Here鈥檚 our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.
If you鈥檇 like to be considered for an interview, drop me a note and we can chat about specifics.
Today’s post comes from fellow blogger Max from Max Your Freedom.
My questions are in bold italics and his responses follow in black.
Let’s get started…
How old are you (and spouse if applicable, plus how long you’ve been married)?
I will turn 40 in a few weeks, and my wife is 39. We’ve been married for 15 years, and have been together for about 20.
Do you have kids/family (if so, how old are they)?
We have one daughter, and she’s 7 years old.
What area of the country do you live in (and urban or rural)?
We live in Texas in one of the large metro areas in an urban neighborhood
What is your current net worth?
Our current household net worth is $1.6M
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?
- Home Equity: $550,000 (Paid off mortgage)
- 401K & Work Retirement Accounts: $600,000
- Cash sitting in various brokerage accounts: $450,000
In the above numbers I only have $100K currently exposed to stocks and about $25k in bonds. I rotated out of stocks about 3 years ago in my 401K/Retirement Accounts, and have been sitting on cash since. I don’t have a solid plan for how I want to invest yet, so this is why I’m currently being conservative. The net worth number excludes stock options which I don’t count since I prefer them to be sold before they are officially tallied. Best estimate is currently an additional $200K.
During this time we managed to eliminate $600K in debt, including mortgage ($400k), Student Loans ($100K), and various other loans over the years (Auto loans, etc…). We are now 100% debt free, and it’s the most wonderful feeling ever!
What is your job (type of work and level)?
I’m a global director at a large corporation which manufactures industrial equipment for the energy industry. My bachelor’s degree was in Engineering, and I later got a Masters in Marketing/Leadership.
My wife is a commercial interior designer for a global architecture firm who also has a side gig as a freelance designer.
What is your annual income?
Our household income will get close to $400k this year (75/25 split). We’ve averaged approximately $200K since we’ve been working (16 years), though that average is heavily skewed by the past 5 years. We used to make less than half the average in the earlier years.
How did you grow your income so high?
I still remember when I was only making $7/Hour working 30-40 hours/week at a pizza delivery company to put myself through college. It took me close to 6 years to graduate if I include the internships I did in between semesters to earn extra cash for tuition. Many of my money lessons were learned the hard way, but I eventually figured out the general formula: Increase income, decrease expenses, invest the rest.
After graduating, I basically stuck with the same company over the years, which I know is frowned upon these days. I figured I would focus all my energy on building up solid experience and credibility, which in the end paid off. I started at an entry level job, and have taken on quite a bit of responsibility over the years while always pushing the organization to compensate me fairly. I never took a passive approach to salary discussions. Although I’m certain I could get more money elsewhere, I feel like I have found a good balance between a good salary and flexibility. That flexibility and credibility now allows me the luxury of working remotely during the summer, which I’ll be taking advantage of by spending 2 months in Spain with my family.
Our household income has beat most investment returns over the past 16 years. We averaged about a 14% increase year over year. Again this didn’t happen without constant pressure and focus.
What is your main source of income?
Main source of income for our household is currently our jobs. I’ll be focused over the next 5 years on generating alternative sources such as investments, so I can have the option of leaving my job.
What is your annual spending and what are the main expenses you have?
Our expenses have been fairly static. We’ve averaged approximately $55,000 per year. Going forward that amount could actually drop to $35,000 per year since we paid off our mortgage last year, however our plan is to use that extra amount to travel and loosen up a bit without actually changing our historic bottom line.
Breakdown of expenses:
- 38% Mortgage (to be converted to travel)
- 18% Property Taxes
- 10% Food/Groceries
- 9% Car Related
- 8% Child Related
- 6% Home Related Expenses including Utilities
- 4% Phone/Internet
- 4% Insurance (Home/Car)
- 3% Miscellaneous
How did you accumulate your net worth? Also, please share any mistakes you’ve made along the way that others can learn from.
I feel like we accomplished this through brute force. I can attribute about $1.2M of our $1.6M net worth to pure saving discipline, with the remainder chalked up to market tailwinds. We’ve averaged a 50% savings rate throughout our earning period, with it being closer to 75% now. Our net worth really took off the past 5-6 years, and it wasn’t because of the stock market. It was because we maintained our saving discipline and expense budget despite increasing our earnings. I also had a goal to be 100% debt free and cross the $1M mark before I turned 40, and was laser focused on achieving those goals. We paid off our mortgage in 7 years.
My biggest mistake by far was trying to time the market. I held steady during the 2008/09 financial crisis and didn’t touch my investments, but once the market recovered and got back to prior highs I pulled out and sat on my hands. Looking back it would have been wiser to simply adjust my stock to bond mix.
One important thing I’d like to point out is that we didn’t feel like we were being excessively frugal throughout that time, because we always tried to spend money each year on a special experience or many little experiences throughout the year. It’s true we could have ‘banked’ those expenses, but we would have also missed out on wonderful trips and memories along the way, which is the point of living.
What have you learned in the process of becoming wealthy that others can learn from (what can others apply to become wealthy themselves)?
As you can tell from what I’ve covered so far, I had no inheritance or some lucky break with real estate or any fancy stock picks. In fact my wife and I started our marriage with $100K in school debt. Our formula was very simple:
- Set a budget and stick to it.
- Aggressively increase your income.
- Get to at least a 50% savings rate.
- Eliminate all debt as quickly as possible.
- Deploy all your excess cash wisely (we’re still working on that strategy).
Having no debt and a very low lifestyle budget should give us the confidence to take on a bit more risk between now and full retirement age.
Looking back, I wish I had been more disciplined about investing in an index fund and sticking with it despite market turmoil. The best advice I could give to my younger self is to follow the same path I ended up taking, with one modification, and that’s investing more aggressively in index funds. Of course we’re still young enough to benefit from that strategy.
What are you currently doing to maintain/grow your net worth?
My main strategy over the next 5 years is to continue to aggressively save from our job income. I would like to start deploying some of my idle cash into index funds and real estate, but don’t feel good about current valuations. I’ll be watching things closely and will be prepared to move more aggressively if the time seems right. And yes….timing the market does not work!
Do you have a target net worth you are trying to attain?
I’ve recently done an analysis that puts my target number for a comfortable and relatively risk free retirement at $4M. If I can grow my current net worth by 3% per year over the next 25 years, while adding another $1M over the next 5 working years, I should be able to hit or exceed that number with no issues by the time I hit 65.
What are your plans for the future regarding lifestyle (for instance, will your net worth allow you to retire early, downsize jobs, etc.)?
My short term 5 year plan is to add another $1M to my net worth, and then really step back and evaluate my situation. I don’t think I can work in my current stressful environment past another 5 years. What will help me survive over the next 5 years is the extra money we’ve freed up for travel. Hopefully those experiences will help put things in perspective and will propel me through.
I’m determined to be in a position to freely decide what I do when I turn 45. I don’t want to be at the mercy of my company, so in effect I’m looking for a soft retirement in 5 years. Not sure what I’ll do between the age of 45 and 65, but hopefully whatever it is will be on my own terms.
Is there any advice you have for ESI Money readers regarding wealth accumulation?
It’s a marathon not a sprint. I looked back at some of my notes from when I first started tracking budgets, net worth, etc…and I could still remember how in my 20s the elusive $1M net worth mark seemed so far away. It basically ended up sneaking up on me. There is no one path to wealth, but almost every path requires sacrifice (controlling budgets) and a vision (long term planning/goals).
There is so much access to information like this wonderful blog and others like it. I learned and stumbled through all of this blindly. Learn as much as you can form all the available resources, but you have to make a plan and stick with it. My plan would have been much more refined in my early 20s had I been exposed to any of the concepts often shared on personal finance blogs.
Finally, the most important thing to remember is that you have to have a purpose for the wealth accumulation. Money for its own sake is useless. Try to imagine the ideal life you want to live, and then use money to back into it.
photo credit: frankieleon a quarter dollar via photopin (license)
RetireSoon says
Max, thanks for sharing your story. Your net worth and yearly income is very impressive, especially at age 40. Like you, my income hockey stocked at late 30s/early 40s (same for ESI) which allows savings % and raw savings $ to really drive fire in next 5-10 years.
Your story also highlights ESI’s theory on do 2 of 3 legs well. If you had your $1m in sp500 the last 3 years vs cash, you’d have an extra ~ 50% or $500k in your funds. But, who cares … you are well on your way to fire, have no debt, and aren’t stressed by market performance.
Thanks again for sharing your story!
Max Your Freedom says
Thanks RetireSoon! You’re right, had I stayed the course on investments my net worth would be even stronger. I don’t let that bother me too much though. If I can’t be comfortable “missing” out on $500K, how can I ever be comfortable walking away from a job where my earning potential could exceed $10M over the next couple of decades. I see that experience as good emotional practice for tempering ambition in the future. Appreciate the feedback!
Full Time Finance says
Thanks for sharing your story Max. Your background is quite a bit different then most millionaires or my own. The millionaire next door factor usually comes into play more, rather then the brute force method. Nothing wrong with either approach just different. If you do leave your role in five years, any leanings for a second act?
Max Your Freedom says
It’s definitely been a rougher road. The other approach means a bit of wind in your sails, which by the way I’ve had my share of with the market pre-2013/14. I don’t have a solid plan for post-soft retirement at this point. It’s one of my goals over the next 5 years. I’ve learned that experiences tend to shape your viewpoint over the years, so hopefully my bog will still be around then so I can share what I’ll learn during that period. Thanks FTF!
The Green Swan says
Great hearing more of the background to your story, Max! Thanks for sharing all that.
Impressive work these last 5 years building your net worth and sounds like the next 5 will really set you up well for your soft retirement. The hard work early in your career is paying off in spades now!
A couple months in Spain this summer with the fam…living the dream! Enjoy!
Max Your Freedom says
Thanks Green Swan! The Spain trip will be a great trial run for what I hope will be a major focus for me the next 5 years. I want to use this time with my daughter and Mrs. Max to really build the kinds of memories that can last a lifetime, regardless of where things go. It’s a different kind of investment, and a huge priority in the short term. This is also why I’m comfortable being conservative right now, I have no intention on jeopardizing those experiences.
Erik @ The Mastermind Within says
Love your content Max on your site and am happy you put this together for ESI.
Max Your Freedom says
Thanks Erik! It was very gracious of ESI to offer me this opportunity.
AI says
Very interesting interview. Seems like I am on a similar path, but a few years behind.
I am particularly interested in your remote working assignment in Spain. I would like to arrange something like that for myself, but don’t really know how to approach it at work. I am going to head over to your blog to see if I can find some details.
Max Your Freedom says
Thanks Al! I haven’t written a detailed post yet about how I managed the remote working assignment in Spain, but plan on doing so in the near future. The short answer is that I was asked to take on more responsibility at work (quite a bit more), but without the appropriate title and pay. As a compromise (and negotiation tactic) I agreed to do it as long as they gave me the flexibility to work remotely in the summers.
JayCeezy says
Max, really impressive execution of your system. My thought is you are being a bit humble by describing your ‘build’ as ‘brute force.’ You actually know what percentage of your NW is due to savings; most people don’t have any idea, and imagine they are ‘above average investors’ that get ‘above average results.
Also noteworthy is the work ethic of both you and your wonderful wife. Building your worklives to such high levels of responsibility and income is really hard to do, at any time. So nice you are able to do it together, and are enjoying the journey. Continued success to you!
Max Your Freedom says
Thanks for the kind words JayCreezy! It’s a lot easier to talk about the journey, there was a lot of blood sweat and tears behind the scenes. It definitely ended up working well so far, and we’re grateful for that. I firmly believe that an “above average investor” can only be judged on a long timeline >40 years. Not many of those around (Buffet excluded of course).
RetireSoon says
I totally get Max’s comment on brute force: $1.2M of their $1.6m is after tax w2 earning they put towards their house or into savings with “only” $400k of market gains. For many others, they’ve become FIRE with rental property appreciation, stock gains, etc.
DS says
Congrats MYF!
My personal takeaway: I need to increase my savings rate from its current 40% in order to get to FI sooner
Max Your Freedom says
Thanks DS! A high savings rate cures all sins!
SomeRandomGuyOnline says
Thanks for sharing your story, Max. Love your last piece of advice… it really is a marathon and not a sprint. There are no “get rich quick” schemes. It’s all about eliminating debt, saving more than you spend, and investing toward the future.
Max Your Freedom says
Thanks SRGO! I think in our instant gratification culture, that’s a hard concept for some people to swallow.
Mr. Need2save says
Thanks for sharing your information Max. I appreciate when FIRE bloggers share the nitty gritty details of their current situation and what their goals are. We are working on sharing more of our information.
I would give up some income to get the flexibility you have. Working remotely over the summer, especially in Spain!, would be fantastic. My employer is not open to any remote work arrangements 馃檨
Max Your Freedom says
Thanks Mr. N2S! I’ve been working up to this with my employer for many years, it was part of my strategy of sticking it out with one company most of my career. I can justify the lower income and 5 more years of work, assuming this first year trial run works out and enables the next few years.
Lisa R. says
MYF (and ESI):
Really enjoyed this post! Thank you, especially, for the parting comment:
“Finally, the most important thing to remember is that you have to have a purpose for the wealth accumulation. Money for its own sake is useless. Try to imagine the ideal life you want to live, and then use money to back into it.”
This is so close to one of my biggest fears! I have been a life long saver, & I am very concerned that the second I retire, I will be too worried about starting to spend my dividends instead of re-investing them, and I won’t enjoy my new found freedom.
While I do not yet consider myself in the 2 comma club ($921k not including house & the mortgage is my only debt), I will be there very soon. At 49, single, no kids, I feel pretty okay with how I’ve done so far…I want to retire, I want the freedom to dictate my own day, but I worry about paying myself from my hard earned monies.
Katherine says
Lisa R,
It’s rare to hear from those who made it as a SINK like us (most of the stories involve married couples) so I appreciate your comment. I have those same fears too and even though I’m eager to FIRE, it will be incredibly difficult to stop actively growing the nest egg and instead to accept drawing it down even a little bit. I’m hesitant to pull the trigger too soon but I just don’t know how much longer I can stand the daily grind (even though I have a pretty decent gig overall). It’s a delicate balance and I agree that I might hold myself back from doing what I want to do even when I stop working because it goes against everything I’ve known to suddenly start spending everything I earn (as generated from investments) or to tap into principal for “fun”. I’ve always sacrificed to save, so I’m hesitant to undo it all … but then again it shouldn’t be all for nought if I can’t let myself finally enjoy it.
Financial Samurai says
Dang, that’s a lot of cash relative to your net worth!
Given you have a high income, what were the reasons why you didn’t buy tax free municipal bonds the past 3 years? Default rate is 0.01%, and the returns are ~4% – 6% a year.
Is there uncertainty in your career or are you planning on pulling the rip chord and joining the rest of us who have forsaken money for freedom?! 馃檪
Sam
Richard says
Long stories short, some old conventions remain red hot, unassailable by my lights, but are nevertheless near impossible for many, not all, in the 21st century. Let’s get real–this is the land of the few. They always said, buy a home when the monthly costs are equivalent to, or less than, the costs of renting. Good luck with that around Seattle and elsewhere. I pulled it off four years ago thanks to wasted inventory, a holdover from the Great Recession. I had no choice; most should go directly to the last of the low-cost areas, skipping gangland. Another classic gem: the sweetest spot has always been living off of interest, never touching principal, in retirement. Hard to do without a healthy pension and SS; worked out great for my father, not so much for mother. Too late in the game for me, the interest-only ploy. No pension, late to savings and investments. I will almost certainly be drawing down principal at some rate (x) while collecting SS, hopefully with the mortgage at zero, student loan debt at zero, no other debts. Just sayin’ . . . at some point the idea of luck (often just circumstance in disguise) rears its ugly head as you take a serious look. That and bad attitudes about it all, while you grind your life away, is the rub. I hope to do a lot better (lol), but we’ll see. Keep trying; that is all.