Millionaire Interview 451

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 September.

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, my husband is 55, and we have been married 28 years.

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

We have four children – ages 23, 22, 19, and 14.

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

We live in TX, and while we live outside of town, I commute to work in town, while my husband works from home.

We moved a couple of years ago from our location of 20 years, to be closer to our parents and the kids, who we’d sent to university here, giving up somewhat better income and security of staying in place – and at yet more expense than expected as it turns out.

What is your current net worth?

Approximately $6 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?

All investments are stocks at this time, after prior modest partnership buildup and subsequent buyout, and then residual partnership real estate holdings have all completed their course and dissolved.

• Taxable $950k
• 401K (combined) $750k
• Rollover T IRA $3.2m
• Rollover Roth IRA $115k
• HSA maybe $20k
• Deferred Comp $12k
• Beautiful Custom Home for sale eternally due to heinous interest rates – approximately $1m principal and $300k remaining mortgage at near 3%.
• Current Home (of which we shall not speak), approximately $1m, consider it even market value/mortgage at obscene 7%.

EARN

What is your job?

Physician, primary care.

Husband data analyst, more senior level but non-management.

What is your annual income?

My compensation totals around $230-250k from production and quality metric bonus.

My husband makes around $120k with a typical 10-15% annual bonus included.

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 husband started around $25k in banking while I was in medical school, which helped to buffer our expenses and my loan requirements. His salary increased to about $50k by the end of my residency, then to about $70k as I moved into a “real job” and after transitioning from banking to data analysis at an insurance company, slowly up to the current $100-120k over the most recent 10 years.

As a resident, my salary was $30-35k (this is about $60k now, for comparison). Out of residency, my starting salary offer was $105k.

With hospitalist duties, some of which were paid in addition to base, closer to $150k actual. After 3 years, there was a partnership buy-in, accompanied by a cash available deduction on production pay from then until the partnership sold (this did not work out great).

Total compensation of approximately $220-280k. Around year 10, I negotiated a 4-day clinic week, then stopped hospital coverage and work clinic only, compensation dropping back near $200k.

Our partnership went through a corporate medicine buyout (miserable), and another a few years later (also miserable, but no longer my financial skin in the game), which did result in higher quality metric “bonuses” with a total compensation usually $230-280k.

Recently, 20 years post-residency, we moved to Texas, setting my pay expectations back to $230-250k.

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

I may not be the best source for this advice. I could simply have taken extra hospital shifts, fit in more patients to my clinic days, and continued a 5-day clinic week or more, for a higher income.

However, it was much more important to me to have what time I could free up to spend with my family and kids, and on my hobbies.

The basic required time commitments for my career have been high, even with my unwillingness to pay yet more of my life for extra income.

My biggest income decision was career choice in the first place, deciding I’d better choose a career with some income potential, due to my expensive hobby plans, and not always frugal spending behaviors.

What’s your work-life balance look like?

Including residency, I spent about 15 years getting crushed. My usual schedule involved 7-day hospital rotations every 4-6 weeks, one day off, then clinic for the remainder weekdays.

I was also on call once or twice a week overnights in very busy hospitals during this time. I have since backed off to a 4-day clinic week for the past 10 years.

My kids went to school with half-day Fridays, and for almost all of my career, I have managed to arrange a schedule where I could pick them up at least somewhat early these Fridays (excepting my hospitalist rotations) for us to have a little extra time together – a slight comfort to offset the many nights I wasn’t home at all.

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 have had an expensive hobby all my adult life, which was mostly self-supporting until our recent move – now it’s part of the ongoing this-is-much-more-expensive-than-anticipated situation.

SAVE

What is your annual spending?

Ballpark $260k. This is not typical, but since our move, due to supporting two expensive properties with all associated costs, helping with two of our sons’ weddings, and my hobby expenses not offset as previously usual.

Prior to this, and in a world where things settle down again – it had been more like $170k, and maybe in a post-inflation world that needs to be $200k for the new normal.

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

Guessing and rounding included:

• Current Mortgage/Insurance/Property Taxes $85k
• Second Home still for sale, Mortgage Interest/Insurance/Property Taxes $45k
• Support for young adult children $20k
• My hobby (could be mostly offset again in the future, but not for the moment) $30k
• Car upkeep/repairs/insurance $15k
• Groceries and eating out with a large family group (this is my other non-frugal habit outside of my hobby) $40k
• Internet/Cell/Subscriptions/Utilities $10k
• Sundry Household expenses $15k
• Travel $5k

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

No budget as such. My husband has an excellent spreadsheet with details.

Mostly, he brings it to my attention when expenses drift beyond available funds, and we need to be more careful with discretionary spending or timing of major non-critical repairs.

Most of our non-mortgage spending goes through our credit cards (flat % cash back), which in a perfect world are paid monthly, and over our careers usually have been, but sometimes drift over a couple of months for catch-up. This allows us not to worry about a detailed budget.

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

While current budget may sound like we are poster children for disaster, we made a conscious decision to accept this and go ahead with our move (though we’d hoped it would be considerably smoother financially). By this time, we considered we could “Coast FIRE” and take the hit.

We are saving at our lowest rate since residency, into 401Ks and HSA, and spending above remaining post-tax income from our taxable account when needed – at about a breakeven rate, ensuring employer match and whatever it’s worth in tax deferral, then paying LTCG on the extra needed instead.

In residency, savings were probably not much above 401K match. Early career, with a starter home and 3 young children, childcare expenses at their highest, student loans to repay, and income at it’s lowest, it was more like 15%, but with improvements in salary, this increased to around 20%, with the occasional 30% of the best income years.

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

Automate. 401k’s are best for set it and forget it, into the lowest fee S&P500 index fund, and of course, ensure any available match. Consider Roth during early years if income is expected to increase (now available within most 401Ks for a choice of how much to tax defer and how much Roth).

Start earlier, with more – I think looking back, when we were tightest I argued we needed a few % more for expenses and couldn’t manage additional savings, if we had pushed a little more towards 401K tax deferred, we probably would have had very nearly the same actual amount to spend, and just paid less in taxes (we might have been able to drop marginal tax rate a bracket with careful calculation, child tax credits/child care deductions may have been higher at lower taxable income, or other tax implications I wasn’t aware of and didn’t consider carefully – I am no tax expert, but now realize there may have been some opportunity here).

I wish I had a simple calculator for that in the first years of my career (it would still be nice now, but just doesn’t move the needle as much).

Set up a little for kids at birth, and let it grow. Any family who wants to help with shower/birthday gifts could contribute cash towards this instead or in addition, I prefer UTMA for flexibility, but now believe 529 with its added Roth rollover option should have a goal of minimum $35k by age 18, next goal to add basic college expectations – I would not want more than $100k current value by the time they are 18.

Your child may not want to go to college, and while beneficiary can be changed, this is a hassle, and submitting receipts for access to your own money is also a hassle best kept to a minimum. 529 needs to be started very young due to the 15-year requirement for that Roth conversion option.

UTMA gives the children a start-in-life account without restrictions. Boost funding these later if it’s in the budget, but a little investment at birth lets compounding do its magic – an extra 20 years for your children to see compounding can be life-altering.

What’s your best tip for spending less money?

I’m not very good at this one! Choose less expensive hobbies!

Don’t enjoy eating out, especially not by taking the entire family and any available friends! Gaming, reading, and hiking tend to be really good value.

Horses are not less expensive hobbies. We miss our almost-everything-right custom home desperately; this was a stretch when built, and we would do it again.

This said, we drive our cars until they die horrible deaths (currently own 16 and 8-year-old Hondas, and a 10-year-old truck, all purchased used), and our furniture, TV, and other household items are modest and rarely replaced or upgraded. We have no concern for “keeping up” purchases.

So – focus spending where it really matters to your family, and you really do have to be frugal somewhere else.

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

Not so secret. Hobbies and eating out with a large group of family and friends.

Nice home and property.

INVEST

What is your investment philosophy/plan?

I believe in indexes, preferring the S&P 500. I just can’t see bonds. I think it’s better to delay retirement until there is enough extra margin in stocks that a 30% drop is tolerable, rather than put 30% in bonds.

Even knowing index is best, we have decided, with “extra” lump sum income events, to divide roughly 25% into a few individual stock choices we most believed in, and the rest S&P500. All regular savings are always invested index.

If you tend to tinker, 10% overall of initial investment dollars isn’t likely to ruin your retirement, and can be an outlet for investing boredom.

Invest in something you are using, find indispensable, and can’t stop talking about to your family and friends. If you are cheering on a company like it’s your alma mater – BUY SOME (without betting the farm!).

If you are going to try to time the market, hold cash, or fret and sell during crashes – do not play with this, index only and don’t look. Regardless, buy and hold.

What has been your best investment?

NVDA. See above advice, if I had known about my own advice, I would have bought it around 2000, by which time I wouldn’t stop telling everyone how superior their graphics cards were and how I’d never own anything else.

By the time I thought of the fact I could put some money where my mouth was and buy some, I still shouldn’t complain.

What has been your worst investment?

Partnership buy in. To be considered part of the group, it may have been worth it.

As an investment, it was terrible. I paid a modest buy-in, but accepted base pay reduction to sustain it, as partnership pay was subject to cash available.

When the group decided to sell, they fell for sunk cost fallacy, and accepted a last minute bait and switch by the corporate buyer, changing it from a stock sale (all personal LTCG) to corporate sale – at the time 40% corporate tax (extortion), THEN what was left was distributed and taxed again at personal income rate (pushing from bad enough to obscene marginal tax bracket) rather than LTCG.

That hit was ghastly. I will be forever bitter that the government received the supermajority of my partnership efforts.

In good news, we made lemonade. Of what little comparatively was left, we divided part among NVDA, GOOG, AMZN, and MU (and the rest SPY).

What’s been your overall return?

This one is hard because I haven’t kept good track, and financial software seems to like to complicate looking any further back than a few years. I do know that I used to gripe regularly that the only money in our savings was the amount we had put there, and so much for the “promise” of investments doubling every 7 (or even 10) years.

This turns out not to have been my imagination – after becoming more interested in personal finance details, I’ve read the years between 1998-2018 were the worst 20 years on record. I felt that.

Only in 2017 did we start to see growth. This is probably in part the eventual snowball effect, but also a remarkable market improvement over those “lost decades”.

I expect we are now beating the market average for our investment timeframe due to the inclusion of those fortunate individual stock bets, – 12%?

How often do you monitor/review your portfolio?

As I’ve been seriously considering retirement planning (sooner would be great, but prosperously is important), and developed a more active interest and enjoyment in following FIRE/personal finance blogs, I tend to check a couple of times weekly.

I have a habit of only logging in after a good day/week(s) and do not check when the market is down, it is more fun to see green. I have never sold in a panic; I believe in buy and hold.

I do notice the stress and glumness of anticipating an extra year of work to compensate if a given market downturn were not to recover. They usually do recover.

This could be harder psychologically after retirement, and my plan is to reduce individual stocks by that time. I plan to stay 100% (99%? Maybe a little cash for near-term wild fluctuations) equities.

NET WORTH

How did you accumulate your net worth?

My grandparents helped with a small college fund, I had scholarships, and room & board help from my parents to arrive at medical school without undergraduate debt. My parents provided a down payment ($20k) towards a duplex ($60k?), which we used to roll over into our next home at each step, but from there it was up to us.

After this, we did accumulate ugly medical school debt, but since my husband was working (at a modest salary) and we owned/rented the other side of the duplex, it was about half as ugly as many incurred.

Since residency, our income has been solid, lower-end-upper-class. We invested mostly by persistence, with a little luck boosting the effect.

We should have saved more earlier. I wish we had, though it seemed there was no more room at the time – compounding is such good stuff, but at least we always saved.

We should have paid medical school debt faster, but at least we always saved. We tried to keep a lid on lifestyle creep with marginal success, used raises to increase savings as much as possible, but could have made the biggest difference if we’d been tighter about expenses for just 2 or 3 years longer at the beginning of careers.

We bought used cars with cash, saving for this mostly from bonuses until we had enough for the next needed car, then drove them into the dirt. I inherited a little from my grandmother later on, which is now part of our taxable accounts.

My parents helped with college funds for our kids, which we invested through UTMAs, and they now own the remainder, while we helped with living expenses covered through cash flow. This allowed us not to divert another percentage from our retirement savings.

My parents are the perfect Millionaires Next Door, and their modest investments towards our start and larger investments for our kids have been amazing. We hope to do as well for our children and grandchildren.

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?

It really is about the marathon, and persistence pays off. No matter what, save and invest (no sense saving if you’re not going to invest it).

Everyone can look upwards to a higher earner – and imagine we could accomplish wealth goals faster with that income, if only we were still spending at what we perceive to be the normal, or necessary, level. But most of us find ways to spend up to our income, so I think saving is the key.

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

There were episodes total of about a year and a half where my husband was out of work, during our earlier career years.

My income was sufficient for our fixed expenses, but we lost momentum in paying off my student loans and amount of saving – so while I keep asking myself why we didn’t do better in those early years, and gloss over this in my mind, it was a real factor.

Then, the awful market returns of ’98-’18. I also seem to have a habit of the worst possible timing with real estate. So, we simply trusted time in the market.

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

Spending it all like a drunken sailor. OK, not quite, but it feels like it. We are accepting an unpleasant expense instead of what could have been our highest income and savings years, to follow our kids to college, after they indicated they would be staying in TX.

In return we have priceless years spent near my parents who are not getting younger and our kids, who have grown up too fast, keeping our youngest child in touch with her older brothers, welcoming our daughters-in-law into the family and actually getting to know them as they all finish undergraduate and start to scatter again, and will get to be near to our new grandchildren next.

We otherwise would have seen them for a week twice a year if we were lucky, and maybe an extra couple of weekends between.

Hopefully, our beloved unused house will eventually sell, putting us back into a mode of further savings, contributing more helpfully to the kids’ starting out funding, and waiting for a little more market returns before we can try to replace that dream home and feel comfortable retiring.

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

It looks like the target just keeps moving higher. Before the recent bout of inflation (I never in all my life imagined we would repeat the Carter years…UGH!), I thought 5m liquid net worth and our house, which would’ve been mortgage-free free would do quite well.

Now, it appears we will want 10m net worth – 7m liquid net worth and 3m for home and property (For the same thing. You would not believe the property costs here…we moved from a top “places to live” back to my nowhere hometown, and prices are close to triple here…I cannot win).

On the other hand, I would love to quit working. We’ll see which comes first.

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

I remember I noted it to myself and my husband, but I don’t remember when. I’m going to guess age 35.

We would have recently built the custom dream home, which was a bit of a stretch at the time, forced a couple years earlier than we would have due to a zoning debacle on our initial modest property in the area (another example of my wrong time real estate curse).

So aside from that expense already undertaken, no, we shrugged, noticed one million was no longer a serious amount even if it was fun to check the box, and kept on plugging.

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

Automatic 401K investments primarily into S&P500 – discovered eventually that FXAIX has a noticeably lower fee than SPY, so from then it became my go-to for IRA and taxable index.

Using any variable income to add to investments in chunks, along with covering any larger necessary expenditures – avoiding using those for splurges or worse, to cover baseline expenses. Never “trade”.

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

Do some Roth early, particularly if your income is going to be higher after some experience.

Push a little harder for the % of early investments you eke out.

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

Aim for 30-50% savings for the first few years of your “real job”. Having just been a student, you won’t know the difference, it should still be an upgrade.

Never save less than 15%. Don’t gamble what you can’t afford to lose. Individual stocks are gambling, even if I’m very fond of mine.

Be very careful about expensive educations. People who work after high school or tech school at blue-collar jobs and save during that extra 10 years without ugly student loans can beat your pants off.

Compounding is everything, which is why those first and earlier years are the most important, even though they will look pointless at the time.

FUTURE

What are your plans for the future regarding lifestyle?

Our NW has already allowed me to limit work hours a little (considered 0.8 FTE) for the past 10 years, and now, to take on a very expensive move, and grumble but shrug at the complications.

If things go well, we’ll replace the dream home in a few more years, not worry about our routine expenses, splurge on help for the kids and grandkids, travel without budget, and I’ll be able to afford my hobby…all while retiring somewhat early.

What are your retirement plans?

I hope to retire by age 58. Earlier would be fantastic, but so far I am willing to persist in order to fund the everything-we-want retirement.

I will lose my nerve, or, on purpose, approaching retirement, exchange some individual stocks for FXAIX. These have become disproportionate not through unreasonable initial allocation, but through later growth.

Thank goodness for the majority of these in a rollover IRA, so no tax repercussions from this rebalancing plan. On the other hand, if things go well, I will be desperate to work some Roth conversions between retirement and SS to decrease RMDs.

Hopefully, our taxable accounts can be improved by then with the sale of our empty home and a little time to grow from there – much of this will preferably be used for a new nicer property, but cash to pay tax for Roth conversions is a competing priority.

To consider retirement, I am aiming for the 4% rule (guideline) at a goal of LNW 6m base and 1m buffer for emotional support in down markets and earmarked (theoretically, of course, in reality, money is fungible) as producing that extra $40k yearly for hobby expenses.

If at least 5m of this is FXAIX, I think the remainder can stay in preferred individual stocks. And, we plan to move to a more ideal home before pulling that retirement trigger.

My husband and kids want to travel more; it’s never been as much an interest of mine, but there are some places I’d love to go again or see for the first time, particularly if we include the kids – we’re fitting some of that in now rather than only later.

So, for later, maybe that will include the grandkids. I look forward to owning my own schedule and to continuing my primary hobby until it’s a bit too physically difficult.

I have more interests than time, and could reconsider developing any number of more sedentary of these when health requires. In the meantime, our plans are to harass our kids by following them again if necessary.

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

Not really.

If dream retirement doesn’t work out, we could downsize expectations and should still manage fine from here.

MISCELLANEOUS

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

I was raised by frugal and economically literate parents, and married a finance major. I wasn’t the best student of their example, enjoying certain meaningful (to me) and costly habits far more than they did – but aside from these exceptions, I followed the basic idea.

Probably 15 years ago, I made some slow and steady improvements in my personal finance sophistication, and maybe 7 years ago discovered all the great blogs.

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

Oh boy. Not much of a hero worshipper.

I am very self-motivated, but my parents are a great example.

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 didn’t read finance books until after blogs. My mother quoted the Millionaire Next Door to me probably every other time we spoke from the day it was published; she and my dad are those people, so it resonated with them, and confirmed everything they’d recommended and lived out as an example to me.

So I’ll recommend this one. After reading through FIRE blogs, I read JL Collins The Simple Path to Wealth, and can recommend it as a very sensible foundation.

My 14-year-old daughter, who has heard far too many lectures from me (much like Collins’ own daughter, I’m afraid), reports after the first few chapters that it’s repetitive and she already knows everything in it – I’m so proud.

I love The White Coat Investor. I prefer the blog to the book, but for basics in one place, I certainly recommend the book.

If only it had been published 10 years earlier. It includes the best simple advice for doctors, and applicable to any new career – “Live like a resident” for 2-5 years more, and you’re set.

Maybe not exactly on topic, but I enjoyed “A Splendid Exchange” by Bernstein, also a recommendation from my mother, who is far more willing to read nonfiction than I am. I then found out he wrote another foundational finance book, “Four Pillars…” which I haven’t gotten to, but frequently see recommended.

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

I admit only a little. My family is my most important charity.

We donate to our university alumni foundation, and here and there to veteran support type organizations, personal fundraising in our fields of interest/hobby-related communities, and so on.

Once our own best retirement plans are funded, and grandchildren’s college funds are supported, we hope to give enough for a scholarship endowment to our university. But family first.

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?

We hope so. Our own expenses, self-funded long-term care needs, and so on, will come before conserving money for the kids.

I sure hope for the prettier Monte Carlo scenarios, and even after what I can dream up to spend, the kids could get lucky. They will receive even shares, involving most of our assets.

If we are very fortunate, there will be some for outside causes and important (to us) people both before and after death. We do hope we can pare down the death inheritance by giving more to children and grandchildren earlier, but first, our own goals and ensure against becoming a burden to them by choosing to give too much too soon.

At some point, we plan to set up a revocable/living trust, but since most of our current assets go directly to the beneficiary without probate, it can wait until the property situation settles down so we don’t have to switch multiple properties in and out of it.