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.
At the end, I add some comments from the interview.
My questions are in bold italics and their 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 39 and my wife is 36. We’ve been married for 11 years.
Do you have kids/family (if so, how old are they)?
We have four children ages 7, 5, 2, and an infant (3 months old)
What area of the country do you live in (and urban or rural)?
We live in an urban area in the NE part of the country
What is your current net worth?
Our net worth is currently $2.3 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?
- Primary home: $650k
- Rental Property: $205k
- Retirement Accounts (SEP, 401k, Roth, Traditional IRA, Vested Pension Lump Sum): $1.25 million
- Taxable Investment Accounts: $300k
- Real Estate Crowdfunding: $23k
- 529 Accounts: $137k
- Cars: $69k
- Cash: $88k
- Mortgage: $380k
- School Loan: $44k
What is your job (type of work and level)?
I am at a director-level position at a pharmaceutical company and my wife is a part-time physician contracted to work 80 hours/month.
What is your annual income?
My base salary is about $200k with a bonus of 20% every year and equity granted every year equivalent to about 20%. Total compensation is around $280k not including any 401k match or health benefits.
My wife earns about $240k working part-time. She earns no benefits whatsoever (no health insurance, 401k match, etc). She also has a work-from home job that allows her to work 5 hours a week. She earns about $400/week doing that.
How did you grow your income so high?
Our career choices definitely allowed us to grow our income.
I have a doctorate degree in pharmacy and could’ve chosen to work at the local CVS/Walgreens, but chose a career in the pharmaceutical industry due to a higher career ladder and greater flexibility. I started off in the industry 13 years ago in sales making about $65k base. After 2 years in sales, I moved into a more scientific role and increased my base to $90k. I then made some other moves in my company by being proactive about my career and expressing my desire for more challenges. I’m not the smartest guy, but my managers saw that I was reliable and have a good work ethic so they gave me more and more responsibility.
My wife intentionally chose her specialty because she knew she wanted to start a family. Her specialty allows her to work part-time. Not many medical specialties allow that level of flexibility. She started off making a high income and worked full-time for about 2 years. After our second child in 2011, she went part-time. During her 7 years as a physician, we’ve had 4 kids and she took a total of 3 months unpaid for each one (3 months x 4 kids), so her 7 years as a physician were actually 6 years of paid work.
We now are in a good place financially where I can work from home and my wife works part-time. We rarely rely on sitters since my wife works a lot of weekends and is off during the week. When we do need help, her mom watches the children.
What is your main source of income (be as specific as possible — job, investments, inheritance, etc.)?
Our main source of income is from our jobs. We received no inheritance and built our net worth from scratch. We also receive a small income from our rental property.
What is your annual spending and what are the main expenses you have?
Our main expense is our home. We only have 11 years left on the mortgage and could technically pay most, if not all of it off right now, but the rate is so low at 3%. After the mortgage interest tax deduction, it’s an effective 2.1% or so. We think we could do better in the market. We also did a recent $100k kitchen renovation this year and are currently doing a large backyard paver patio project. We intend to live in this house into retirement and want to make memories with our kids. I realize home renovations aren’t the best investment, but we think we’ll make good use of our kitchen and patio over the years.
We also have a small student loan balance of about $44k, but the rate is at 2.25%, so we don’t intend to pay it off.
We also pay a lot in taxes. We hit AMT every year, so our itemized deductions are limited. Last year, we paid about $100k in federal income taxes.
Our major expenses now are our kids. We set aside $3k/month for college. Add to that the grocery bills, clothes, and activities (piano, karate, after school activities, etc).
We own our cars outright and only pay for gas and insurance. We don’t drive much since I work from home and my wife works 5 miles from our home.
Our healthcare bills this year were through the roof. My wife is an independent contractor so we get our insurance through my employer which only offers a PPO. We have a $1000k deductible. After that deductible, we’re responsible for 20% of the cost with an out of pocket maximum of $9000. In 2016, we’ve already spent close to $8000 out of pocket between labor and delivery for our 4th child, an unexpected ER visit and admission for the newborn, my sterilization procedure :), and many doctor visits.
How did you accumulate your net worth? Also, please share any mistakes you’ve made along the way that others can learn from.
I learned the concept of compound interest at an early age and really shoveled a lot of money early in my career into investments. I maxed out 401k’s and Roth IRAs (when my income allowed). We also consistently put money into investments. Every week, we automatically transfer money into our taxable brokerage accounts. Every month, we invest in a 529 automatically and every paycheck, we invest in our 401k/SEP-IRAs.
Recently, I’ve been taking advantage of the mega-backdoor Roth IRA which allows me to set aside around $25k additional towards a Roth. The IRS maximum into a 401k is around $53k which include pre-tax, employer contribution, and post-tax contributions. I max it out, then every year convert the after-tax portion to a Roth IRA. My company allows in-service distributions so I’m able to do this while still with my employer. There’s no income limit on the conversion either so it’s a good strategy for a high income earner.
We also bought a rental property about 10 years ago and that has paid off. We have no mortgage on the property so we just collect rental income and pay the property taxes and insurance.
A few mistakes:
- Buying individual stocks: I played the stock market during the dot com boom with summer-job money and lost mostly everything. I realize that there are people much smarter than me that do this full-time that can barely beat the market. That led me to the Bogle philosophy of buying low-cost index funds. I now use a roboadvisor to ensure I have the right asset allocation and to harvest losses for tax purposes
- Buying a rental property without due diligence: I bought a second rental property in 2007 thinking I was going to be the next big real estate mogul. The property was not in the best location and the tenants over the years were big headaches. Not to mention many issues with the home and phone calls in the middle of the night. Selling the property in 2014 was the best thing I did.
What have you learned in the process of becoming wealthy that others can learn from (what can others apply to become wealthy themselves)?
Slow and steady. Start early and put as much as you can in the market. If your time horizon is 30+ years, history shows that you’ll make money. Diversify your investments…we bought a rental property to diversify out of the stock market. That has done well. We’re now starting to dabble in real estate crowdfunding.
We now buy everything with cash. Our cars were paid for in cash and any future cars will be cash only. We buy slightly used cars, but do have expensive taste. I recently bought a 3 year old Jaguar with 35,000 miles, but it only cost me 50% of what a new one would cost.
Every year we set aside 10% of our gross income in a charitable gift fund. For the past few years, we set aside $50k and get the immediate tax deduction. Then throughout the year, we grant money to organizations that we care about, particularly our church. We let the rest of the money grow in the account. Since opening the charitable gift fund, we’ve granted over $100k and our current balance sits at $200k (much of the balance came from growth tied to the stock market). None of this is accounted for in our net worth since we legally can’t touch it.
What are you currently doing to maintain/grow your net worth?
We invest a fixed amount every week in the stock market via a roboadvisor. We buy low-cost index funds. We also started to invest a very small amount in the new real estate crowdfunding platforms. We also continue to consistently max out and invest in our retirement accounts. I’m getting the itch to buy another rental property, but I’m still evaluating whether I want the headache.
Do you have a target net worth you are trying to attain?
I honestly don’t know. I have net worth targets that I want to hit every year, but I don’t have an exit strategy. I’d like to be able to pay for my children’s colleges, so that’s my only goal right now. My other goal is to grow my net worth every year by 8-10%.
What are your plans for the future regarding lifestyle (for instance, will your net worth allow you to retire early, downsize jobs, etc.)?
My initial plan, before our surprise 4th child, was to retire at 50. Our 15 year mortgage will be done when I’m 50 so we’ll have no debt. I think we can still do it, but I don’t mind working past 50. We’ll have a lot of kids entering college in our 50’s, so it may be prudent to continue working. One of my goals is to begin structuring my assets so that I can tap into funds if I want to retire early. My wife will probably continue to work 20 hours a week, but may drop down to 15 hours per week in retirement.
Is there any advice you have for ESI Money readers regarding wealth accumulation?
Learn about compound interest. Compound interest is your enemy if you have debt, but it’s your friend if you have investable assets. Invest early and invest often.
Invest in low-cost index funds…don’t try to beat the market. You can’t. And even if you did, you can’t do it consistently for a long time. If you have time and extra money, by all means, go buy Facebook or Amazon stock for the fun of it. However, if you’re barely getting by, just invest in the broad market and don’t look at it for the next 30 years. Fees eat into your returns so pay attention to them….even though a 1% fee sounds small, it really adds up when compounded over 30 years.
Excellent piece all the way around! THANK YOU to today’s interviewee for sharing with us.
A few comments from me:
1. I should have gone into pharmaceuticals! Or married a doctor! This post along with our first millionaire interview have me longing for the $500k income level! 🙂
2. “I have a doctorate degree in pharmacy and could’ve chosen to work at the local CVS/Walgreens, but chose a career in the pharmaceutical industry due to a higher career ladder and greater flexibility. I started off in the industry 13 years ago in sales making about $65k base. After 2 years in sales, I moved into a more scientific role and increased my base to $90k. I then made some other moves in my company by being proactive about my career and expressing my desire for more challenges. I’m not the smartest guy, but my managers saw that I was reliable and have a good work ethic so they gave me more and more responsibility.”
This is full of lessons:
- He had a high-value degree, but made it worth more based on what job/career path he took.
- He developed his career and look what a difference it made. He went from $65k to $280k in 13 years. That’s a 13% average annual gain! If you only go with his base salary ($200k), that’s still roughly 10% increase per year. This is EXACTLY what I mean when I talk about working on your career to grow it and that it can make millions of dollars of difference for you over the course of your career. If he had settled for the standard 3% raises most people accept, he’d be at $93k per year salary at this point. See the difference?
- You don’t have to be the smartest person in the room to get ahead. Just work your career with some tried and true steps and you can make a big impact.
3. Love the “slow and steady”, index fund, and compounding advice. Also love the fact that they set aside money to give.
Those are my thoughts. What do you think of this millionaire’s results?