Millionaire Interview 56

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.

My questions are in bold italics and his 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 just recently turned 50! My wonderful wife is 48 and celebrated our 25th wedding anniversary last year.

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

We have two children – our son is 14 and our daughter is 20. Both are a handful in their own ways. 🙂

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

We work in a major city and live outside the city with a challenging commute each day.

What is your current net worth?

As of 2/9/18… $6.2M.

Just over a week ago… about another $250k above that before the stock market has it ‘adjustment’.

Note: I’m wrapping up this interview on 2/25/18 and the net worth has bounced back to $6.5M. A rough couple of weeks, but we didn’t sell and actually slide some excess cash into the Nasdaq index (QQQ) to try to take advantage of the dip.

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?

• House: $600k
• Cars (3): Total approx. $45k
• Retirement Accounts (401k and IRAs): $1.9M
• Taxable Savings (Investments, stocks, ETF, mutual funds, etc.): $2.2M
• Educational Savings (529 Plan): $251k
• Company Stock: $1.5M

We have no debt.

Wow – that was an amazing sentence to type.

BTW – getting rid of our mortgage was once of the best feelings ever!

EARN

What is your job?

Both my wife and I are design professionals. Each of us work at private firms (versus the big conglomerate firms today…) Both of us have worked “smartly” (not just “hard”) over our careers and are now in senior leadership / partner positions in our firms.

We didn’t jump around firms to chase money, but were extremely lucky in our collective success.

What is your annual income?

See below.

Tell us about your income performance over time. What was the starting salary of your first job and how did it grow from there?

My wife and I started out making $32k/year back in 1991/1992. At that time I was extremely fortunate to get my first professional job – the engineering industry was in a downturn and my GPA wasn’t “stellar”. I did however have a solid work ethic (worked through high school) and multiple jobs through college.

My wife and I both grew ‘valuable’ with our first company and eventually moved to start up an office for the firm in our late 20s. That experience (risk…) was pivotal. It forced us to become more driven and focus on our own skillsets and not rely on others. It was tough. Sleepless nights, difficult engineering challenges, much more experienced (and demanding) clients, but that additional foundation has paid off.

After 3+ years, we helped grow the office from 4 people to over 50. We eventually got seduced to another company through a head hunter with increase in income of $40k (family). While the $40k family income was significant, the cost of living in the Northeast didn’t change the day-to-day savings or quality of life. My wife left the company that we were with and is currently slated to take over the leadership position in her company (small woman owned business). I also left the firm, but bounced back as a partner/owner in the firm which was pivotal to our financial independence.

The majority of our annual income is from ownership profit distributions for each of us and therefore there is some appreciable fluctuations.

On a good (great) year, it’s been over $1M, but the typical range is $600k to $800k.

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

That’s a difficult question…

At the fundamental level, save a good percentage of whatever you make (no matter how much or how little you make). As ironic as it sounds, with a ‘high’ income – the likelihood that you’re going to buy more expensive “stuff” increases. As your life style become more affluent, there is a magnetic pull to buy more or have more…vacation homes, boats, cars, events. Resist.

Secondly…invest in yourself. “Learn”, “Listen”, and “Work”. This is especially true when you get your first job out of college. Those first 5+ years are critical. Take a look around at the people at your peers, you know it doesn’t take much effort to be a little better – so do it. And…become an expert (the go to person in your company or group).

Lastly…Take some chances. If you’ve invested in yourself, don’t be afraid to expand your professional circle and even change companies (or careers?). Those steps can make a significant change in your resume and earning potential. But…you have to be solid when you do it. Otherwise….You’ll be the typical person that changes jobs for more money and gets laid off during the 1st or 2nd downturn.

What’s your work-life balance look like?

Overall, pretty good. My wife doesn’t travel that much, but I’ve been traveling a lot more over the past 5 years than I ever thought I would. Traveling isn’t glamorous, it can be exhausting, but it’s needed in my role for clients and staff in our other offices. But at the end of the day, it’s not a ‘bad’ thing; just something I never thought I would do.

Over the past 5+ years our family has focus on more vacations. That’s probably our biggest splurge and increase in our budget.

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?

Nope, nothing else besides our work incomes. We do have dividends and a little interest coming in from our taxable accounts. Just over the past couple of years, they increased to the point where I need to start thinking about better tax management. It’s on the list.

SAVE

What is your annual spending?

Our annual spending is….Hmmm good question.

Approx: $175k

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

• Real Estate/Vehicle Taxes: $8k
• Insurance: $10k
• Clothing: $3k
• Dining Out: $12k
• Vacations: $50k
• College Costs / 529 Savings: $40k
• Car Maintenance, Gas, Parking: $3k
• Groceries: $6k
• General Household: $k
• Gifts / Charity: $10k
• Home Upkeep, etc.: $3k
• Insurance: $8k
• Utilities: $8k
• Taxes: Too much, way too much.

Just think about if you got your paycheck as cash…You hold that cash…then you have to give back…20%-40% for taxes.

With today’s checks and direct deposit, we lose sight of how much we’re actually paying for taxes (now it is just a number…). That’s my biggest pet peeve. Those amounts of taxes should be challenged and managed.

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

Honestly…right now we don’t really have a budget, but more a ‘feel’. I review our monthly expenses and see if we’re going out of line. In our 20s, 30s, early 40s…we had a budget and would still do a look back to see how we were doing and make adjustment from there. We used Quicken software at the time.

Now, we’re using our bank’s information as well as “Personal Capital” to be able to quickly see where we’re spending money and seeing trends.

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

We’ve always maximized our 401k savings; so that’s been a low of 15% to perhaps up to 20% depending upon how well our companies do with profitability.

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

Our favorite thing is nice vacations. Getting away for a couple of weeks with the family makes the work grind/travel worthwhile.

INVEST

What is your investment philosophy/plan?

Our philosophy has changed over time…Initially, it was buy individual stocks and hope for a home run…now it’s much more investing in good (low cost) index funds…and some select stocks.

We don’t trade. We buy and hold. Sometimes for the worst (some stocks becoming delisted even), but I still think it’s better to buy and hold and ride out the market ups/downs and keep buying more “shares” regardless of timing.

What has been your best investment?

Based upon percentage…I owned a small cellular parts company stock. The stock “popped” in the mid 90’s from under $10/share to $90/share during a matter of hours. I just happened to be checking out the daily quotes and saw it and sold as soon as I could! I ended up selling around $60-$70/share because it was so volatile… Amazing luck; not a lot of money, but wild.

Based upon pure growth, Apple. Amazon and Caterpillar have also been great recently.

What has been your worst investment?

My worst investments have typically been companies that I’ve done work for – Millennium, Regeneron, Fairholme Investments Fund, etc. All great companies…but bad timing for me. At first they seem like a great investment, but I was probably to close and excited about working them to make an informed decision. Better to play it safe / stead… low-cost index funds.

What’s been your overall return?

Hmmm – that’s a difficult question. I “budget” in my planning spreadsheet 8% investment return. I haven’t kept track of how much I’ve necessarily invested versus gains. I guess that’s something I should think about more when we need to sale for tax management.

We keep an Excel spreadsheet with monthly “snapshots” of each account balance and associated gain/loss and year over year and year to date. There have only been a couple of months when the market was down so much that I couldn’t stomach checking it until I felt it was back up…

Just looking at the average growth (not return), we’re a little above 20% year to year.

My spreadsheet is awesome. It allows me to look back over the past years and forecast forward. Simple, clear, and easy to update monthly.

How often do you monitor/review your portfolio?

At least once a week. I check quotes daily and net worth daily (using the Personal Capital app is great).

I readjust our 401k investments about once a year.

NET WORTH

How did you accumulate your net worth?

We built our net worth, by saving (investing… in the market); not through inheritance.

The absolute most importance principal is to “pay yourself first”. That is one of the best lessons my parents taught me. Starting with my first job out of college….We have a lot of disposable income (versus being a college student) – so at that point you need to make a decision on how your savings versus ‘life style’ will go.

Always, always max out your 401k. Don’t just put enough in to get a company match; it’s about you – not the company. The compounding of principal can be amazing after 20 years of savings. Start early and never let up. There are always tons of excuses, but I don’t buy any of them.

Don’t let yourself get into the typical realm of buying a bigger house, vacation home, etc.; unless you truly have fulfilled your other primary goals (rainy day fund, no debt, retirement savings max’d, college savings, etc.). Otherwise….You’ll never get there and be stressed in your later years.
By the way…pay off your credit cards every single month.

Wait! – one more…We had a 30 year fixed mortgage at 7.25%. At the time, it was a good rate. Sitting in traffic I listened to one of those annoying mortgage commercial (before the mortgage crisis). We refinanced to a 15 year mortgage at 3.25%. That was probably one of our best decisions. We paid off the house with new 15 year mortgage fairly quickly even though the new mortgage payment was a little more than the previous 30 year mortgage. That feeling is… amazing!

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

The biggest “bumps” have been going through market downturns and keeping calm. Those are truly buying opportunities when you look back at history. But in the midst of the market drops, 24 hour news crisis reporting, etc…it can be stressful.

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

Keeping the plan…max out the 401k, slide excess cash into the market, and also looking deeper into the management fees/costs that we’re paying (but not seeing). These can range from 0.1% to 2%. A while back it didn’t’ have a significant impact, now they do. Therefore, we’re doing more index funds, etc. It can make a big difference.

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

$8M

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

41, not major behavior changes since; except our vacation has significantly increased in cost/qnty.

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

What a great question….

There are two that come to mind.

One mistake (that I still do…) is not have stop-loss orders on my portfolio.

The other is just never selling some investments (because I don’t want a tax liability…) and simply watch the investment drop…drop…and even become delisted. Painful.

The biggest mistake (blessing) was I took out a couple of credit cards in college and racked up about $5000 in debt. My parents found out I was in debt and helped me out, but that painful, embarrassing lesson was actually a blessing, because we never had credit card debt moving forward.

If you had to give advice to ESI Money readers about how to become wealthy, what would it be?

Pay yourself first, max your 401k, don’t let your lifestyle grow or get too out of hand, and pay off your credit cards every month.

FUTURE

What are your plans for the future regarding lifestyle?

Our plan is to retire when I’m around 58 +/-; perhaps earlier if/when we meet that net worth goal.

What are your retirement plans?

When we retire, we’ll readjust our portfolio as appropriate to be more conservative. Then, more time together and with the family; travel, relax, consult, teach, etc…I’m using a target of $160k to $200k for annual income needed during retire.

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

The biggest concern about retirement is healthcare costs and general health. We’ve been exercising more and keeping the plan (savings). The specifics of healthcare costs is a big unknown to us, but hopefully we’ll be ok.

MISCELLANEOUS

How did you learn about finances and at what age did it ‘click’? Was it from family, books, forced to learn as wealth grew, etc.?

Definitely family. My parents were a great example of a discipline approach. I remember my dad keeping a hand written monthly ledger of income and expenses.

The other (flip side) was watching other people spend money they didn’t have on ‘stuff’ and being stressed out. I hate stress; I have enough stress with work and don’t want the stress of bills anymore.

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

Same – parents.

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

Yes, always have. Variety of charities on an ad hoc basis and church.

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?

Hmmm, I assume so, but not specifically trying to build wealth up to a certain level to do that. I think (?) inheritance can be great depending upon the situation, but our kids still need to be adults and become self-sufficient. A little extra cushion for them when they’re older isn’t a bad idea.