Millionaire Interview 373

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 May.

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’m 33. My wife is 36.

We’ve been married for 10 years.

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

No kids and loving it this way.

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

I live in a small town in rural Alaska. Is there urban Alaska? 🙂

This town has about a dozen miles of roads and they don’t connect to anywhere. The population is smaller than my high school back on the lower 48, and the only way to leave is by boat or airplane.

I’ve only been here about a year and this small, remote town experience continues to be new to me. Everyone leaves their car keys in the ignition because where else would you leave them? All the people get along because the bears are the enemy. And the grocery bill astounds me.

If you are an adventuring soul and haven’t spent time in small town Alaska I would highly recommend it. Life is different here and it’s worth experiencing. Come for a month or two, a week isn’t quite enough to fully appreciate it.

What is your current net worth?

$1.8 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?

I’m combining my wife’s and my assets here.

• After tax brokerage account: $930k
• Tax advantaged retirement accounts: $437k
• Equity in previous employers: $295k
• Real estate syndications: $100k
• Whole life insurance policy cash value: $58k

No liabilities and no real estate, other than the syndication deals. We own an econobox car that’s not included as an asset.

EARN

What is your job?

I have a senior technical leadership role at a large software company. If you have access to a computer or phone the odds are very good you have used my product in the past 7 days. 😉

I’m fortunate that I don’t have to directly manage people and can avoid the usual headaches there. It’s a bit challenging though because I am still responsible for the product as a whole, and indirectly the work output of many people. Despite this I don’t have the conventional management levers to motivate people at my disposal. It’s a curious place indeed but for now it’s working.

My wife works in healthcare and specializes in crisis staffing for rural trauma centers. The past few years we have been traveling for her job. A lot. We’ve done 6 cross country moves in the past 3 years and have spent most of that time living in short term rentals such as AirBnBs.

My job is a breeze compared to my wife’s, yet somehow I still manage to complain a lot more than she does.

What is your annual income?

My income is highly variable. My best guess for this year is a hair north of $600k. The error bars are wide, but my middle of the road estimate is that this will increase by around $100k a year for the next few years.

My wife’s income is also highly variable, and averages out around $100k. Due to the amount of moving we do there is a significant tax advantage to the way she is compensated.

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 in high school (2007) was minimum wage, maybe $7.25 an hour, working back of house for a not-nice restaurant.

I had a variety of odd jobs through high school and college ranging from a firewood business to construction. I don’t think I earned more than $10 an hour until graduating college.

My first real job was working for the federal government. In the neighborhood of $55k a year. To someone coming out of grad school poverty it felt like an infinite amount of money.

A few years later I quit to start my own business. That salary had a negative sign in front of it. The business eventually failed and the whole thing ended up costing me what an MBA would have, but I learned a bunch about how the world works.

I moved to Silicon Valley (San Francisco area, California) in my late 20’s. My starting salary there was $135k with neither bonus nor equity. It seemed like a lot at the time but with California taxes and the high cost of living housemates were needed to make ends meet.

I eventually found out I negotiated my compensation poorly and my peers were all making at least 2x, and some 3x, what I was. This was a real “aha” moment for me where I learned that technical skills have a surprisingly weak correlation with compensation.

I spent a few years moving quickly between various tech companies. Over the course of 5 years I was able to grow my compensation up to where it is now, a bit north of half a million. This depends quite a bit on equity (which is volatile) and bonuses (discretionary), but so far we’re looking good for this year.

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

Just a few years ago I would have advocated for anyone to aggressively try to increase their compensation through any means necessary. After doing this for a few years and seeing where the game ends up I’m no longer sure this is always the right thing to do.

I’ll get into the reasons for this in a bit, but assuming you’re certain that optimizing for income is the right thing to do, and want to do it as a W2 employee, here’s what I recommend:

• Look at whether your industry can support high compensation. Tech, legal, medical, and finance seem able to do this right now. If you’re in a historically low paying industry such as food service, it may be wise to consider a change. I did this early in my career. Moving from a niche in government services to tech was hard and took about 5 years to fully pull off but it’s been worth it so far.
• Find companies that pay the best. There are some tools that have good insights into what you can expect total compensation to be. www.levels.fyi is one example that I use regularly. Once you’ve identified top paying companies, figure out what it takes to get a job there. This step took me about 3 years as I built out the necessary experience.
• Within your newfound high playing employer, look at where the money is going. See where large investments are being made, where the margins are the highest, or which products command customer loyalty and drive revenue. Determine how to attach yourself as a critical part of that business unit’s success.
• Once you add demonstrated value to a critical area, come to your employer with justifiable requests for compensation. This can be in the form of a competing offer, or simple observations of your value to the company or how much coworkers are earning. This is tough and, for me anyways, the most draining part of the whole process. I’ve used a 3rd party consulting service to work through scripts with me and help provide comps. They are expensive but the results so far have been incredible. Your employer likely has a compensation team whose job it is to keep labor costs as low as possible. It’s their full time job and is what they do all day every day. Don’t come to the negotiating table under gunned.
• Have a best alternative to negotiation. Four out of four times, I’ve not had my current employer be able to fully match a competing offer. I cannot wrap my head around why this is because my performance reviews have consistently put me in the top brackets. If compensation is really your top motivator you have to be prepared to walk.

Here’s why I think you may not want to follow my approach. My employer is not nice. They’ve done many terrible things and gotten away with it. They use their scale to gain questionably unfair advantages over both their customers and employees. Lack of corporate accountability is part of it but I have to admit I’m the problem too.

I’ve signaled clearly to my employer that compensation is the most important thing to me. Good on them for making it happen. But the result of this is they are forced to write me an astronomical check at the end of each month. The money has to come from somewhere and they’re currently getting it by, in my opinion, cutting a lot of ethical corners. Maybe if I had applied less compensation pressure there would be room to be more compassionate.

To be clear my compensation has zero impact on my employer’s balance sheet. It’s not even a rounding error. What I’m starting to question is the tech industry’s worker’s “compensation above all else” mentality, and what it leads to.

What’s your work-life balance look like?

Right now it’s excellent. I work not more than 8 hours a day, and have quite a bit of freedom in choosing which hours those are. There are two reasons I have this luxury.

First, I’m no longer trying to aggressively grow my career. My position and income level are satisfactory and I’m not motivated to push on. Earlier when I was trying to grow aggressively I jumped on every opportunity for work. There was a period of about 3 years, when I was working on my own business, where I worked 12 hour days, 6 days a week. Cannot recommend. I was a husk of a human at the end of this.

Second, my employer has made some tactical errors that have given me significant leverage. There was a recent round of layoffs that was conducted hurriedly. They cut the wrong people. This, coupled with draconian policies to bring new hires onboard and some critical projects that are currently understaffed, mean that we cannot afford to lose anyone right now. For any reason. I’m trying hard not to be a jerk, but it does mean I can confidently close my laptop at 5 pm each day and not worry about too much blowback.

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?

I’ve made half-attempts at consulting and blogging. At the end of the day I just don’t have the energy to put into anything else. Plus, I’m not hurting for income right now.

My wife has always worked full time and in the past would pick up part time, hourly jobs on the side. Where we are on marginal taxes right now it just doesn’t make sense any more. Why sell precious free time when the take home is only half the hourly rate?

I have quite the gripe about politicians wanting to raise tax brackets and further disincentivize highly productive individuals from continuing to contribute to society, but I’ll spare the readers here this rant.

The investments I’ve made into growing my career have paid off handsomely. Maybe that was my side hustle in the past.

My extracurricular focus these days is on investing. I’m approaching nearly $2M in equities and am looking to branch out.

Real estate is happening now, and I may reach out into internal investments more in the future.

SAVE

What is your annual spending?

Not including income taxes:

• 2019: $66k
• 2020: $70k
• 2021: $88k
• 2022: $83k

Looking at the monthly breakdowns, not shared here, one thing that stands out to me is how volatile our monthly spending is. We have months as low as $1k, and others as high as $11k. Wild.

I’m trying to target $70k a year going forward. We’re no longer living in a high cost of living area and the insane travel we’ve done in the past for my wife’s career is winding down.

I’m also not sure how much energy it makes sense to put into reducing spending. If we do spend $70k a year, that puts our expenses at less than 10% of our total compensation, before taxes.

Flip side of that coin is that we’re probably financially independent at $70k a year spending. And I care a lot more about being able to walk away from my job than I do buying things.

The tradeoff between spending more, having the ability to quit my job, and building additional robustness in my investment portfolio is something I spend a lot of time thinking about these days. There was recently a fascinating discussion on Millionaire Money Mentors on why people work when they don’t have to. It raised lots of good points and brought in some new perspectives.

For me personally, at 33 and earning over $500k a year, it doesn’t make sense to stop working right now. My plan is to re-evaluate at 35. Each additional year of work provides so much opportunity for my remaining 50+ years. Another victim of one more year syndrome, I guess.

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

Here are the numbers for 2022, the latest year I have full numbers for. These numbers include a full month-long vacation overseas.

• Mortgage & Rent: $26,280.00
• Food: $11,152.06
• Bills & Utilities: $793.95
• Misc Expenses: $7,995.71
• Entertainment: $3,471.69
• Discretionary Taxes [See note]: $21,310.13
• Auto & Transport: $3,236.83
• Gym: $215.88
• Vacation: $8,166.11

2022 adjusted gross income was $586k, and federal income tax (including FICA) was $145k.

Despite not having touched the state of California in over 2 years I still somehow owed them $8k in taxes. If you’re a high income earner, or might be in the future, do your research before touching a revenue hungry state.

Note on Discretionary Taxes: I don’t include income taxes in my tracking because there’s really not much I can do about it. I did pay taxes on some employer stock options I voluntarily exercised in 2022 and track this in my “spending” because it is my discretion and affects cash flow. We’ve been averaging $20k a year here for the past 3 years, but this will cease going forward.

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

My wife kindly tracks each penny we spend. It gets categorized into the bins you see above.

We don’t put too much effort into minimizing spend at this point.

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

The past 5 years household spending has been more-or-less flat at the $80k a year range, and we’ve grown our total compensation from $250k a year to north of $700k.

If savings rate is calculated from AGI, we’re saving around half.

If savings rate is calculated from take home pay, we’re saving closer to 80%.

The number I focus on more is how long it takes us to contribute $100k to savings. We’re at 3.6 months right now, which I’m pretty content with.

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

I’ll give the same recommendations that everyone else gives here:

• Grown your income
• Watch your expenses
• Make boring, non speculative investments

And maybe the one uncommon advice I’d give is to avoid long term commitments. A large part of my financial success to date has come from the ability to maneuver quickly when needed. I avoid employment contracts, don’t own real estate, and typically prefer monthly leases. These actions can have a premium associated with them, but I’ve found the gain from keeping my options open more than makes up for it.

What’s your best tip for spending less money?

Experiment on yourself! It’s easy to assume that you need to continue spending on the things you’re currently spending on to stay happy. Prove it. Pick an expense and cut it for a few months. Then reflect on the value / benefit it provides.

I’ve found that alcohol has a significant cost and actually negative happiness. Once we re-engineered our lifestyle to avoid drinking we’re happier and saving more money.

We also exclusively flew first class for a few years, thinking it was worthwhile to avoid common travel headaches. I’m no longer certain of the value on flights under 6 hours. I put a good book on my phone, wear top of the line noise canceling headphones, and am just as happy.

I do not compromise on gym membership or quality of food at the grocery stores.

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

Travel, food, gym.

INVEST

What is your investment philosophy/plan?

The first $2M has been in an all ETF portfolio:

• US large cap: 35%
• Intl Equity: 20%
• US total stock: 15%
• US Small cap: 15%
• Fixed income: 15%

For cashflow I also keep a 2 year CD ladder with quarterly maturities that will cover cost of living. Other than this I maintain zero cash.

Overall I would recommend this approach for folks just getting started. It’s boring but sound.

I’m going to put my next million into commercial real estate via syndications. Probably most in multifamily value add, with a touch in self storage and light industrial.

Once this is complete, ETA mid 2025, I’ll evaluate if I want to keep working, or pick a new investment area to diversify further.

What has been your best investment?

Investing in myself. I feel pretty confident I can handle almost anything at this point. I can earn money. I can cut expenses to nearly zero if I need to. I can switch industries, pick up new skills, and evaluate deals quickly. This took a lot of work and more than a few mis-steps along the way. Overall though I’m happy with how things are looking.

From a more strict dollar-on-dollar perspective, quality professional advice has had the best returns. I’m quick to lean on lawyers, accountants, and boutique consultants when I don’t understand something, or something doesn’t seem quite right. A few examples:

Our dear friends at the California Franchise Tax Board claimed I owed an additional $45k in taxes one year. An accountant negotiated that down to zero for a fee of less than $500.

A compensation consultant helped increase my pay by over $150k a year for a flat fee of $7k.

Legal advice: My wife and I have each had a time where an employer took some eyebrow raising actions. We reached out to a local labor attorney for advice. In my case it translated to cash in my pocket. In my wife’s case she was able to very clearly explain to her employer exactly what they needed to cease doing, and why. I count both as major wins.

What has been your worst investment?

I’m a surprisingly bad stock picker. I’ve had many go to zero.

I don’t do individual stocks any more.

What’s been your overall return?

I don’t track this.

Given that I have 15% of my net worth in fixed income, I’d imagine I’m lagging a total stock market index just a hair.

How often do you monitor/review your portfolio?

We add up our income, spending, and net worth at the end of each month.

NET WORTH

How did you accumulate your net worth?

Spend less than I earn. Stick the difference in index funds. Forget about it.

Maybe the one insight I can give that’s unique to other answers in these interviews is to retain a certain amount of openness. I’m more than happy to consider a new role, a move across the country, or a significant 1-time cash outlay if it has favorable long term benefits.

I’ve seen a lot of people who are unhappy in their current situation but who are hesitant to make changes. I’ve never regretted changing jobs or moving across the country. But I have regretted staying put a few times.

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?

I think I’m tied on earning and saving.

Household income of $700k and annual savings of $350k seem pretty good.

I hope to be middle of the pack on investing.

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

The business I started in my mid 20’s failing was definitely not desired. It took my net worth negative.

I learned what I could from it and moved on.

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

I am not changing anything. As an engineer I have learned plenty of times to not fix things that aren’t broken. My current system works.

I am evaluating what spending level is best, and when I can finally quit my W2 job to go do what I want to be doing.

I don’t plan to try to grow my compensation much further. Growing income is a lot of effort. Given that I only have a few years left as a W2 employee I’m not seeing enough benefit to justify the effort.

My focus now is on “butt in seat” time. Making my job enjoyable enough that I’m willing to stick it out 10% longer before quitting is just as powerful as a 10% raise.

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

I absolutely want to retire in my 30’s. I think that’s a neat achievement to unlock.

On this trajectory I think I’d be near $5 million at 40, which gives $150k a year with a very conservative 3% rule. I don’t see any reason to need to aspire to that level of spending.

$3M would conservatively give $100k a year in annual spending, which is a good bit higher than our current levels. I think I could seriously consider quitting my job starting at $3M, and should definitely quit before $5M.

I could probably stop working now at 33, but it doesn’t leave much room for spending growth or hopping on good investments if they ever pop up.

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

My household net worth crossed $1 million when I was 31.

I expect my personal net worth (household divided by 2) to cross $1 million at 34.

The second, and subsequent, millions definitely come faster than the first. My household net worth crossed the $1 million line after being in the labor force for 7 years. The second will likely take 3 years, and I expect each additional will come in 2 years after that.

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

I think I picked the wrong major in college. I went into an engineering niche that was really only employable by governments. After experiencing government employment first hand I wouldn’t recommend that career path to anyone except those who have no other options.

My advice would be to pick a major that has broad employment opportunities across sectors and industries. And if you realize later in life you got it wrong don’t be afraid to make a change.

The best time you can do something different is today. The second best time is tomorrow.

I think I lost about 3 years of career progress between the trajectory I actually took, and the one I would have been on if I picked the right major. Not the end of the world, but it did slow me down a bit.

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

Becoming wealthy is fantastically dull. Be prepared to feel very bored, and at times deeply unsatisfied, as you slowly and steadily add dollars to the bank account.

My friends have boats and cars and nice houses and other fun toys, but they are stuck at their jobs and probably will be until they are very old.

I’m free, and that’s better than any possession.

FUTURE

What are your plans for the future regarding lifestyle?

I’m in this weird spot where I need to transition from “career growth at all costs” to “figure out what I want, and then do it”. It’s more difficult than I expected.

Up until now decision making was easy. I did whatever put the most dollars in the bank. This was painful at times but at least it was easy to figure out what to do.

The plan has worked, and now it’s time for the next plan. I can start to find an identity outside of my career. And I have no idea how to do this. I’ll probably quit my W2 job in the next few years and take some time to see what’s out there in the world. After that maybe I’ll start a business or do some charity work.

What are your retirement plans?

I’d definitely like to slow travel the world. Probably starting with a few years in South America. Then maybe onto the South Pacific.

If I can keep my expenses to under $60k a year, which should be easy in lower cost countries, I have very few financial concerns outside a collapse of the US dollar.

I know a lot of people have concerns about the quality of healthcare in lower cost and developing nations. My wife works in healthcare and while not an expert in everything, she can do a good sniff test on the quality of care. We have each received non-trivial care overseas. Mine in Eastern Europe, hers in South America. In both cases we each came away very impressed with the quality of care received, and the cost. Some discretion is needed when finding providers but no more than here in the USA.

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

One more year syndrome is top of mind. It takes a special kind of crazy to arrive at my level of income. It’s a whole other flavor of crazy to walk away from it. There are nearly zero examples of folks pulling it off.

At the heart of my struggle is that I can save around $30,000 each month that I work. There’s a lot I can do with that kind of money. I could live for 6 months. Or go on one heck of a month-long vacation. Or change the life forever of a family in a developing country.

Once I quit and am a few years out of work, I don’t think I’ll have the option to re-enter the workforce at this level of compensation. The decision to leave the workforce is probably irreversible. So I’m playing it conservative and trying to convince myself to hang on for 1 more month. And I keep on doing it.

MISCELLANEOUS

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

From an early age I never understood why people had to suffer through their jobs until 65. As a kid when I asked adults the answer was always pensions, social security, or “it’s just impossible these days”.

I discovered Mr. Money Mustache sometime around 2016 and was delighted to see that not only was it possible to retire earlier, people were doing it! That was the year I started putting spreadsheets together to have a plan for early retirement.

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

My dad, but not in the way you might expect. He spent his entire career at the same company, working towards a pension. Because of that he couldn’t change employers.

Wow did they treat him terribly! I vowed to never be that dependent on anyone. Observing his miseries growing up is probably the reason I’ve worked so hard to have healthy finances.

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?

• How to Win Friends and Influence People: While not strictly about money, applying the recommendations in that book to my work relationships has had a significant impact on my earnings.
• Getting to Yes: Life is an endless chain of negotiations. This book helped me frame them a lot better.
• The Real Book of Real Estate: Robert Kiyosaki is a bit of a controversial author on the topic of real estate. What I will say is this book planted the seed of commercial real estate’s cash flow potential and is what led me down the path to the syndications I’m investing in today.

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

Not currently. While my job only takes a small percentage of the hours of each week, it takes nearly all of my available energy.

Before I start giving to charity I want to do significant research and ensure the charity is working as hard for my money as I did.

My plan is to eventually volunteer for the charity I’m donating to so I can keep a close eye on this myself. It will probably involve something like healthcare or education in developing nations.

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 no idea what to do here. No kids and no plan to have kids, so the usual options aren’t available to me.

I currently have an estate plan naming my brother and sister as heirs. As they get older this will probably make less sense and I need to figure out what to do.