Millionaire Interview 416

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.

It’s a long one (which I love!) so I’ll be breaking it into two separate posts.

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 a 51 yo female, who moved to the US with my husband in 2000 when I was 28 years old, got divorced in 2009 after 10 years of marriage.

I have had a couple of long-term relationships since then but consider myself single from a financial standpoint.

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

I have one son, he’s 22 years old, he was born in the US. My ex-husband and I arranged a 50/50 parenting plan, and it worked well for all of us.

We managed to keep a good relationship, live very close and cooperated responsibly raising our son.

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

I lived for 22 years in a somewhat upscale suburb area of Seattle which went through a pretty big change with high tech industry growing rapidly, this transformation, while helped to advance my career and provided good opportunities for raising my son, is not something I enjoy now.

So for the last 3 years I have spent May to mid-September in a small town in Alaska, in spring and late fall I make cross country driving trips to or from Sedona, AZ, where I have my winter base, with a stop for a couple of weeks in Seattle to see friends and family.

I also travel internationally a few times a year departing from Seattle or Phoenix.

What is your current net worth?

About $4 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?

• 1 million in investment (750k from my recent house sale split into different categories and 250k from ESPP). This is the current split:
  • 250k in active management as an experiment.
  • 200k in money market account.
  • 300k in cash which I plan to use to buy stocks over next three months using dollar cost average.
  • 250k in my former company stocks from ESPP (I know I need to rebalance it reducing dependency on one company stock, but don’t want to sell this year, as I have large capital
    gain already from the house sale).
• 1 million in retirement (mostly 401k, but I’m in the process of moving it to IRA and plan to start Roth IRA conversions over next 10 years).
• 50k in HSA.
• 2 million in real estate.
• Paid off property in Sedona, AZ, valued at 1.1 million, which has the main house I use as AirBnB and small casita that works well for me when I’m in Sedona.
• Paid off small cabin in North Cascades in Pacific North West, valued at 150k, which can be my summer base in WA state, although I don’t use it as often last couple of years, as I
  spent last two summers in Alaska and starting another season this year), this cabin, while the least expensive of my properties, has about $200 monthly HOA fees and I’m not happy I pay them and not using it as much, but mentally not ready to sell as it’s used to be my refuge during covid and it’s great offset to Seattle’s high tech hustle and bustle.
• 2 br waterfront condo in a nice area in Seattle suburb, valued at 1 million, which used to be my most recent base in WA, but now currently rented furnished long term, it has about ~490k mortgage at 2.875%.
• A smaller house as investment property in Sedona, valued at 700k, which used to be a short-term rental but now I rent it long term. It has ~460k mortgage at 3.5%.

I used to have another property – a house in the Seattle area where I lived with my son while he was attending school. I sold it recently and am currently using the proceeds (captured in the investment section) to invest in the stock market, which made my portfolio more balanced and not so heavy in real estate.

I owned that house for 18 years, it appreciated quite well, which is good, but unfortunately it comes with a very high capital gain tax and NIIT even after 250k deduction. I estimate I’ll have to pay around 100k in capital gains and NIIT. 🙁

EARN

What is your job?

I used to work in high-tech for 22 years, but now I only work as a tour guide in Alaska during summer months.

The rest of the time I’m free and spend my time visiting friends, staying in my Sedona house, taking care of my properties and traveling.

What is your annual income?

I’d say about 50k annually across seasonal jobs and AirBnB profit, the rest comes from investments. 

I also can scale back on property improvements projects I keep running for my Sedona properties if I need more cash flow.

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 ex-husband and I moved to the US in the year of 2000 after winning in the Green Card lottery (the official program that lets people across the world try their chance to live and work in
the US by giving permanent residency).

It disqualifies applicants from any assistance programs but gives them the right to legally work in the US.

We moved to the US with only $10k which came from selling our apartment in the country of origin. We had high education and experience in technical fields, but our English was very bad.

Still, we were very fortunate to start our first jobs exactly one month after we moved to the US when we had only 1k left in our bank account after paying rent for the apartment, buying a used car, computer and some basic furniture.

I was hired as a junior programmer for a small private company with 42k annual salary and minimal bonus, and my ex-husband was hired as a technician making 35k, but in a few months he was promoted to an engineering role which matched his education and experience getting some increase to 55k.

Our son was born in 2002 and in 2005 I was able to secure a junior position in a big high-tech company with a salary of 75k – that was a huge increase from 42k to 75k and the beginning of the next phase of building wealth.

Over 17 years in that company I moved up 5 levels staying in the upper senior engineering position for the last few years with gradual transition from 75k in the beginning to about 225k – 250k total compensation depending on bonus and stock awards based on performance.

I probably could be more ambitious with my career path in the tech field aiming for a higher total compensation, but I was more interested in keeping a good balance and allocating time to  learn skills in other fields while keeping my full time job and providing enough contribution to move up with the expected trajectory of doing good work.

During those 17 years at the big high-tech company I got divorced, started new relationship, started food truck business, which I ran for few years, closed food truck business, got more interested in acquiring investment properties to run Bed and Breakfast (that’s before AirBnB came to live), investing time in my son’s education and after school activities, photography and a lot of traveling.

I don’t expect my income to grow anymore, and I make much less now, but it’s sort of a natural path without putting too much pressure on my spending habits.

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

My advice might be counter-intuitive and might not work for others, but I’m a big fan of having Plan A, B and C in pretty much any aspect of life.

I would never be able to stay in one career field. I’m a curious person and like to try different things, before high tech I had to do accounting as this was the field that could provide me some income in my country of origin, now it helps me to do keep an eye on my finances and be able to estimate tax returns to have a strategy.

I was doing some career mentorship in high tech and my advice to young people was always don’t try to push too hard on your promotions and get to the upper levels too fast too soon chasing money.

Instead, invest time and effort to build relationships with friends, family, try different hobbies, and go see the world. 

It’s only a question of time when you hit some roadblocks in your “single path” career – bad manager, poor business decisions of the company forcing layoffs or less compensation, economy or industry downturn, bad performance reviews etc and in those times instead of being depressed feeling like a total failure you have other areas to tap into for energy, motivation and feeling of success.

Having experience in multiple areas can help in career change during crucial pivotal points, like when kids leave for college, burnout or just loss of interest, and can help to advance in some other areas. 

Don’t put all eggs in one basket, this is my advice, and in the career field as well.  You can always figure out a way to earn more money, but you can’t go back in time to catch that missed opportunity when you were younger, healthier, had more passion and energy.

Try to understand what’s important for you and what’s not, learn more about yourself, what gives you energy, what drains you, stay away from toxic people and drama.

Maybe we can live forever through reincarnation or maybe our lifetime is the only opportunity to see what this world is about so go explore while you can.

What’s your work-life balance look like?

Work-life was always my top priority. I never worked more than 40 hours a week even in a high-stress corporate job environment, I either pushed back explaining why expectations are unreasonable or looked for other teams where culture was more welcoming to work-life balance.

That said I was always busy doing several things at once and several projects or ideas circulating in my head.

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’d consider all sources of income I have right now as extra.

A tour guide job is more for experience than money, as it pays not that great, but it doesn’t always feel like a job and I can quit any time if I want. Also, while I’m busy guiding I don’t spend too much.

I also have income from my AirBnB property and long-term rentals. Annual 50k in property depreciation provides a nice offset for the taxes as well.

SAVE

This section will be hard for me, as I don’t practice the Save approach as a priority, instead I believe my needs are reasonable and if I have a motivation or passion for something I’ll find a way on how to fund it.

What is your annual spending?

I’m actually not sure. 🙂

I’m an opportunist and like to take on opportunity that usually associates with some expense, but when I do that, I know it contributes to something important – once in a lifetime expedition, house improvement project that helps to enhance revenue stream for short-or long-term rentals, also owning multiple properties often have unexpected expenses and things that just need to be done.

But my rules were to always contribute the maximum amount to 401k. pay all credit card bills in full, if I had to tap into HELOC then it had to be temporary with a specific goal in mind having specific and time-based plans on how to pay it off.

Some examples of using HELOC included:

• Buying investment property with cash during hot sellers’ market, then I did cash out refinance to get cash back.
• Using heloc to return 401k loan that I took during Coronavirus per CARE act to use as extra down payment for another property.
• Smaller chunks were used for home improvement projects that sometimes ran out of budget or when I counted on IRS tax refund (after returning money back to 401k) for a two month travel trip but it got delayed.

When rates were low HELOC was a relatively cheap bucket to borrow from, so I used it when I needed to.

With HSA I tried to pay bills out of pocket that let me grow some balance, although I was fortunate not to have too many expenses and rarely exceeded the deductibles.

I contributed to ESPP but initially that was my travel fund and I sold them often in less than one year, when my salary increased or when I had extra cash flow from the rentals, I kept those stocks.

I didn’t have any investment account other than company stocks coming from ESPP up until recently when I sold one of the houses.

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

I don’t track that, but I’m sure if I did the majority would go towards home improvement projects and traveling.

I had to help my son to go through college, but it wasn’t too bad, because it was in-state and I had some money in 529 that covered tuition for one year.

My son made a very smart decision (following my advice) to attend a community college during the last two years of high school (it’s called Running Start and available in WA, and I hear there is something similar in other states) and he got enough credits to cover two years of college (89 credits).

I only had to pay out of pocket 50% of one-year tuition (the other 50% was paid by my ex-husband), and one-third of housing expenses for one year (we split housing costs in 3 parts between myself, my ex-husband and my son), he studied during coronavirus, and one year was fully remote.

Overall I feel like we made it through the college years pretty easy, where I had to fund only 12k or so on top of savings in 529 plan (I started it when he was born, put 3k during his first year and then stopped, it grew to 8k, could grow more if it wouldn’t be in age-based portfolio, but oh well…)

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

I don’t have a budget. I know myself pretty well, what is important and what’s not, I don’t try to save on the important things, and I know I can be very minimalistic in some aspects that usually
cost money for other people.

For example, I can pay extra for a trip that provides a unique experience and opportunity or to stay in a prime location, but comfort features are not important.

I’m not sure I ever stayed at 5-star resorts, sometimes I spend money on expensive stays but those would be for truly one of a kind experiences and one of a kind properties with unique features.

I can fly to another city to see the concert that I was dreaming about, but I can wear the same set of clothing for years and keep buying the type of inexpensive shoes that I like.

I have several properties in good condition and prime locations, but I spend months in Alaska in accommodations with very limited amenities and I often feel happier and more alive than in a waterfront condo.

I grew up in a 330 square foot studio apartment sharing it with my mom. I don’t need much space, if I have some small cozy hideout corner, ideally with a view, I’m fine.

I started from having nothing and I treat all I have now as a nice gift or bonus, I feel I earned it, but I can scale back if needed. 

I also learned that my happiness doesn’t correlate with my bank account if I have enough to feel free doing what I enjoy and spend time with people I like.

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

It’s hard for me to calculate as I don’t have a budget, max for 401k, ESPP, using opportunities as they became available to me.

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

Unfortunately, I’m not an expert in saving money, but I believe motivation and passion will lead you the right way, so I’d focus on making sure you stay motivated and passionate about things in life.

What’s your best tip for spending less money?

Know your priorities and what important to you and your family, not neighbors, not social circle, not what advertising and social media push you to have etc.

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

Hot springs, wine, travel to unique places, have accommodations with great view, buying gifts for friends.

INVEST

What is your investment philosophy/plan?

Learn what’s important for you in general. Have an idea for what you want short term, mid-term, long term. Ideally have plan A, B and C.

Have some flexibility. Be ready to accept failure, regroup and try again. Celebrate your wins. Stay within your comfortable risk zone.

I honestly never had a plan in numbers, I tried to cover my top priorities, that helped me to stay motivated, be creative or work hard, or both, satisfaction, happiness and success usually give more energy and motivation and this positive cycle brings more success in financial aspect and after basic needs (energy sources – things that feed your drive and motivation) are covered, invest the rest.

I lived through times when all savings turned into dust, and I try to keep a balance between investing for the future and covering needs of today and living in the present time. So far that worked for me.

What has been your best investment?

Be open to opportunities to go after based on what’s the most important thing now and what gives you more energy, satisfaction, motivation and happiness. 

My son’s education and the environment he grew up in was top priority to give him the opportunity to be around high-quality people, be able to tell right from wrong, make smart choices, understand the importance of staying in good physical shape, and stay motivated in school and college.

I think at the end that was my best investment and I see great results feeling like a very proud mom.

What has been your worst investment?

I bought something very chip in large quantities hoping it will grow, it was experiment driven by doing something others were doing.

I think I lost that money, but that’s ok, I don’t focus on losses, just move on to the area where I have more control and more in the steering wheel on how things are going.

What’s been your overall return?

I’m not sure how to answer this, but I think it was pretty good as I mostly had 401k in an aggressive portfolio and ESPP of the tech company that grew well.

The returns were good for the last 10 years, but I don’t think it was because of my strategy, rather just timing worked well.

I also think my real estate journey was quite successful and even I wasn’t driven by investment mindset, rather by something I could use for myself.  I probably could make more money in both real estate and investments, but just monetary returns were never my priority.

How often do you monitor/review your portfolio?

I don’t have a structure for that yet, I put part of my money into an active management account, and I think our plan is to review that twice a year and that will cause other conversations on what else needs to be done.

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To read the rest of this story, see Millionaire Interview 416, Part 2.