Millionaire Interview 432

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 July.

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)?

My spouse and I are both 36.

Together 18 years, married 3 years.

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

We have 1 toddler.

Planning on 1 – 2 more.

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

HCOL – Bay Area.

What is your current net worth?

Our net worth is ~$2,845,000.

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?

EARN

What is your job?

My spouse and I are both VP-level in small tech companies.

What is your annual income? 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?

The numbers above include most cash comp (base + bonus/commissions) but exclude some smaller line items like 401K matches, etc.

We also “earned” options in half a dozen startups. A couple have gone belly up already and one had a nice payout as you can see from my spouse’s income above.

One other seems like it has high potential…. but the ones that went belly up also seemed to have high potential until they imploded.

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

I have two tips. Focus on the long term and play “the game” at work.

Long-term — Focus on total potential, not short-term potential. I did a lot of research before going to grad school and was confident that limiting my income for a few years so I could do afternoon/night classes would be worth it.

My spouse also could have job-hopped into regular pay bumps but instead stuck it out at a company for an extra half decade to get the payoff when they had a liquidity event. That was a riskier choice than mine – my spouse got lucky.

But in both situations, if we had gone for the quick win increases we would have ended up with lower earnings over our careers up to this point. Optimize for 10-year earnings not next-year earnings.

‘The game’ — If you’re working in the traditional corporate world then play the game. Ask your boss to describe an ideal team member. Don’t complain.

Always be upbeat and positive. Spend a few minutes each week figuring out how to make the boss’s life easier.

Promos, raises, the best projects, day-to-day flexibility – it’s all driven by favoritism no matter how much higher-ups like to say decisions are objective. If your boss doesn’t like you then everything will be harder.

It doesn’t take much to figure out what your boss wants to hear and to say it occasionally. Does it feel crummy sometimes when you’re thinking one thing but saying the opposite? Sure.

Is it 1,000% worth it when you can take a chill day if your kid is home sick or when you aren’t in the group that is laid off? Yes.

What’s your work-life balance look like?

At the moment it is really good. Both our jobs are remote with only ~2-3 business trips a year for each of us.

We prioritize our toddler and spend ~2 hours with her in the morning and another ~2 hours at night. We spend most of our other waking hours during the week working – ~8hrs while she’s at daycare and another 2-3 at night after she’s in bed.

Once or twice a month one of us will have to work a few hours on the weekend but it’s usually flexible.

It’s not a perfect balance. Right now, it is nonstop “go” mode from 6 am Monday until 7 or 8 pm on Friday.

We are both exhausted by the time the weekend arrives.

I’d love to have more time to relax during the week. But within that “go” time I am able to spend a ton of time with my child and have a very high level of flexibility for her doctors’ appointments or if she is home sick.

Working at home also makes it possible to sneak in chores or a bit of exercise during big meetings that don’t require cameras. It isn’t perfect but I’d chalk up most of the constant exhaustion to the toddler rather than our jobs.

Given our levels/compensation, the balance we’ve been able to achieve seems incredibly reasonable.

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?

None.

SAVE

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

This one is hard because our life has changed a lot over the past few years – we purchased a house and had a daughter. Before the changes, we were ~$100K/year.

After the changes, we seem to be ~$240K/year.

Those numbers exclude a couple of one-time items that add up to $50-$100K/year for the last three and probably the next ~2 years.

• Last few years: buying a house, medical costs from having the kid, front-loading a 529, some five-figure equity purchases.
• Next few years: more equity purchases, having the second kid, buying a bigger car.

I track these on a spreadsheet of annual spending. When I average the ones that have already happened (and add in the others from earlier like grad school, first car, wedding) it comes out to ~$20-25K/year in additional spend.

Tracking lumpy spending like this is important – otherwise, it would be easy to underestimate spending. At the moment these aren’t a big deal because we make deliberate spending choices aligned to our values and we’re able to cashflow them easily given our incomes.

But whenever we decide to stop earning it will be important to add in some sort of number to estimate these even if we can’t predict what the future ones might be (a decade ago I wouldn’t have dreamed of needing money to buy startup ISOs or fund a 529).

The only other cost I anticipate right now is daycare for a second kid.

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

Our goal is to live a life we really enjoy today that is aligned to our values while also saving responsibly for our future. We’re incredibly lucky that ever since I finished grad school we’ve been in an income bracket that makes this easy.

We max out retirement accounts first (401Ks, backdoor Roth, HSA) then spend as much as we want and then put everything extra into our taxable account.

We also got lucky with our spending habits – no expensive hobbies, neither of us likes fancy food/clothes, neither of us likes shopping. When we do buy things, we buy high quality (if it’s a big ticket item like cars/furniture we buy used) and take care of them well so they last a long time.

We bought the current car used and have had it 10 years. We’re planning on another one because we won’t be able to fit two car seats into this one but if not for that we’d probably stick with just this one until it stopped working.

There are two areas where we are knowingly excessive.

Vacations: These have always been our splurge item. We value family and friends very highly.

We often travel to visit people. When we go on a destination trip we nearly always invite family or friends to join us.

We have subsidized or fully paid for people when we can, such as paying extra to get a big Air BnB or giving friends points/miles to pay for flights. We also pay ridiculous amounts to fly cross country to visit family 3-4x/year, always at peak travel times.

Housing: We fit into a small studio for years. Once we decided to go fully remote and have a kid we decided we wanted to spend extra for a home that we would think was wonderful every single day rather than a house that just ‘worked.’

We also wanted plenty of space for kids and guest space so family/friends could visit and not have to worry about hotels.

We do track all of this and review it annually. We use an online dashboard that all our accounts are linked to.

I also have an Excel sheet where I record planned income/spending for the year with spending broken into half a dozen buckets. At the end of year I reconcile the numbers and review with my spouse.

Our conversation is more about how spending is split up rather than overall spending. Our values are aligned and we want to spend in alignment with those – so if vacation were to go up and it was because we paid for a great beach house and invited the whole family we would just nod.

But if our food budget went up and it was because we started doing a ton of delivery because we’d failed to plan for busy weeks or started going out to fancy restaurants because our friends talked about them then we’d talk about it and probably make a change.

I will admit that every once in a while I read something about FIRE and think about what it would be like to approach things differently. With our current approach, we’ll likely be ‘work optional’ by our early 50s (or sooner if one of the startups has a good liquidity event).

But if we had done the last decade differently, we could be there today. Move somewhere LCOL, put together a semi-strict budget, and maximize income (my spouse is there but I could easily boost mine 30% by switching companies).

But at the end of the day, it isn’t worth it to us. We live where we do to be close to family and our big spending categories are all about family and friends.

We don’t see the appeal of being retired sooner if it means sacrificing that.

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

This is all over the place. I don’t have good records.

I was at 0 until after grad school and my spouse was maybe 10-20% for those years.

We got up to ~50% gross (which we’re proud of given California taxes) when our earnings were increasing rapidly and there was no lifestyle change. There were two years it was ~85% of post-tax earnings.

More recently we’ve been closer to 25-30% of gross. One caveat here is that recently we’ve been putting anything extra towards mortgage principle rather than our taxable account.

I consider extra mortgage payments as savings since 100% is going towards equity in the house which I view as a similar asset to a bond. If anyone doesn’t view extra mortgage payments as savings then our savings rate is just tax advantaged accounts which would come out to 7-8% of gross with employer matching.

Since I know there will be questions/comments on why we’re paying extra on the mortgage.

We’re at 7% interest. I know that paying it early isn’t the financially optimal choice. It’s the conservative choice.

Right now we could go down to one income and still cover spending (we have a lot of flex – childcare, donations, other smaller categories could all go to $0) so it’s a very, very, very conservative choice. But it will help me sleep better which is priceless and with a 7% interest rate I can rationalize it.

If we had one of those 2% mortgages we wouldn’t do it. I’ve decided anything down to 5% we would keep paying early.

No clue what we’ll do if we ever have the option to refinance below 5%…but that would be a wonderful problem to have.

What’s your best tip for spending less money?

Figure out your values. If you have a partner/family talk to them about their values.

Don’t be afraid to spend on the things that are aligned to your values. Don’t be willing to spend on the things that aren’t aligned.

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

As above – most things are related to increasing time with/ family and friends which right now is our vacation spending and housing spending.

INVEST

What is your investment philosophy/plan?

For our investable portfolio it’s index funds, time-in-the-market, low-cost funds, all the other standard stuff you’d see on Bogleheads. We’re ~85/15 stocks/bonds.

The majority is Vanguard funds. We have a couple percent of our Roth & HSA funds in REITs and that’s as exciting as we get.

We don’t spend much time here. We did a one-time thing with an hourly financial advisor a few years ago and I don’t think he set us up perfectly but I think he got us close enough that it’s not worth the energy to optimize the last few small pieces.

What has been your best investment?

Spouse. Setting money aside, my spouse is the best life partner I can imagine.

Even if they/we made zero money they’d still be the best investment for the impact on emotional and mental health. Having a partnership that enables us to be a two-income household and a big increase in my spouse’s earning potential is icing on the cake.

What has been your worst investment?

Not investing an hour or two a month when I was much younger to learn about personal finance.

I haven’t made any huge mistakes but lots of small ones have added up – I didn’t know about HSAs, Roth 401Ks, taxable brokerage accounts (I thought all investing in the market happened exclusively in retirement accounts), etc.

I also didn’t fully understand compounding and lightly made a lot of career decisions that led to low/no earnings for a while. I will be taking a very different approach with my children’s financial educations than my parents took with mine.

What’s been your overall return?

No idea. We hit a positive net worth nearly a decade ago and have been investing in mostly equities since then with a small chunk of bonds so it is probably a percent or so below the S&P 500 which would mean about 9%ish?

My general stance on this is that it doesn’t matter – we’ve picked an overall approach and we don’t intend to do anything more exciting (e.g., real estate) so what happens happens.

Some years will be low, some years will be high, and we’re going to keep our fingers crossed that the average is somewhere in the 7-10% range. Returns won’t really matter until we stop earning income and SORR becomes a topic.

How often do you monitor/review your portfolio?

Once a year in detail to make sure nothing is crazy off track.

I do see a quick overview of the numbers every 2-3 months since we have it all connected to single dashboard and I’ll check the dashboard to figure out where we have cash we can consolidate for big purchases (e.g., house down-payment, car, etc) or how much extra cash has accumulated that we should put in the taxable account or towards the mortgage.

I very purposefully avoid looking at other times and I stay far away from news on how the market is moving.

NET WORTH

How did you accumulate your net worth?

All W-2 income and some investment growth from the past few years.

However, we did receive incredible starts in life from our parents including graduating from college debt-free which I think is the same as inheriting a small windfall in your early 20s.

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.

Even if we were incredible at saving and investing, we wouldn’t be close to where we are if our earnings hadn’t skyrocketed.

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

We’ve been incredibly fortunate and have faced very few. Some health issues, some iffy career moments at struggling startups, the challenges of balancing work and family.

I handle everything with my partner. We talk, we support each other, we look for the silver lining or the funny side when things are tough.

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

Keep earning, saving, and investing.

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

Nope. Our plan is to keep pushing full speed until we are done having kids (1 more? 2 more?).

Our hope is that once the dust settles we’ll be able to make a real plan since we’ll be able to plan out future expenses better. In addition, we think the timing will line up such that we’ll have just finished paying off the mortgage and will know the outcome of my current company which could be anything from 0 to a 7-figure windfall.

That also gets us very close to the second bend point for social security earnings.

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

We missed it – it happened at 30 or 31 before we started tracking anything.

The only notable shift was that we let our travel budget continue to creep up although that was driven more by continuing increases in income rather than savings. Our other big change has been spending on housing.

We made that decision after we had passed $2M and knowing we had a big nest egg was critical for us to feel comfortable enough to choose expensive housing.

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

Delayed gratification.

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

I can’t say it any better than this website – earn, save, invest.

FUTURE

What are your retirement plans?

We’re on track to retire well before the traditional age. My spouse and I both enjoy traveling and both have outdoor hobbies with professional certifications to teach those hobbies.

We also want to be very present in our kids’ lives. I imagine that we’ll ditch our corporate jobs as soon as we’re confident in our numbers and focus our time on family, travel and those hobbies.

Possibly one or both of us would work a bit part-time for a few years if that let us leave the big jobs sooner in a coasting scenario. I can imagine a couple of different ways that could play out and a lot would be driven by the kids’ ages and our net worth so I’m not focusing on it too much now.

Once we get closer we’ll put together more concrete plans.

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

I don’t worry about health insurance. I mention it because I’ve seen so many other people list it as their top concern.

I view it as a known expense that can be planned for just like anything else. We’re lucky enough to be tracking towards net worth numbers where health insurance/care will be one of the bigger line items but not make-or-break for us.

When we get closer we’ll plug in very conservative estimates and go from there.

I do worry about health. We are reasonably healthy people but illness or injuries can surface at any time and interfere with our ability to enjoy the future.

We have addressed this by intentionally designing our current lifestyle to not be too focused on delayed gratification – we travel, maximize time with family, are having kids (so expensive!), etc.

MISCELLANEOUS

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

Grad school. I took a course on corporate finance and learning about the cost of capital was a lightbulb moment.

I started googling/reading from there and slowly stumbled my way to the Bogleheads world view.

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 don’t have any books that haven’t already been mentioned a hundred times.

I lean more towards blogs/podcasts vs full books right now – White Coast Investor, Humble Dollar, Physician on Fire, Can I Retire Yet, EarlyRetirementNow, ESI of course, etc.

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

We do – equivalent to 10% of all other spending. I think everyone should.

If you’re reading or writing on this website then you are incredibly fortunate and through luck or hard work or some combination you have or will have more money than you need in life. It’s not that hard to find a way to give someone else a bit of luck which might be all they need to catapult themselves to a better life.

In the US some easy traditional choices are United Way, YMCAs, scouting organizations, foodbanks, and schools. GiveWell is a great resource to better understand specific charities before donating.

Or if contributing to people you don’t know doesn’t jive for you then pick something where you’re benefitting for free and read up on the tragedy of the commons and then make a donation – for example, a local park or your local fire station.

My guess is that for most people the challenge is just in doing it. It helped me a lot to approach donations the same as savings.

If I were to wait until the end of the year and then look at my account and pick an amount to donate it just wouldn’t happen. Either the account would be empty or I’d think of another use for the money.

So just set it up like savings. Automate it.

Pick an amount and transfer the money automatically either directly to a charity or to a separate savings account or DAF. Start small.

Do it now and set it up at $10 a month. Each year double the amount or add another $10.

It doesn’t need to be a lot – if everyone just gave a little it would all add up.

**brief pause as I step off the soapbox**

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?

At the moment yes – everything goes to offspring and is split evenly. We did wills including revocable living trusts when we decided to have kids.

Everything is in the trusts. We set it up this way so that if someone is suddenly saddled with raising our kids they won’t have to worry about finances.

There is plenty to allow the people we have picked as guardians to move into a larger residence, hire lots of help, and pay for whatever schooling/education the kids pursue.

Once the kids are adults we’ll probably revisit this plan. I could see us giving a portion to other family members or to charities.