Millionaire Interview 263

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 March.

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)?

My wife and I are both 37 and have been married for 12 years.

Do you have kids/family?

We have two daughters. A two-year-old and four-month-old.

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

We live in a large metropolitan area in the south.

What is your current net worth?

$1.9 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?

• Retirement Accounts: $650k
• Brokerage Account: $600k
• Cash: $80k
• Rental Property: $25k
• Home: $125k of equity
• Crypto: $300k (75% BTC, 20% ETC, 5% De-Fi)
• Equity in private company: $120k invested (no value given to projected return above cash)

EARN

What is your job?

I am a VP of Engineering.

My work involves data analysis, financial modeling, and the underwriting of capital investments.

What is your annual income?

My base salary is $175,000 with a target bonus of 25%.

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 first job out of school was in technical consulting with a base salary of $57,000 and a minimal bonus. I worked in that field for 5 years, with my salary topping out at $72,000 and a $10,000 bonus my last year. Salary increases are moderate in this field until breaking through as a principal/partner, which typically takes 10-15 years to achieve. The lack of opportunity to significantly increase my income in the near-term was one of several reasons I switched industries at the 5-year mark.

At that time, I was intentional about seeking an industry that had a higher income trajectory and long-term potential. My first year in the new industry I made $100k base plus a $20k bonus. My base salary steadily increased to $180k in 6 years and bonuses ranged from 20-50% of base salary. In 2019 my company was acquired and my long-term incentive program paid out over 2019-2020 as a result of the transaction.

Following the acquisition, I took my current role in a management position at a small private company. This resulted in a small step down in base pay to $175k but came with the opportunity to receive a profit-sharing interest. The value of the profit-sharing interest will be determined at the time of a liquidity event and does not currently contribute to my income. This role is certainly a higher risk for potentially higher reward proposition.

My wife worked until our first daughter was born. She made between $42-65k during the time she worked.

Here is our combined income as far back as I have tracked:

• 2014 = $169k
• 2015 = $189k
• 2016 = $211k
• 2017 = $269k
• 2018 = $256k
• 2019 = $381k
• 2020 = $446k

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

Begin by evaluating the potential of the path you are on within your company and industry. Identify the skills, education, and experience needed to progress and pursue what is needed to advance. As a result of this I have obtained professional licenses/certifications, published papers, and taught myself skills on my own time to further my career.

It’s also helpful to acknowledge the natural salary constraints you may not be able to overcome. You may need to change companies or careers to obtain your goals.

I’m also seeing technology eliminate headcount across my field and numerous others I interact with. With this change it is critical to stand out and be the one capable of doing more with less. To be clear, I’m not saying everyone has to know how to program. But it is highly valuable to learn how to use the tools available to operate more efficiently.

What’s your work-life balance look like?

Most of my career I’ve worked 45-50 hours a week. I’ve always had the flexibility to come and go as needed, but I’ve always worked more than 40 hours a week. This also doesn’t count the time referenced learning skills or studying on my own time. Professional development was a bigger commitment earlier in my career.

Today when I get home from work, I put my phone down in another room until my daughters are asleep. We only have a few hours together during the week so I want them to have my undivided attention. My phone rarely rings on the weekends but the line is open.

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?

A concern of mine is career risk. I go back and forth between wanting to generate additional revenue streams and finding ways of becoming more valuable in my career. To date my career has won that battle. That being said, the last few years I have shifted my focus from growing my net worth to my cash flow. That is the number that will determine when I can retire.

I receive ~$15k/year in dividends and will continue adding stocks with a history of dividend growth as a means of increasing cash flow.

In 2020, I started buying rental properties with a partner that is managing his personal rental portfolio full-time. My plan is to steadily add homes with the intent of it being an additional source of income. Rental properties are the main way I plan to convert my net worth to the cash flow needed to retire early.

SAVE

What is your annual spending?

The last three years we have spent $100-120k/year including giving.

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

• Mortgage & Property Tax: $26k
• Home Maintenance/Improvements: $10k
• Utilities/Internet/Phone: $6k
• Entertainment: $5k
• Shopping (Home, Clothes): $5k
• Fuel + Tolls: $4k
• Auto: $6k (I pay cash for vehicles. This is an approximate accrual)
• Grocery + Restaurant: $11k
• Personal Care (gym, counseling, etc.): $5k
• Travel: $5k
• Life Insurance: $2.5k
• Charity: $20k

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

Not formally. I put together an annual lookback and we review it together.

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

Our savings rate started around 10% when we were first married.

Today we save ~50% of my gross income and it has been as high as 75% when my wife was still working.

What’s your best tip for saving (accumulating) money?

We have essentially lived the same lifestyle since we starting working 12 years ago.

We didn’t increase our spending as our incomes increased over time. Salary increases and bonuses go straight to savings.

What’s your best tip for spending less money?

Assuming basic needs and quality of life are met, it’s realizing how quickly the joy of the shiny new toy fades.

I also see the opportunity cost of major expenses. To put real dollars on it, I’ve saved over $100k by not buying new vehicles. Invested that likely accounts for ~$200k of my net worth. Those numbers are hard to grasp looking forward but are impossible for me to ignore now that I’ve done it.

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

The one time my mentality flips is when we are on vacation.

This is especially true when we are in a place we are unlikely to visit again.

If there is something we want to do, whether it’s an event or excursion or nice meal, we do it without thinking twice and I feel no guilt about the cost.

INVEST

What is your investment philosophy/plan?

My philosophy has certainly evolved over time. I’m naturally conservative and grew up poor by American standards (qualified for welfare some years). I was always interested in personal finance and latched onto the Automatic Millionaire around the age of 20. From that early influence I was maxing out a Roth IRA in college and my 401(k) has been on auto-pilot invested in stock mutual funds ever since.

The problem for someone with my background was overemphasizing the “latte factor” as a means of becoming wealthy. As many others have articulated, the ability to save is fixed but earning potential unlimited. The opportunity cost of this mindset is mind-boggling. My early career was spent bringing my lunch to work to save $10 a day. Today I know the value of connecting with others over lunch is worth an order of magnitude more than I could possibly save.

The latest shift I will mention is going from broad market diversification to investing in specific trends occurring in the world. We are in a connected world where more of it is occurring online. Resources online allow you to capitalize on this whether it’s through investing or building an online business.

For myself, my early interest in personal finance has evolved to finding successful people online (VCs, entrepreneurs, etc.) with a proven long-term track record and following their lead. This has led to investments in individual stocks and crypto that I would have never considered otherwise.

Another example of this influence on the income side is focusing on acquiring equity in a company. I have intentionally pursued roles and responsibilities and learned skills that positioned myself for my current opportunity. This has put me in the position of having a shot at a significant step change in net worth. Even if the equity in this company doesn’t payout, I will still be on the same path of saving and investing that I was before.

What has been your best investment?

The time I have spent in 12-step recovery.

The life I live today would not exist without it.

What has been your worst investment?

A stock newsletter. It cost me far more than the subscription fee.

What’s been your overall return?

Vanguard shows my rate of return since inception at 11.8%. My savings account was not part of this figure.

Accounting for cash I estimate the return is closer to 8%.

How often do you monitor/review your portfolio?

I monitor individual stocks or my watchlist most days.

Overall portfolio reviews occur 1-2 times a year.

NET WORTH

How did you accumulate your net worth?

My parents didn’t give me money, but they did gift me with an aversion to debt. I graduated college with no debt due to a conscious decision in high school to go to an in-state school, which I was able to pay for only working summers. This put me over a hundred thousand dollars ahead of where I could have been had I gone to another school.

Since entering the workforce my net worth has grown through consistent application of ESI. I was intentional about growing my income, while living below our means and investing part of every paycheck.

My wife and I always invested enough in our 401(k) to max the employer match. We gradually increased our retirement savings to the point where I started contributing the maximum 401(k) amount about 5 years ago.

Living below our means resulted in us never being tempted to spend a bonus. It simply went straight to savings.

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?

My biggest strength is savings.

We have maintained the same lifestyle for years, while many of my peers have upgraded theirs.

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

I bought a house as soon as I graduated from college because I believed renting was throwing money away.

Unfortunately, I purchased that home in Phoenix in the fall of 2008. I was underwater in a few months and at the bottom I was $100k underwater on a $300k house. I ended up selling it for less than I had in it 5 years later, and I spent most of the time in that house feeling trapped.

Determined not to make the same mistake again, I waited for more financial security before purchasing another home that was well below what I could afford. The downside is I watched prices appreciate significantly in the market I’m currently living in while I rented. It was disappointing to miss out on, but I know from experience that home values don’t always go up.

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

Stay on the path described.

I continue to max out my 401(k) and invest all non-retirement savings.

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

I know that I will retire comfortably if I work until 65 so my goal has shifted from net worth to replacing my income with investment cash flow so that I can retire early.

With that in mind my target is $2.5 million in my non-retirement account. I am assuming the $2.5 million will be invested and I will have to pay 15% long-term capital gains to liquidate it as I convert it to real estate.

After taxes I will have $2.1 million to invest in rental properties. I assume that I will be able to achieve a minimum of a 7 cap rate, which would generate $150k/year of income.

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

I crossed the million-dollar mark at the age of 35.

Nothing has changed in my behavior other than a willingness to hold less cash than before as my total net worth has increased.

My emergency fund can always be supplemented by selling equities if needed.

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

Two sides of the same coin: Buying “cheap” stocks. They can always go lower.

And not buying an asset because it is at an all-time high or recently run up in price. This has been true in stocks and real estate. I have missed far more gains from this than I have lost.

“The most expensive investing mistake in the world to make is to be a pessimist.” – Sam Altman

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

Focus on acquiring equity in income producing assets. This could be rental properties, owning a business, or equity in a company that pays dividends.

I say this as a mistake that I made. I spent the first 10 years of my career trying to work harder and longer for a salary increase, which is inherently limited. It’s only in the last 5 years I have focused on acquiring equity in a company that I can significantly influence and in rental properties. If I had to start over, I would focus on building an online business that would scale beyond the hours I spent working.

I want to acknowledge a lot of what I describe is a technical path from the perspective of an engineer. However, I follow a lot of entrepreneurs online describing the same path to wealth through ownership in service businesses with low barriers to entry (lawn care, pest control, painting, etc.).

Find people who have successfully created businesses that you have the skills to replicate and do what they do. I guarantee you can find the steps laid out for any path you choose.

FUTURE

What are your plans for the future regarding lifestyle?

As stated before, my goal is to retire early. To clarify, the aspect of work I’m trying to break free of is not having control of my time. I enjoy work and the challenge of it, but it is clear that my schedule is not my schedule. I suspect I would find another form of work, likely online, to satisfy whatever I miss.

Another motivating factor to controlling my schedule is being able to spend more time with family. Most of our family lives in other states. I have a real sense of urgency is spending time with my grandparents and letting my kids get to know them while we can.

What are your retirement plans?

My ideal morning includes waking up well rested, working out, and reading for an hour. That keeps me fit physically, mentally, and spiritually. If I had no other commitments, I would begin filling my time volunteering.

I would also like to travel at a leisurely pace. This is another motivation for retiring early. There is so much I want to see and do with my family. The earlier we start the better.

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

The biggest uncertainty in retiring early is healthcare.

The ESI website has provided valuable information on this topic and educated me options I didn’t know existed. That gives me comfort that I will be able to get quality healthcare for less than what I’ve earmarked.

MISCELLANEOUS

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

I learned the basics from personal finance books and blogs in college.

It clicked in the sense that it influenced my actions, e.g. saving for retirement, although I’ve changed my mind about many aspects over the years.

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

I was pushed to succeed by my Mom. I wouldn’t say inspired as it was from a place of survival and fear. She showed me how to work hard and provide for herself. She went back to college in her late 30s and is financially set today.

My grandparents are the people I look up to the most. They are each so kind and give freely of what little resources they have.

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?

One traditional money author comes to mind and then other resources which I view as even more important to anyone thinking more broadly about their career or investments.

Ramit Sethi was the author that broke me out of my latte factor scarcity mindset. He has been influential in challenging the ways I think about money and focusing on high leverage questions/decisions/actions. His scripts on salary negotiations, interviewing, and lowering monthly bills (phone, internet, etc.) have each added thousands to my net worth.

Another influential person is Naval Ravikant. He doesn’t have a money book, but I highly recommend anything he writes, particularly his twitter thread and podcast titled “How to Get Rich without Getting Lucky.” This covers the principles on how to create wealth in the current world.

Lastly, I will recommend two podcasts: 1) The Tim Ferriss Show and 2) Invest Like the Best. Ferriss has a diverse network of entrepreneurs and investors that have been on the show. This is where I was discovered Naval. Having listened to him for years, his guests have been a signal to where the world is headed. “The future is already here – it’s just not evenly distributed.” Similarly, Invest Like the Best has a network of guests that have provided industry/company insights and highly profitable investment ideas.

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

We give ~10% of our net income to charity.

Each organization we support has had an impact on our lives. I wouldn’t be where I am today without the work they do. It is the least I can do to help them continue helping others.

I hope to give more of my time when I’m at a different phase of 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 haven’t given this much thought as my children are young. I doubt we will leave everything to them.

There will be some consideration of seeing the life they are living and evaluating how they are likely to use the gift.

Like our current giving, it will likely be divided among various causes we believe in and want to support. I certainly hope our children are a part of that.