or tier 2 companies. Use those organizations to hone your interviewing skills.

6. Keep your bridges open.

Meet regularly with former bosses and coworkers. Nurture your professional relationships. Often the best increases in salary come from switching jobs. Make sure you block Friday lunch for catching-up with folks who are no longer with your organization.

The best-selling book Never Eat Alone by Keith Ferrazi highlights the power of relationships. I am assuming your former managers and coworkers enjoyed working with you and would be glad to have you as part of their team.

Often there are non-compete clauses in place for the first 6-12 months when your former manager starts working. That is why you need to express interest and keep the connection warm till they can get you on-board.

What’s your work-life balance look like?

In my early years it was more geared towards work and less towards life. As I started accumulating assets, I slowly started prioritizing life. Saying no to larger projects or roles with more visibility.

There is no such thing as free lunch and at the end of the day I decided that I would want to wind down as a test run for my early retirement.

In my last job I specifically asked for work from home 4 days a week. I gave up over $150k to avoid the stress of not commuting. If you start to include the value of time; it worked out to be a great deal.

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?

Rental property income = 20K

My crowd funded real estate = 10k

Private accredited platform investments = 10k

Dividends from my stock investments = 10K

All of these were developed over a period of time by investing the difference between income and expenses. Few of them such as crowd funded real estate involved painful experiences. I finally learnt how to evaluate real estate deals that will help avoid losing money.

SAVE

What is your annual spending?

My annual spending is around $50K. I have a paid off house so this number might seem low for typical San Francisco lifestyle.

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

Travel would be $20K.

Property taxes, insurance, utilities is around $10K.

Food and dining out locally would be $10K.

Misc expenses around $10K.

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

I do not have a set budget.

Linking my accounts in Personal Capital gave me a rough idea of my spend.

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

When I started off, I used to save 5%.

Gradually this increased and is now at 70-90% savings.

My passive investments generate enough cash flow that I do not need to work anymore.

What’s your best tip for saving money?

Don’t focus on coupon clipping and eliminating lattes. Instead analyze your spending and target your biggest expenses.

For any individual, the biggest expenses are your house and your car. Spending less than 30% of your income on your house and car gives you enough breathing room in your budget.

Once the big rocks are in place, you can afford the lattes. No more guilty feelings or succumbing to daily decision fatigue.

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

Travel is my biggest splurge.

I do like to travel first class on any 6+ hour flights.

And I always take 2 international trips every year. Africa and Antarctica are the only 2 continents I have not yet visited.

INVEST

What is your investment philosophy/plan?

You cannot get rich by only working. Your job or your business entails exchanging time for money. And you have finite time.

Build a rock steady emergency fund. Invest the difference between income and expenses in a wise manner. You work hard for your money; make sure your money is working hard for you!

Buy assets which either increase in value or provide a steady cash flow. Define your risk tolerance. Invest only after you have analysed the pros and cons of each investment.

When you are working be aggressive and take as many risks as you can handle. Position sizing is very important so you do not lose it all. Diversify as needed. Once your nest egg grows larger; dial down the risk and capital preservation becomes more important.

What has been your best investment?

On a risk adjusted basis, I would say my primary house. Bought it for $500k and in 5 years it reached $1M. And if you consider the fact I bought my house with a conventional mortgage; the cash on cash return is much higher.

A primary home purchased with a fixed rate mortgage is leveraged trade where you never get any margin calls.

Given the equity in my house, I am considering Cash Out Refinance to invest my money in a more optimal fashion. At present, I am still evaluating various potential investment options; but none juicy enough to pull the trigger.

What has been your worst investment?

Once I went down the rabbit hole of Bitcoin, it was only a matter of time I decided to delve deeper into other Cryptocurrencies. A lot of tokens came into existence and were offered as ICOs. These were known as “altcoins” and once they failed the moniker changed to “shitcoins”.

The premise of these tokens was that it could be used for a variety of use cases. Some for accessing a decentralized internet, others for accessing file store and few were blockchains themselves used for inter-operability.

Needless to say during the Crypto winter from 2018 onwards a lot of these firms ran into funding issues. Most of them are worthless now and unable to deliver their roadmap. Some founders genuinely tried and failed. Quite a few founders did an exit scam. The ICO scams became so blatant that the SEC has a spotlight ICO section on their website highlighting the cases.

The other problem could be that these are too early in the game and we need failures in order for the next wave to succeed. Just like with the dot com burst.

I would estimate losing roughly $200K of capital invested in ICOs.

What’s been your overall return?

I would estimate around 11% annually over the last 15 years.

How often do you monitor/review your portfolio?

I roughly monitor it once a month.

On a daily basis I am aware of what is happening in all the markets; but I do not make any drastic changes.

NET WORTH

How did you accumulate your net worth?

I accumulated most of my net worth by working. Once I had sufficient funds, it was my investments that propelled me into the next orbit.

Buying my primary residence in the San Francisco Bay area.

Investing in the aftermath of the Great Financial Crisis. It was scary doubling down in Citigroup as it kept falling; but I persevered and got lucky. Of course, I lost my money in Bear Stearns but you win some and lose some.

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?

Hands down it would be earning. I have made tons of investing mistakes. But as long as you make enough money; none of the mistakes will be catastrophic. You will survive and live for the next battle.

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

As an immigrant who came to this country by myself with only $1,000 not knowing anyone; the early days were a huge struggle.

I had no credit so finding a place to rent was a nightmare. Also I could not afford a car; nor knew how to drive which meant I had to rely on walking everywhere. These were only few of the challenges which made me almost want to give up.

I decided to give myself 12 months to succeed. Spent all my free time learning everything from how to buy a car to how to improve your credit score.

As I started getting paid; things got better gradually. I was living frugally and spent less than I earned. Deposited some of the extra money to get a secured card, paid for driving lessons and bought a car.

After my first 12 months; life became so much easier.

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

I have achieved my target net worth and only plan to maintain it at this point.

I have pulled back from risky investments and am only working on preserving my nest egg.

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

My number was $2M. I am above it at this point due to the crazy bull market.

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

I was 33 when I achieved $1M net worth.

Can’t recollect any significant behavior shifts since it has been 7 years. In fact, I was not even aware of it until 2 years later when I aggregated all my accounts.

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

I have made plenty of mistakes along the way.

Buying stocks like Sears Holdings based on TV guru recommendations.

Lesson Learned: Don’t take stock tips from TV personalities. It is wrong to assume success in one field translates into expertise in another. Lampert’s hedge fund success was extrapolated to his expertise as the CEO and Chairman of Sears. Also the backstop was the real estate on which the stores were located. The Great Financial Crisis decimated the real estate market and retailers.

Investing in UNG without realizing that it was a poor proxy for the actual price of Natural Gas.

Lesson Learned: When investing make sure you anticipate any technological changes that may result in your thesis not being valid in the future. Also make sure you understand the instrument used to invest/speculate. The usage of futures contract turned out to be my undoing.

Investing in ICOs.

Lesson Learned: In hindsight, most of these tokens did not have a strong business case. Since Bitcoin is already decentralized money; you could just use Bitcoin to pay for all these services. I could see a case wrt decentralized and anonymous internet being a good use case since Bitcoin does not offer anonymity yet. The lack of adoption should have been a major red flag.

Investing in Lithium stocks.

Lesson Learned: Not anticipating the new supply was my biggest mistake. Commodities is a market I have limited knowledge and need to do more research before investing going forward. Also need to consider jurisdiction risks and the fact that assets outside of the developed world do not have much protection.

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

Focus on your career. Pick the right major. I might get hate mail for this but let me say that “follow your passion” works only if you are already rich. If you want to get wealthy major in subjects which are in demand and pay well. Work in sectors which have the highest income potential.

Spend time learning investments and how to manage your own money. I started learning the basics only after I came to the U.S. So don’t be dejected thinking it is too late.

You need to know about managing your own money because you work hard for your money. Don’t let others take advantage of you.

FUTURE

What are your plans for the future regarding lifestyle?

I did the gradual downsizing of my job over the last 3 years and now am retired.

What are your retirement plans?

I have started my fledgling blog and it is now 15 months old. I do plan to spend time with my parents. After all, the purpose of life is to spend it with loved ones.

An ideal day would involve waking up and heading to the gym followed by a home-cooked lunch.

Afternoon nap and some work on projects which inspire me.

Evenings would be to catch-up with family and friends.

Nights would be devoted to reading/listening in an effort to learn something new. Occasionally, nights could be at bars and clubs depending on the company.

This is my current routine when I am at home and not traveling. Over the next year, my goal is to incorporate a modified version of this schedule into my life, even when I travel.

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

Healthcare is the biggest open item for me at this stage.

But given that I live in California; I am not too worried. The state is large enough that if we were a country; we would be the 5th largest GDP in the world.

If ACA is overturned, I do expect the state to create its own exchange.

MISCELLANEOUS

How did you learn about finances and at what age did it “click”?

I remember an incident from my childhood when my Dad handed me some money and I just put in my pocket. My dad immediately reprimanded me, “Why did you not count the money I gave you? Always count your money no matter who gives it to you and never trust anyone with your money”.

Since then I resolved to not trust anyone with my money and it is my responsibility to learn all I can about my finances.

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

My parents are my heroes. Although we did not have a lot of comforts growing up, they did their best to ensure we had a solid education and understood the value of money.

Since my parents have been with me through my journey, my Financial Freedom plan does involve taking care of them in their golden years.

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?

Your Money or Your Life by Vicki Robin.

This book makes the explicit connection that we are spending our life’s energy to earn money. Therefore when we spend money we need to cognizant that we are exchanging something very precious.

Top Five Regrets of the Dying by Bronnie Ware.

After years of unfulfilling work, Bronnie Ware found herself working in palliative care, caring for patients in the final weeks of their lives. Because of the time she spent tending to those who were dying, Bronnie’s life was transformed. She recorded in a blog post the regrets she heard from her patients in the final weeks of their lives. Reading this book made me realize that I have the opportunity to make amends now; instead of having regrets when dying.

The ONE Thing by Gary Keller and Jay Papasan.

Focusing question: What’s the ONE thing I can do such that by doing it everything else will be easier or unnecessary? The book highlights the 80/20 principal in action. The majority of what you want will come from the minority of what you do. You make doing what matters most a priority when your willpower is at its highest. Achievers always work from a clear sense of priority. Instead of a to do list, you need a success list — a list that is purposefully created around extraordinary results.

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

I give around 10% to charity.

There are several ways to help the less fortunate. And I am always grateful for the lucky breaks I’ve had in my life.

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?

I have a living trust created and my wealth will be distributed to my parents and my brother. Given that I am single at this point; it seems the most logical step.

PSA. This is not a comfortable topic; but it is important to have your trust documents created. The last thing you would want is to have your grieving family deal with court and government issues; especially if you live in a probate state.