Millionaire Interview 379

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 August.

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 50 years old, and my wife is 49. We have been married for nine years, and this is a second marriage for each of us. We both went through divorces in our mid-30’s, and pretty much had to start over financially.

While I don’t really subscribe to the adage that life begins at forty, it sort of did for me from a financial standpoint. I’ve spent my whole career in the public, non-profit sector, while my wife has spent hers in the financial services industry.

When we met, I had heard of index funds but didn’t really even know what they were, and I had no idea how to invest in the stock market outside of retirement accounts (fairly basic stuff, I know, and she brought me up to speed on both fronts). My wife and I make a pretty good team, and index funds and our taxable brokerage account are both central to our financial plan.

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

I have a child from my previous marriage. My child is an adult now.

And between us, we have four siblings and ten nieces/nephews.

Our family is awesome, and we love them!

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

We live in a MCOL area in the southeastern U.S.

We have only been here for roughly a year, and previously lived in a MCOL area as well.

What is your current net worth?

Our current net worth is $3.3M.

Of this amount, we have the vast majority ($3M+) invested one way or another.

Note: I will also have a non-COLA pension (with 100% survivorship) that will pay $130K annually beginning at age 57.

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?

$2.5M of our assets are invested in the market, as follows:

• 401(k)/403(b): $1.75M
• Roth IRAs: $255K
• HSA: $35K
• Taxable Brokerage: $457K

In addition, we currently have $600K invested in real estate syndications. I’ll talk more about this below, as we just committed the day I’m writing this to add $150K into an existing syndication deal that’s just starting up. The money to do so will come from our taxable account, which will reduce that balance to $307K while increasing our total investment in syndications to $750K (in turn, distributions and other payouts that we receive from syndications get invested right back into this taxable account).

We also have roughly $200K in equity in our house, which we moved into just a few months ago after relocating to a new area. We originally planned to pay cash for the house, but even with rising interest rates (5.75% for a 15-year mortgage in our case) as our house was being built, we switched gears due to feeling as though our syndication deal returns will surpass the interest we’re paying on this loan. Besides, there are a couple advantages to having a mortgage, and in our case it means that we’ll be able to itemize deductions on this year’s tax return for the first time in many years.

And finally, we keep a cushion of $5K (and $5K only) in our bank account.

EARN

What is your job?

After many years in public administration, I left my job about a year ago after political pressures became greater than the value of the job and the work. Fortunately, I was positioned financially to make this decision, though it was still awfully hard.

I guess you could say that I’m semi-retired, but the relative suddenness of being “retired” sure isn’t what I had envisioned. I may return to work, or I may not. I know that if I do, it’ll be for a lower-profile position.

I’m grateful for the career that I’ve had, and also grateful for now having the time to pursue interests and hobbies that I haven’t been able to engage in for quite some time. And truthfully, I’m even more grateful for having a spouse who supports me in any and every life endeavor (even the ones that don’t pay anything!)

What is your annual income?

My final full year’s income was $235,000, and my wife’s income last year was $269,000.

It’s kind of crazy to type that out, as both of our incomes really accelerated in the latter part of our careers.

When we got married nine years ago, our combined income was a little more than half of where it ended up.

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, right out of college in 1995, was $25,676. It’s one of those figures that, for whatever reason, I’ll never forget. And let me tell you, at the time I thought I’d be rolling in it. Of course, I had no real understanding of taxes, paying for benefits, and the like.

I received a promotion seven years into my career, which bumped me to $57,000, and then another promotion two years later that bumped me to $90,000.

Five years after that I moved to a different company for a promotion which paid $127,000, and seven years after that I made my final career move for a promotion which bumped my pay to $190,000.

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

Know what you want and bust your tail going for it. There really is no substitute for hard work.

Yes, there are other keys to one’s success, such as being a good colleague, having a good attitude and showing that with the smile on your face, and remaining humble. But you won’t get far without working hard.

Be humble and proud. You can be both, and you should be both.

Invest in yourself, and invest in your work. As my career progressed, I went back to school for two advanced degrees. I had to take out student loans each time, but had I not done so, I never would have earned the higher salaries in the later stages of my career. In total it was six figures of debt, but that’s the good kind of debt, as it ended up representing pennies on the dollar for the salaries that I eventually earned.

Believe in yourself, have a vision, and work for it.

What’s your work-life balance look like?

As my salary increased, my work-life balance got much worse.

In public administration, your role correlates with frequency of evening meetings, as well as how in demand you are by your community and how responsive you are expected to be 24/7 (or close to it anyway).

The good side is that the work ethic you develop to reach this level is effectively what carries you through the demands of the job. The bad side is that it can take a toll on family life.

Fortunately for me, as stated I’m fortunate to have an extremely supportive spouse, but it’s also why I would only take a lower-profile role should I decide to return to full-time work.

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/we do not have any other sources of income. I suppose I could look at distributions from our syndications as such, but I prefer instead to just look at them as returns on our investments. It is awfully nice, though, to get these monthly/quarterly direct deposits into our bank account.

And for some perspective on this, from a syndication cash flow standpoint, we anticipate our $750K investment yielding roughly $79K in cash flow per year (plus, with most syndications, there is capital upside whenever the asset is sold).

Also, as I continue to consider future opportunities, I may choose to do some consulting and/or part-time teaching at a local college. Doing so would keep me mentally engaged and allow us to pour a little more into our taxable account.

SAVE

What is your annual spending?

Our average spending over the past few years has been $79,000 (not including income taxes).

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

The main categories have been mortgage/property taxes/HOA ($30,000), food ($8,800), and travel ($7,000).

Our current housing costs are a bit more since we decided to take out a mortgage on our new house, and since this house is more expensive than our house from the past several years.

Thus, our overall 2023 spending will be a tad higher.

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

Yes, we budget pretty closely. We do so by keeping a spreadsheet that I track daily. It includes both incoming funds (e.g., W-2 pay, syndication distributions, cash back from credit cards) and outgoing spending.

Any item that costs $50+ per month is listed as its own line item in the budget and I simply highlight it as it is “paid” either through direct debit or a cash-back credit card (we set up as much as possible via cash-back credit card so long as there’s no associated fee).

All other budgetary items fall into one of four categories, which I track separately and add up daily: groceries ($800 monthly budget), eating out ($150), general spending ($1,250), and auto maintenance ($175).

We strive to come in below in each of these categories, though that certainly doesn’t always happen.

We also budget a dollar amount each month for our taxable brokerage account. If our overall spending comes in below in any given month, we get to increase the amount for the taxable account; otherwise, we have to decrease it.

Our budget extends out a number of years, and so we can see what we’re targeting more long term for saving in our taxable account. Doing so, coupled with our annual tax-advantaged savings, is how we make our long-term projections (we assume a 3% real return).

This spreadsheet is in a simple Excel doc, which in other tabs is where we house our long-term planning, track our historical market performance and syndication investments/performance, and house information related to that year’s income taxes.

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

We are currently saving 40% of our gross income.

When I was still working this figure was higher at 50%-plus, and that’s because our spending hasn’t really changed, and so effectively my entire net salary went into savings (taxable account).

Then and now, we max out my wife’s 401(k), max out our Roth IRAs via the Backdoor Roth process, max out our HSA, and then the remainder gets invested monthly into our taxable account.

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

The biggest variable that you can directly control, and thus a huge key to your saving, is how much you spend. You’re reading ESI, so you’re already on the right track. Live below your means, whatever your means may be.

As our income accelerated, our spending didn’t change at all. No lifestyle creep – no keeping up with the Jones’s. We currently have one car (nine years old with 80,000 miles on it) since I’m not working and my wife works remotely. Can we afford a second car? Sure, but instead we chose to sell our second car once this new phase of our life began about a year ago. It was fully paid off, and we got $17K for it. We invested that $17K and now it’s turned into $19K-plus due to market performance. We’re also not paying to insure that second car, not paying for oil changes, etc.

The same thing applies to retail shopping. It doesn’t have to be something as expensive as a car; it could be that $30 shirt you see in the store. If you need it, buy it. If you don’t need it, go home instead and put $30 directly into one of your investment accounts. Do that consistently and you’ll smile later.

And above and beyond all else, do not take on bad debt. Know the difference between good debt and bad debt, and live your life accordingly. Our good debt includes the student loans I have taken out (because it increased my pay exponentially), the debt we are currently choosing to have in the form of a mortgage (because we are using that money to invest in syndications, which are easily surpassing our 5.75% mortgage rate), and when we do buy stuff, we even choose to do so via credit cards (because they all provide cash back anywhere from 2% to 5%, and we pay them 100% off each month).

The last thing you want to do is consistently buy that $30 (or $50 or $100) shirt, and put it on a credit card with 17% interest when you can’t pay off your credit card when the monthly bill comes due. Just like any savings you invest will benefit over time from the wonders of compound interest, the same is true for the worse when you have revolving debt that continues to compound at that 17% interest rate. In the end, it’s no longer a $30 decision. It actually becomes much more than a $30 shirt – either money in your pocket or money out of your pocket. And now extrapolate that to all such life decisions you will have. Revolving retail debt can be absolutely crushing. I know because I’ve been there – learn from knuckleheads like me!

Note: I referenced credit card cash-back rewards above. We’re not huge spenders by any means, and yet in a typical year we get roughly $2,100 cash back. Not chump change. We charge everything from utilities that allow us to do so with no extra fee, to groceries, gas for our car, medical bills, and, yes, sometimes even a $30 shirt.

What’s your best tip for spending less money?

Begin with the end in mind. Know what you want and when you want it, whether it be financial independence, an early retirement, paying your child’s college tuition, or the like.

Commit those goals to writing – you can start with a simple list written on a napkin. Then, when you consider making a discretionary purchase, weigh it against that plan. And when possible, don’t buy on impulse. Give it a couple of days and then decide. Pretty easy to do if you’re buying online. Not as easy if buying something in person, but well worth the extra effort if you can make this a habit.

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

My wife will probably tell you that I don’t splurge on anything – HA. And she might be right.

But I do enjoy it when we do activities together and am willing to spend for that. Vacations and going to Broadway shows come to mind right away. Good times!

Oh, and we also just bought mid-range tickets to see Pink in concert later this year.

INVEST

What is your investment philosophy/plan?

As you can see from having $3M+ of our $3.23M net worth invested, we are huge believers in having your money work for you. My investment philosophy is based largely upon a DIY approach. Aside from real estate syndications, we invest only in index funds. We are currently 100% equities (we will soon start shifting to 80%/20%), and our index funds largely track the S&P 500.

My belief in index funds is anchored in two thoughts: 1.) Most people (including active investors) will not beat the market over an extended period of time; and 2.) By keeping investing fees at rock-bottom lows, our net investment performance will beat the average return over any extended period of time.

We aren’t exactly revolutionary in our approach. Read most anything by Jack Bogle and, well, that’s pretty much us. We definitely believe in the KISS approach, part of the beauty of which is that we don’t need to pay for anyone to manage our investments. We do not have a financial advisor because we do not need one.

The only areas where we are not DIY are our taxes (we have a CPA) and our estate planning (we have an estate attorney). I did our taxes until getting involved with syndications, but in general both tax planning and estate planning are pretty involved and neither of us know nearly enough to feel confident in DIYing them.

Generally speaking, we believe that time in the market is far superior than trying to time the market. I’m not smart enough to time the market, nor is anyone I know. Think about it… to effectively time the market, you have to be right twice. First, you would have to identify the top of the market so you know when to sell. Then, you would have to identify the bottom of the market so you know when to buy. The likelihood of you timing either one correctly is exceptionally low, much less timing both of them correctly.

Invariably, and especially if you react to news headlines, you’re going to sell after the market is well on its way down and not buy until the market is well on its way back up (meaning you’ll miss out on the gains from the money that you’ve pulled out and the money that you didn’t invest when the market was down).

Know your risk tolerance and set your asset allocation accordingly. Whether the market is “high” or “low,” keep plowing in your money. If you don’t need to pull any money out anytime soon, it’s not a bad thing for your investments when the market is “low.” It’s how you buy shares when they’re on sale!

What has been your best investment?

My best investment was getting an advanced degree that cost (gulp!) nearly six figures.

Those student loans weren’t fun, but the ROI has been several hundred thousands of dollars in compensation.

What has been your worst investment?

My worst investment was about 25 years ago.

It was a few hundred dollars, which at the time felt like a fortune (and frankly still doesn’t feel like chump change). The fund that I was sold carried a 5.75% load (sales commission) and exorbitant fees. I was completely ignorant to all of that and was just happy to be investing some money.

Was it a huge sum of money in the grand scheme of things? Nope. Does it still burn me up? You betcha!

What’s been your overall return?

Our overall return in the market has been 12.3%.

How often do you monitor/review your portfolio?

Admittedly, more often than is necessary.

I check the market every day, even though it won’t change a single action I take. I just like to pay attention to what’s going on.

In terms of our overall portfolio, I update our net worth every six months.

NET WORTH

How did you accumulate your net worth?

Our net worth is pretty self-made. Neither of us come from a lot of money, though my wife did have her college tuition fully paid.

We both started working full-time right out of college, and continued working without interruption throughout the years while growing our salaries. We both took a step back when getting divorced, and personally I carried some form of student loan debt (and often other debt as well) from the time I graduated from college at age 22 until I finally had everything fully paid off at age 46. What a weight that was off of my shoulders!

The vast majority of our wealth building has occurred over the past nine years. We have saved a ton of money, as we invested $276,000 the last full year that we both worked, and the prior years were fairly similar. Those investments all carried exceptionally low fees, and the market has performed admirably over this period of time.

We are grateful for how our money has been able to compound and make its own money, all while not paying fees to financial advisors.

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?

While we’ve earned more than we ever thought we would and we continue to live well below our means, I’d say that investing has been our greatest strength only because we’ve kept things simple and, thus, expenses low. It’s the simplest approach an investor can take, and I think the best approach for the vast majority of us.

I am also really optimistic about our real estate syndication investments. While we’re too new to it to have had any of our deals run a full cycle, so far everything has met or surpassed expectations. We currently are invested in three deals with three different syndication companies.

I chose the three companies based primarily on reading this ESI blog, and also by participating in the Millionaire Money Mentors (MMM) forum that ESI runs. Phenomenal resources!

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

I think I’ve mentioned them all by now. I began my adult life in debt, and only became debt free three years ago.

We both got divorced in our mid-30’s and effectively had to restart our financial lives.

Upon coming together, we built a financial plan and have executed upon it. Doing so has been aided greatly by substantial salary increases for both of us, as well as fantastic market returns over this period of time.

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

Our current approach is threefold:

• We’re continuing to live well below our means. For instance, we only have one car and it’s nine years old. We intend to keep it for several more years. We’re not allowing our lifestyle to change at all in any fundamental ways, as we’re still actively preparing for our financial future. That said, we are in the position to go for a splurge every now and then. For instance, I’ve asked my wife to choose where we should travel next year to celebrate her 50th birthday. Whereas our normal vacation planning begins with a budget and we plan backwards from there, with this one (hey, you only turn 50 once!) we’re taking the opposite approach. I can’t wait to see what she comes up with!
• By continuing with relatively modest spending, and even being down my salary, we’re still positioned in our budget to invest $8,000 a month into our taxable account (after maxing out her 401(k), our HSA, and our Backdoor Roths).
• Syndications make up the third leg of our current stool. Our syndication plan extends through 2032. We plan to ultimately invest in nine different syndications (currently invested in three). Our total capital output will be $900K (currently $600K). Our total investment, though, will be $1.4M, as we will roll invested money from one deal into another after the first deal has completed its cycle. This plan assumes that all investments run a full five years. As some of them will likely wrap up sooner than that, I expect that we’ll end up investing in more than nine deals and thus invest more than $1.4M. What won’t change, though, is that our total output into syndications will be $900K.

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

Not really. We know that it will likely be north of $4M by the time we reach age 59.5, but our focus at this point is more on how to structure our funds, as opposed to a pure growth mindset that has been our driving motivation up to now.

As I noted at the beginning of this interview, only about 13% of our retirement account funds are in a tax-favorable Roth (the rest is in tax-deferred accounts). This has two implications for us. First, my wife will be retiring relatively soon. As such, and given our ages, we will have nearly a decade where we’ll need to bridge our funds until we reach age 59.5. And second, a dollar in a Roth account is generally worth more than a dollar in a 401(k) account, due to the ability to withdraw from your Roth tax free.

And so, while Roth funds currently account for 13% of our retirement funds, our plan for the next several years aims to increase this figure to 24% by 2027 and to 58% by 2033 when I reach age 59.5. We plan to accomplish this largely through Roth conversions. We will do so annually up to the top of the 24% tax bracket (yes, that’s a high tax bracket in which to be doing Roth conversions, but we will likely be in that tax bracket for the long haul given my pension and Social Security).

We’re also mindful of the fact that in 2026 tax rates are set to revert back to what they had been in 2017. This would bump, for instance, the 24% tax bracket to 28%, so if nothing else we may get a relative bargain for the next three years of doing these conversions.

Taking this approach, including setting up a Roth conversion ladder, will set us up more favorably for the bridge years until we reach age 59.5. It’ll also greatly reduce the impact of RMDs come age 73, when we’ll already be collecting the pension and Social Security (adding high RMDs to that could create a pretty hefty tax blow).

And lastly, while leaving an inheritance isn’t a core part of our plan, sticking with this approach will have the added benefit of ultimately (think age 90) having 86% of our retirement account funds in a Roth. We hope to have money to pass on to heirs and, if we do, it sure would be nice to not stick them with an associated tax bill and/or have any other strings attached to that money.

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

I was 44 years old and it was so affirming. Then the next day it dropped back below a million because the market had one bad day – HA!

But seriously, it served as such motivation because, for the first time in my life, I was seeing right in front of me how your money can work for you.

It didn’t really result in any behavior shifts, except whereas I had been thinking twice before buying that $30 shirt, I started to think about it three times before taking the plunge – just kidding (sort of).

What personal habits and/or traits have you developed that have made you successful at growing your net worth?

Being a budget hawk has worked well for us. It’s not for everyone, and I totally get that. But I first felt a genuine sense of “control” once we started carefully budgeting.

And in general, having an open mind while being willing to learn is important. ESI is awesome and so is MMM, and I also really enjoy the Bogleheads site. Different perspectives, but all really informative and from people way more knowledgeable than me. I love to learn from all of these great folks!

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

For years I put too much faith in my pension to cover retirement costs.

While this $130K pension is great (and it is great!), as I mentioned earlier it is non-COLA. And if recent times have taught me anything, it’s the power of inflation. I should have prioritized retirement investing much earlier in life.

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

It begins with spending – keep it under control and do not go into consumer debt.

Invest what you can when you can. No amount is too small. If you have $5 left at the end of the month, invest it. Time is your best friend. The earlier you invest, the more often it will compound. That $5 will be worth a good bit more than that when you’re ready to retire.

And, importantly even when you’re young, invest enough in your 401(k) to get the company match. To not do so is akin to turning down a raise.

FUTURE

What are your plans for the future regarding lifestyle?

I’m fortunate to be in the position right now to have walked away from my job when it became obvious that I should do so.

I am so grateful to have had that option, and for the first time my daily life is not bound by a myriad of constraints.

What are your retirement plans?

Lots of travel, spending time with loved ones, playing tennis, reading whatever the heck I want, and helping others.

I am eager for my wife to retire, as I imagine it’ll be a lot like dating all over again. That was fun, and it will be again!

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

Healthcare is without a doubt my biggest concern.

We will have nearly 15 years of retirement pre-Medicare. I’ve researched ACA options, have a sense of these costs, and have built a conservative number into our financial plan. Thus, I think we’ll be ok in this regard financially, especially if we manage to stay relatively healthy.

And that’s the biggest x factor of all, right? Lots of plans (financial plans and life plans) will go out the window if we can’t stay healthy.

MISCELLANEOUS

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

I really didn’t learn what I needed to learn until I hit my 40’s, and my wife helped me a lot with that.

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

I’ve mostly been inspired by my family – my parents and my brother.

My dad was a blue-collar worker, and my mom graduated from college when my brother and I were in college.

My work ethic was influenced by all three of them, and I learned a lot of valuable life lessons from all of them while being oblivious to the fact that I was learning anything at all. Great role models and great sources of inspiration!

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?

• The Millionaire Next Door, by Thomas Stanley – major influence on my thinking relative to the wealthy and their spending habits. Provided great perspective that I surely didn’t have.
• The Simple Path to Wealth, by JL Collins – served as an excellent resource that informed my holistic investment philosophy and approach.
• The Bogleheads’ Guide to Investing – similar in content and impact as above.

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

We do give to charity, but not as much or as often as we’d like.

Most of our giving is to our church, and we have also historically given to United Way. We also enjoy buying items for children in need, whether it be at the start of a new school year, for holidays, or the like.

My wife is also part of a program where she bakes food and home delivers it to people in need.

We would like to do more, and we plan to do more.

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?

It’s not a core part of our plan, no, but we’d sure like for our heirs to receive an inheritance from us.

My child is the first and foremost consideration, and our thinking also includes our parents, siblings, and nieces/nephews.

The one thing we don’t want is any sizable chunk of money going to anyone too early in their life, as we believe that they should establish good life habits and discipline prior to receiving any considerable gift such as this. Accordingly, we have certain age milestones when money would become available to each of them.