Millionaire Interview 362

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 November.

My questions are in bold italics and their 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 39, my husband is 42.

We have been married 20 years.

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

We have 15 year old twins.

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

We live in an urban area of Florida.

What is your current net worth?

$1.05 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?

Our assets are primarily retirement accounts, with some real estate and stocks added in.

We have $130k in Roths, $550k in 401k, $130k in cash (due to a current home renovation in process), $215k in rental property equity (probably actually a lot more based on current home values, but we only update our estimate of rental property values when we refinance/appraise the properties), and $32k in primary residence home equity (we just purchased the property a few months ago with a physician loan for a lower down payment in order to keep more cash free for the renovations we wanted to complete).

We recently started investing in a taxable account as well, but currently only have $26k in the account.

I still owe $48k on my student loans, down from over $200k when graduating from medical school (which of course rose while in residency making income based payments).

We have no debt other than the student loans and our mortgages. Our cars are paid off and we plan never to have another car loan, however we don’t really consider our vehicles part of our net worth.

I feel that we are currently at an inflection point in our wealth accumulation as we have resolved most of our debt and are really starting to be able to put significant money towards growing our net worth each month.

EARN

What is your job?

I am a physician, 9 years out of residency.

What is your annual income?

Between $300k and $400k for the last few years depending on how much I work.

I am paid hourly in my current job, so taking more shifts results in a higher annual pay.

Tell us about your income performance over time. What was the starting salary of your first job, how did it grow from there (and what you did to make it grow), and where are you now?

I was originally an engineer, making $35k-$50k, then I went back to medical school and spent 4 years taking out student loans with a negative family income.

Then I spent 4 years in residency making $47k-$52k working 80+ hours a week.

My first job as a physician after residency paid $200k base, but I ended up grossing closer to $260k-$280k over the next few years, spending between 60 and 105 hours per week at the hospital.

That was unsustainable, so I left and spent a few years doing locums (basically working as a travelling “substitute doctor”) and earned between $250k and $350k per year, with the advantage of getting to travel full time with my family to fun places like Hawaii and Maine (right outside Acadia National Park) with many of the travel expenses either reimbursed or tax deductible.

I have since settled into a full time W2 travel role for a national healthcare staffing company and travel 2-3 weeks per month working 72-96 hours a week in the hospital while traveling and making $350k-$450k annual gross income.

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

Don’t be afraid to take a step back to develop more valuable skills, but also pay attention to career longevity. A longer career at a slightly lower compensation rate may result in a better life and a higher level of financial security.

I would also suggest that being willing to structure your life differently if that is an acceptable option for yourself or your family can pay a premium. Being willing to travel has frequently resulted in a higher income for me, and also has the win-win of letting me enjoy my work more and dump many of the parts of my job that I don’t enjoy!

What’s your work-life balance look like?

Currently my balance is better than it has ever been before. My husband does an excellent job managing the homefront, and he and/or our children frequently travel with me.

I don’t work close to home, so I have no temptation to allow work responsibilities to intrude on scheduled family time these days. It is much easier to say no to an extra shift I don’t want when it would involve getting a last minute plane ticket and frantic rush to the airport! For someone that is bad at creating boundaries, this structural stop is a lifesaver.

I love having one of my teenagers with me for a work stint and the other getting quality time at home with dad, and I enjoy having all the perks of travel status when our family wants to vacation. I am really looking forward to my husband getting to come with me regularly in a few years when the kids don’t need him as much. I also appreciate, as my children have gotten older, that they get to see how hard I work, and they don’t take our financial resources for granted.

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?

Yes. We have two rental properties purchased in the last 3 years.

One is a former primary residence that we use as a short term rental and the other is a triplex that we intended to live in but decided we really didn’t like the area for our family and now we use it as a long term rental. Right now, after expenses and emergency/sinking funds we collect about $600 per month of free cash flow from the two properties. The remainder of the income for the properties stays in our rental emergency account so that repairs don’t ever require we pull from non-rental funds.

Additionally I do some medical chart reviews during my spare time when traveling alone which probably contributes $200-$300 per month.

SAVE

What is your annual spending?

These days $220k per year of after tax outflow is pretty typical, although it was significantly less in the past.

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

• $5,000 per month housing including utilities and extra mortgage principal pay down (since unfortunately our current primary residence was purchased after interest rates started to rise).
• $2,200 per month for sinking funds (life, disability, auto, umbrella insurance)
• $2,000 medical school loans (will be paid off in 2 more years)
• $4,200 per month into short term savings for home renovation, auto repair/replacement, and travel
• $2,000-$5,000 per month into long term savings for Roth IRAs/emergency funds/taxable accounts
• $1,500-5,000 for other monthly expenses such as eating out, clothing, children’s expenses, or additional home projects (we recently purchased a home that we are doing significant repairs/renovation on). We max out our HSA and my 401k every year directly from my paycheck, and my employer healthcare plan runs 1200 per month for our healthy family of 4.

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

We yearly decide how much we want to put into our short term and long term sinking funds and I have scheduled transfers from our main checking account into all of these subaccounts on the same schedule as my paychecks. After that, we don’t worry too much about where the rest goes, although if our checking balance is getting too high I will sometimes throw an extra payment at my student loan, our mortgage, or our taxable investing account.

I maintain a spreadsheet (since 2014) of our monthly expenses including savings, sinking funds, etc. It is not incredibly granular as the categories of spending vary significantly from month to month, but the overall total tends to be relatively consistent.

My husband does most of our day to day purchasing, and he has a weekly autotransfer for household expenses, as do our children, for the portions of their budget they are responsible for (entertainment, clothing, and food eaten away from home at this point in their lives). Every month my husband does a monthly accounting for additional expenses, which I transfer from our sinking funds for auto, emergency, large purchases, etc.

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

I have tracked our gross savings rate since 2015 and it has varied from 22-55% of my gross income towards positive net worth activities depending on other events going on in that year.

Most years it has ranged from 30-40% as my husband and I are aware that my medical training delayed our savings for our retirement by many years and we have been actively trying to catch up.

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

So far, my life experience is that when mindful, earning more money allows a much higher savings rate. As our income has increased, our spending has increased, but at a slower rate, allowing us to grow the gap and increase our savings.

I would also suggest making sure to save first and set up sinking funds for planned expenditures. If the money isn’t in the sinking funds, then the want needs to wait.

As a rather Type A person, I find tremendous peace in knowing that the money for any large expenditures we wish to make, whether vacation or home improvement or otherwise, is already budgeted and available.

What’s your best tip for spending less money?

I don’t know if it is a good tip…but when working 80+ hours a week it is really hard to have the time or energy to spend too much money.

My real tip is to know what makes you happy. Many things that create great happiness are free, or occur in very low cost environments.

For example, we don’t care about cars, so we don’t have “nice” cars and we don’t replace our cars very often. We enjoy going for walks, watching movies, playing multiplayer games as a family, hiking, and playing board games.

These days we do spend a lot, more than I ever could have imagined 20 years ago, although plenty of our funds are going towards things like insurance which aren’t really consumption items. Given that our high income is entirely dependent on my ability to continue to work in my very physically demanding job, insuring my income is a very high priority in our budget.

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

I love eating out somewhere new and interesting with my husband and spending on travel and experiences with our family and friends.

We had a timeshare for many years, which allowed us to pre-pay for many large family vacations and wonderful memories we very much value. We no longer have it as it no longer meets our travel needs, but I do not regret the discretionary spending on this (and the use it or lose it effect on my otherwise workaholic tendencies).

We often do end up subsidizing participation for our younger siblings who are not as financially comfortable as we are.

Also, my husband and I, when young and broke, used to discuss what we would spend money on when we had it. Now we are very happy to be able to spend money on books and tools like Duolingo, Photoshop, or Unity which let us (and our children) develop valuable skills.

INVEST

What is your investment philosophy/plan?

I have a target allocation between passive long term stock index funds and real estate and I continue to add money to conform with this allocation. There may be some drift between property acquisitions, but overall I stick to my written investment plan.

I in general like to keep things simple. We use property managers for both of our rentals. I researched the local property management options thoroughly and do not begrudge the amount that they are paid for their work.

My work 401k rebalances with new contributions, and so I just yearly review our stock allocations to make sure our Roth and taxable components haven’t thrown us too far off of our goal allocation.

What has been your best investment?

My spouse! We got married quite young, but happily that has been a very good decision in retrospect and we have been active partners in all our life adventures. He has been at home with our children for the last 15 years homeschooling and front line parenting while allowing me to work hard without losing out on the opportunity to have good relationships with our kids.

My second rank would probably be my education. Changing fields did pay off financially faster than we calculated, although that absolutely was not the reason for changing from engineering to medicine.

What has been your worst investment?

My first home which I should have kept as a rental and my second home, which was my “forever home” and was also sold at a small loss after 3 years when I left my first practice.

My third and fourth property purchases have been consistently cash flow positive so far, and my current primary residence is yet to be determined, but I at least hope for a dividend in wonderful family memories before my children leave the nest.

What’s been your overall return?

I would assume about the same as the overall S&P 500 for the last 8-12 years that I have been investing. I have never bought individual stocks or engaged in any actively managed funds, so I should match market performance given I have consistently bought and held since 2009.

Our net worth in May of 2014 when I began tracking was -$200k (after 9 months of throwing all the money I could at our debt after getting my first attending physician job out of residency), so that gives a bit of an idea of growth over time.

How often do you monitor/review your portfolio?

I update our net worth and savings rate spreadsheet monthly. I update my husband on our financial status quarterly so we can discuss any changes to our future plans and make sure we are on the same page. Otherwise, I don’t pay any attention.

I have a written investment plan and intend to work for another 10-20 years, so my current day to day investment performance is of little importance.

I do also have a document for my husband and kids with our emergency information including all of our insurance plan numbers and company phone numbers and contacts, since I am the one in the household that actively manages all of those details.

NET WORTH

How did you accumulate your net worth?

Since 2013 I have made a high income and worked on digging out from the financial hole that my education for that role put us in. The income range for medicine is well known, and I was able to estimate the payoff period for my training when trying to decide if I should make the career change.

Although I did change fields for passion, rather than income, my husband and I still ran the numbers first to determine the payoff period on the investment (12 years was the career change break even point we calculated at the time, if anyone is curious, although that will vary for the individual and the field they come from and move to).

We have not received any inheritance and my husband has been at home managing our children and my schedule for the last 15 years.

I think we have invested adequately, however in a very boring manner, and the economic tailwinds during the time period of my earning have rewarded us, rather than any particular virtuosity in our investment choices.

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?

Earn.

I work hard and have a valuable skill set, and I enjoy what I do and have a supportive family which allows me to work a lot without experiencing burnout.

We save and invest well enough not to completely waste the advantage the high earning gives us.

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

Periodically my husband and I have made suboptimal financial decisions for lifestyle reasons (such as buying a timeshare on the secondary market or our current entirely want based home renovation). We have discussed how much this sets back our financial goals and decided if it is worth it, and then when these choices no longer are in line with our lifestyle and financial goals, we try to avoid the sunk cost fallacy and unwind the choices as efficiently as possible.

Also, my spouse has been at home for the last 15 years, since our children were born, which has been absolutely wonderful for our family, although not financially compensated. When our children leave home he will need to find something to occupy that time and energy, and we do anticipate the transition being difficult for him! We are still trying to define what that period of life will look like.

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

I continue to work hard and invest regularly according to our written investment policy statement.

I spend a lot of time on continuing education in my field to make sure that I don’t fall behind on standard of care or otherwise allow my skills to diminish.

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

I would like to attain a $5 million net worth in today’s dollars before retiring completely.

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

I was 38 when we first crossed the million dollar threshold last year.

We have not made any significant shifts since that time.

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

Periodically my husband and I have confused wants with needs, or not actually looked at our long term financial plan when assessing wants.

For example, when we got married someone talked us into buying an extremely expensive set of kitchenware with the reward of a “free vacation” which we never actually took.

It is super important to know your reaction to hard sell experiences, and to avoid putting yourself in those situations if you rate overly highly in agreeableness!

Also, I find now I have a tendency to focus on pennies and not dollars at times after spending all of our time during my training playing a balancing act with all of our financial obligations. Focusing on the large expenses is so much more rewarding and less exhausting!

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

I think the path to wealth is going to vary dramatically for individual situations, however it is always going to be some combination of earning, saving and investing. The important thing is not to let one of the categories become such a burden on the other two that you cannot get ahead.

Most importantly, I think it is important when looking at your situation and goals, not to prematurely constrain your solution set…i.e., when I was burning out in my first job, we ended up deciding to sell our house (at a small loss), sell everything we owned, and head on the road for full time locums medical care with complete schedule control, a higher per hour compensation, and a wonderful family adventure while our children were younger. But I heard from so many older burnt out colleagues “I couldn’t do that” either due to a failure of imagination, or because they had over-committed themselves so much that despite their high income they didn’t have any financial flexibility to take a risk of not getting a regular paycheck from an employer.

If you leave everything on the table as a variable, you are likely to come to a much better fitted solution than if you artificially limit your options.

FUTURE

What are your plans for the future regarding lifestyle?

I am fully committed, schedule wise, through the next 6 months, but after that time we intend for me to ease back for the next few years to enjoy the remaining time our children are at home.

When they leave for college I will probably increase my work schedule again and enjoy my husband being free to travel with me, as long as he doesn’t find a purpose that would limit his schedule flexibility.

After the kids are done with college, since our financial contribution there is still a bit of a question mark, we intend to re-run our numbers and determine our trajectory to our next chapter.

Hopefully I will not be financially obligated to work after my mid-50s, although if I can structure things correctly I will likely to continue to work as long as I feel my skills are remaining adequate.

What are your retirement plans?

I anticipate a slow diminution of my clinical hours after my children are independent, although as a surgeon, there is a threshold beneath which I will not be able to adequately maintain my clinical skills and ought to hang up the stethoscope and scalpel. I anticipate this will come some time between 50 and 60, although I maintain own occupation disability insurance in the event that something medical forces this to occur sooner.

I spend much of my free time now reading, learning foreign languages, and hiking, and I would enjoy doing much more of all these activities when I no longer spend so much time taking care of patients.

I also used to play a lot more story driven computer games, and I miss that, but can’t justify the time with all my other current commitments.

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

I worry some about keeping myself busy and social. I am very shy in my personal life, but fortunately my husband is very outgoing, so I do not anticipate lacking for social engagement.

We moved 2 years ago to be very close to my sister and her husband, and my father spends half the year less than 2 hours away, so I am happy to be able to regularly see family again.

I think my husband is likely to flounder a bit when our children launch, as they have been his primary responsibility for the last 15 years between parenting and homeschooling, but he is also aware of the need to develop new meaning as they no longer need him as actively.

This is something we have been regularly discussing because we know it is going to be an issue.

MISCELLANEOUS

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

All I learned about finances from my parents was that debt is evil and you should never share your social security number.

My husband actually had to show me how to write a check when we were in college!

My father in law is also a physician and he was able to give me some perspective on the financial impact of medical education when my growing student loan burden became too stressful during education.

When I was in residency I ran across Mr. Money Mustache’s blog late one night while in the hospital on call, and from there on I began to self educate on finances, although with many steps backward. I think since that time my husband and I have been learning together, and have become continually more competent over time.

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

I idolize those in medicine who have chosen the academic and research routes to perform the studies that let the rest of us take better care of our patients. They may only be known and lionized by a small group, but their late nights and hard work has allowed us to continue to push forward the boundaries of our island of knowledge.

I remember in residency, when we would be working at 10 or 11 at night and our department chair would just wander by the labor floor to see how we were doing, after putting in a 16 or 18 hour day between his clinic and his lab. I also vividly remember sitting with my fellow at 2 AM as a resident while she called our department chairman to get advice on providing a controversial but lifesaving therapy for a patient and hearing him say “do the right thing for the patient, I’ll smooth everything over in the morning”. That one experience gave me such an enduring respect for the man…and a desire to keep “doing the right thing” at the forefront of my clinical practice.

I love medicine and the impacts that it can have on individuals and the world when done right.

Do you have any favorite money books you like/recommend? If so, can you share with us your top three and why you like them?

I really enjoyed the Millionaire Next Door, and made sure my husband read it also. It really impacted our choices about cars we drive, houses we lived in, and clothes we wear on the path to financial security.

I also periodically re-read Screwtape Letters, and I seem to receive a new piece of life wisdom each time.

It isn’t a money book, but relatively early in our marriage my husband got advice on several useful relationship books such as His Needs, Her Needs which we both read and discussed. I think that keeping a happy marriage may be the most financially beneficial thing we have done!

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

Yes. We don’t give a specific percentage, although setting a number is on our topic list for next yearly family financial review meeting.

We have multiple individuals/causes we support through Patreon and Kickstarter and other such platforms, and my husband also maintains a store of funds to give to individuals and causes on an ongoing basis. He most enjoys actually seeing our money do good in front of us. I believe he also gives to some things like Wikipedia, but since we don’t itemize I don’t actually know how much of that side of the budget he donates!

One year my children actually chose to give up their Christmas presents (when we were much less comfortable than now) so that we could purchase Christmas gifts and dinner for a family in our homeschool group who had had both parents out of work for the majority of the year. They still remember that fondly. We like to leave plenty of room in our budget to do things like this as a family.

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?

This is an ongoing area of discussion in our household. We don’t want to help our children in any way that actually hurts them in the long term, but ideally, we would like our kids not to have some of the hardships that we experienced over the years. Neither of us received significant financial assistance from our families after completing high school although both of us did benefit from a relatively stable home environment while growing up.

Currently the plan is to reimburse the children for their college courses as long as they are performing adequately and then to help them some with beneficial life choices like business starts or property investments (or someday grandchildren education?). We also intend to continue to financially support our families being able to gather and spend time bonding and having fun together through the years.

That being said, my husband has a strong desire to establish a nonprofit in the educational space in the next decade, and this may end up being his purpose after the children aren’t taking up so much of his time and energy. If he does that, the majority of our estate is likely to go to supporting this mission, rather than to an inheritance for our children, who will hopefully be well established by the time any inheritance would come into play anyhow given that we were relatively young when we started our family and both sides of the family have good health and longevity.