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)?
Hi! My wife and I are both 48. We’ve been married for 18 years.
Do you have kids/family (if so, how old are they)?
We have one daughter who’s 16.
What area of the country do you live in (and urban or rural)?
We live in a suburban area outside LA…and yes, it’s just as absurdly overpriced as you think it is.
But it’s certainly nice! I’ll give it that.
What is your current net worth?
Our current net worth is $4.2 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?
- $2.8M is in after-tax brokerage accounts
- $900k is in retirement accounts
- $400k is in home equity
- The remaining $100k is in various assets like cars and whatnot
The after-tax brokerage and retirement accounts are about 54% in US equities, 20% in foreign equities, 11% in bonds, 10% in alternatives (REITs, peer to peer, etc.), and 5% in cash.
We don’t own any individual stocks, everything is in low fee ETFs.
EARN
What is your job?
I was an RF engineer and my wife worked as an actuary until the birth of our daughter.
I guess now you could say we’re retired although I expect we’ll end up doing something we’re passionate about at some point.
Both of us would like to try a new line of work just to spice things up.
What is your annual income?
My last salary was $240k and then there’s various bonuses and incentives beyond that…call it $280k.
That’s about the average for the last 10 years. That sounds impressive but taxes on that bracket are devastating.
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 first engineering job back in the early 90’s paid $30k a year and a few years in I was more like $45k.
I hated it and questioned my career choice. But then I discovered the glorious world of contract engineering for defense companies. There’s virtually no benefits but there’s lots and lots of cash.
I went from $45k to $150k AND a job I loved…plus you just get paid to do the work and there’s no politics or those stupid annual reviews. It was fantastic!
For about 10 years I chased the money all around the country charging higher and higher rates as my experience grew.
Ultimately, I merged back into a more “normal” career path which was fun for a while but finally wore thin.
What tips do you have for others who want to grow their income?
My somewhat contrarian advice is don’t buy a house when you’re young. It’ll suck up your youth, time, and money but most importantly it’s a barrier to opportunity. You need to be able to go where the money is.
Later, when you have kids and need the stability then sure, buy a house. But don’t bolt yourself down right out of the gate.
Everyone thinks where they live is “the best” having never really experienced anywhere else. It’s a big world, go have fun!
And lastly, if you’re not passionate about what you’re doing you won’t grow and nor will your income. Find something you love and the money will come later.
What’s your work-life balance look like?
Excellent! This is one of the things I’m most proud of.
Sure, back in the day I had my share of 80 hour weeks but that was when I was living out of a suitcase in some dump by myself. When my wife finally joined me on my contracts the hours went down to 60/week or so.
I was home virtually every night by 6pm and was able to be extremely involved with our daughter since she was born. I’m not a fan of being away from the family at all, even for a few days.
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?
Our investments return about $85k/year in dividends and interest. I’m not investing specifically to maximize dividends but all of our ETFs spit out some.
Anything more we need will come via draw down, at least in the short term.
SAVE
What is your annual spending?
OK, this is a bit embarrassing. It’s like $150,000/year. But I have excuses!
What are the main categories (expenses) this spending breaks into?
It’s the house!
I don’t get a lot of jollies out of houses and mine is literally $1M! LA is nuts on the house front. You hear $1M and you think palace. But no, think $150k in Iowa. The house sucks up over 1/3 of our expenses despite being at a low rate.
If you have kids you have to buy in a decent school district and we got a great one. When we’re empty nest in a few years I’m dumping it like a hot potato. And yes, I could pay it off but at 3.25% why would I?
Beyond the house, our biggest single expense would be “dining and travel” which includes going out to eat a few times a week and lots of vacations. Sometimes we vacation locally, sometimes overseas.
Do you have a budget? If so, how do you implement it?
We don’t really have a budget but that being said, both us watch what we spend.
We don’t have fancy cars and never will. We rarely buy expensive material things, preferring to spend on experiences instead.
Right now, my wife and I are going to great lengths to extend the life of our food processor another year or two via duct tape. But I don’t blink at dropping $6k for a European vacation.
What percentage of your gross income do you save and how has that changed over time?
When we were younger? Jeez, almost all of it. Like maybe 80%.
Our expenses were absurdly small compared to the income.
Since our daughter was born I’ll admit to a fair amount of lifestyle bloat compared to the cardboard box furniture days but we still saved over 50%.
What is your favorite thing to spend money on/your secret splurge?
Travel and doing stuff! I’m particularly bad with getting bored in the house and am constantly semi-dragging my family on some sort of activity.
My wife likes clothes but not insanely, maybe $250/month.
INVEST
What is your investment philosophy/plan?
For about 18 years I’ve been buy and hold with low cost ETFs. Mostly stock with bonds returning so little lately.
I rebalance a few times a year. Very boring really.
What has been your best investment?
OK, so normally I ride through market bumps with no alteration of blood pressure. I’ve seen the movie many times.
But in 2008 when the market dropped from 14,000 to 11,000 in a few days I panicked and sold some stuff. Not everything, but maybe 1/3 or so.
The following March I had all this cash sitting around and was feeling sorry for myself. I literally dumped it all back in on its lowest day by shear dumb luck.
I’d have to look it up but the DOW was like 6000 and some magazine (“Time”, maybe) had a cover saying “DOW 5000?” That random decision was worth well over $1M.
What has been your worst investment?
Most of the 90’s.
Yes, I saved a lot but back then it was all about the watercooler stock tip and/or mutual funds with ridiculous fees.
It turns out I’m not a good stock picker nor am I good at market timing. But hey! Who really is?
I’d pour over Barron’s or whatever like a miniature Warren Buffett to no avail. Some of the companies I’d pick did OK, most did not. I’d have a lot more if I’d either sought or stumbled upon the right advice.
What’s been your overall return?
My portfolio closely tracks the S&P500….as goes it, so goes I. I trail it a bit due to bonds but not by much.
How often do you monitor/review your portfolio?
Every single day. Personal Capital
is the best.
NET WORTH
How did you accumulate your net worth?
My wife and I didn’t inherit anything.
I’d say in our case the accumulation was 50% due to brute force and 50% due to investments.
But really the whole key is investing early and for that you need to make more than you spend. Preferably a lot more but any amount is worthwhile.
Find joy in experiences rather than just stuff. Stuff is a short-term fix but experiences last forever. And experiences can be super cheap or even free!
If you can change your attitude on what’s really important, everything else will follow.
What road bumps did you face along the way to becoming a millionaire and how did you handle them?
I’ve acutely felt all the financial crises of the past 25 years. I never balked except for that one fortuitous time in 2008.
Just about everyone works towards things getting better and the market is the very manifestation of that desire. Who would bet against it? I understand trying to divine a short-term decline if you dare, but over time? Like 10 years? No one is shorting that. I pucker a bit on those days I lose $100k but I’m super optimistic long term.
What are you currently doing to maintain/grow your net worth?
Not much. I rebalance and that’s about it. I’ll probably ultimately get bored and then the answer will change.
Do you have a target net worth you are trying to attain?
I thought $1M would be neat and then I got there and thought $2M would be a good goal.
Then it was $3M, then it was $4M, now it’s $5M. It’s arbitrary and never really stops.
My wife still laughs at me about it. But let me answer in another way. If we were given $100M not much would change. We’d have the same house with slightly nicer cars and we’d fly business class.
So, although more is better it’s not that important.
How old were you when you made your first million and have you had any significant behavior shifts since then?
I think I was 35. I ran around doing a jig and my wife didn’t give a hoot. It was kind of funny.
Then in 2009 for a brief period I wasn’t a millionaire anymore. That was unfun.
I can’t say there were any behavior shifts due to the money.
The kid is a different story and I’m so glad we aligned more with “normal” people while raising her. But when she’s off to college we’ll go back to our comfy 1000 ft^2 lifestyle.
What money mistakes have you made along the way that others can learn from?
Many mistakes! I screwed up an entire decade!
Also, I can’t say I’m terribly pleased with my current mortgage.
If I had to do it all over again I definitely would’ve done a better job in the 90’s. And while I’ve made money on the house I’m in now I just can’t stand the lack of liquidity and the monthly cost. Houses come with lots of expenses and transaction costs that some homeowners pretend don’t exist.
If you had to give advice to ESI Money readers about how to become wealthy, what would it be?
This is a tough one.
Sure, working hard and making a lot helps but there’s more to it than that. I can say I’ve never really cared that much about material things. Even as a kid I valued my time with my friends way more than any toy. If you’re already wired to not crave “stuff” then chances are you’re already wealthy or well on your way. If you do crave “stuff” and can’t control it then you’ll forever just be expanding to fill your tank, regardless of how much you make.
For me, I wanted the money for the money’s sake, not for what it could buy. When I see a Ferrari drive by it’s enough for me to think “I could buy that if I wanted” and then I’m done. The purpose of accumulating the money has always been to give my wife and I control over our own destiny.
FUTURE
What are your plans for the future regarding lifestyle?
Well, for sure we’re going to downsize when the kid is safely ensconced in college.
I see no reason why two people and a couple dogs can’t be perfectly happy in 1000-1200 ft^2….and if it’s a townhouse or condo we’ll even have a pool!
Also, both of us will seek out some rewarding secondary career.
What are your retirement plans?
I expect we’ll continue to travel a lot and exercise regularly. Both of us are in great health but that can change so we definitely want to do and see everything we can while we can.
Are there any issues in retirement that concern you? If so, how are you planning to address them?
Not much. A worldwide financial catastrophe would be unpleasant but it looks like our long-term spending minus the house and minus the kid is like $75,000.
So, worst case I buy a nice little place outright and we should be able to pull that out easily enough, even if you count Social Security as zero.
Plus, we expect some income from secondary careers as well.
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.?
I didn’t learn from my parents. They were in the hands of the really bad full-service brokers of old and got the expected result.
There was a book I read in my early 20’s that explained the basics.
As for finally settling on buying and holding low cost ETFs I don’t recall but probably some financial site. This was around the year 2000.
I’ve always been self-directed, though. I’m hard wired to do everything myself.
Who inspired you to excel in life? Who are your heroes?
I’m not really the kind of guy that has heroes but I do have an older friend whose life outlook is very similar to mine. To me, he has just the right mix of cynicism and optimism. Since he’s older I’ve been able to get a sneak peek at my own future which has proven handy.
Do you give to charity? Why or why not? If you do, what percent of time/money do you give?
Some but not much beyond the usual Goodwill yearly load. I expect to give more later in life when our expenses are less.
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?
It’s not really a planned thing but it’ll happen. Statistically speaking it’s likely my wife and I will leave a substantial estate.
Our assets are held in a trust my wife and I set up and everything goes to our one child but not until she’s at least 30. I was an idiot in my early teens and 20’s. I’m not condoning Justin Bieber wrapping a Lamborghini around a street light but let’s just say I understand it. If someone gave me that kind of scratch at that age I’d probably be dead.
Our girl is very responsible but my wife and I feel she should make her own way for a while.
Ha, I’m in the DC area and you can’t spit out the window of your car without hitting a million dollar house. And those houses look the same as a $150k house elsewhere in the country as well. It’s just the way it is.
A few years ago they developed an empty corner lot near me with 4 new houses and the advertising sign literally said “starting at only 2.2 million”. Yes, they used the word ‘only’.
Congrats on your success!
Hey! Thanks and I love your site. You wake up one day and realize you’re doing just great and don’t need to work anymore. At the end at least 75% of the time I’d walk through the door at work thinking “why am I doing this? I don’t want to be here and someone with my scratch should do what they want”.
Thanks and congrats on your success as well!
Another DC area resident here, and town-homes in the neighboring suburbs are starting to approach the million mark…I don’t see how these real estate properties keep shooting up like this, because I cant imagine the average person/family can afford these homes.
It’s the main reason with my fiancee and I will be moving south in the next couple of years.
I wish you and your family continued success!
The Key to FAT FI definitely leans on a high income, though I achieved it by teaching and investing overseas …. Congrats From the Far Side of the Planet 🙂
Great interview. A fellow Kaliphorn-ian here … I can relate with a lot of your experiences.
– Telling your wife you crossed the coveted $1M threshold… “my wife didn’t give a hoot” either
– When I see a Ferrari drive by it’s enough for me to think “I could buy that if I wanted” and then I’m done.
– Housing: You hear $1M and you think palace. But no, think $150k in Iowa.
Could you expand on the ETFs you use? and breakdown on the allocation percentages.
would you consider moving out of state ?
Congratulations on your success despite the tax burden …
Hi Carlos! Yeah we’ll probably leave. It’ll depend what happens with the college situation which should unfold in the next couple years.
Right now I have:
VTI @ 25%
VEA @ 24%
SPY @ 13%
IJR @ 17%
VAW @ 4%
VCLT @ 4%
VNQ @ 4%
CWB @ 3%
TRBUX @ 3%
USAIX @ 2%
The two at the end are an experiment in relatively low fee mutual funds. We’ll see. I have to be careful when doing reallocation to avoid a tax event. I’m slowly shifting stuff around until I get maybe 3 years worth of expenses in bonds and/or cash. Sadly, bonds aren’t a lot of fun right now.
Thank you for sharing. I agree with the Bond outlook … I put the money allocated to “bonds” into my mortgage but in your case 3 1/4% is hard to make the case.
I have been working on the family (and extended family too) to sell everything and move … (tax burden is a big factor) and no one wants to move except me … LOL.
Hi. Have you tried taking them on a big road trip around the west? Lots of nice places to see and your family might fall for one of them.
Tangential topic: Recently we took a trip around the SW area. There’s a bunch of places out there with little cottages and absolutely stunning views of the mountains…this is around Zion. I mean, these people had two cars and a nice little home and what’d it cost them? Fundamentally what do I have that they do not? It seemed like a pretty good, simple life that anyone could do with very little.
Nice. We’ve been to the Grand Canyon, and Red Rock in Vegas. Funny you mention the road trip… i’m looking into getting a travel trailer to go camping. Last time we camped out, the Mrs. didn’t like it none too much anymore … I think our first trip is going to be the 5 parks . Thanks for the suggestion.
I rented a Corvette for my 50th Birthday for the weekend to get the fast car bug out of my system.
Yes! I’m a huge fan of renting when it comes to fancy stuff like boats, snowmobiles, exotics, etc. Chances are you’ll get it out of your system and save thousands! I saw a friend of mine who lives in a rural area and I tell you those people are dumping everything into motorized toys….jetskis, RVs, those Razor four wheeler things. It was not uncommon to see a driveway with $150k sitting on it next to a house that cost $150k. I mean, the stuff is fun but it’s not THAT fun.
Great interview. I like his outlook on life. 48 and already 4.2 million nice.. There are two things that caught my eye. Don’t buy a house when you are young, it ties you down. I say buy the house move rent it out, and if you keep having to do that, you will build a real estate empire.
I like his simplistic approach to investing too, just ETFs.
Hi and thanks! Yeah I probably shouldn’t have been so absolute about it. For me I didn’t want the hassle of remote maintenance and the possibility of a bad renter. But I have friends who’ve done well with it.
100% agree with the buy and rent comment!
Wow, it seems like we shared a lot of attitudes about wealth and life; new experience over material things, no budget when it comes to vacationing, getting a toyota instead of mercedes, rather be traveling instead of bored at home, my parents also didn’t teach me about investing so i learned by reading warren buffet, renting instead of buying luxury, no change in lifestyle even if my nw increase by ten fold, also made tons of money mistakes but learned from them, exercise regularly, let kids become responsible before giving them any money. I guess bright minds think alike…keke.. Anyways, I submitted my ESI interview about 2 weeks ago and it’ll be published in middle of July. It’s crazy you used some same exact words as me, I love it 🙂 btw, try visiting Oregon, if you like Utah, you’ll love Oregon! Also Italy is my favorite European country, so much to see/do and food is just amazing!
Hi and congratulations! I lived in Oregon for awhile and it is nice. I think people believe they have to live in the place with the million dollar homes but the only reason they’re a million dollars is the jobs. If you don’t need the job then you don’t need to live in the million dollar place.
Italy is great; I like the southern part the most, it’s a bit more “italian”.
Like you, I have lots of free time; traveling oversea and reading pretty are the only things I found to be fulfilling. Do you have any hobbies for your free time ? Thanks !
For hobbies there’s no one thing I’m super passionate about. I’m more a jack of all trades, master of none type. We do the overseas trips but we also do a fair amount domestically. During the winter I ski and snowboard plus I bike about 25 miles most days of the week. On weekends and sometimes on weeknights we’ll go to movies, play badminton, bowl, croquet, golf, body surf….stuff like that. My daughter and I also go to amusement parks and lately we’ve been on a Fortnite craze. The Fortnite craze makes my wife very sad because we take over the family room. I also read a lot like you…I’m always reading if I have even a bit of time. Oh! And lastly I’m a fairly decent amateur photographer.
Wow that’s great you are into a lot of sports too. I also wake up early everyday to exercise and meditate. It’s a wonderful life when we have a lot of time to do whatever we want :-). Once again, thanks for the great interview, I’m glad to see there are someone out there sharing the same experience so I’m not the only one, it can be lonely at the top sometimes 😛
Excellent read and congratulations on such a net worth before hitting 50. My question for you is what are you doing for healthcare? I read these articles every week and wish more was talked about on this issue. To me and my wife this is our biggest fear of FI. We hope to get our NW build up in the next few years and be able to try at least a part time gig. Thanks for your story.
Hi! That is an excellent question. If you’re a consultant or on your own then you generally get healthcare through the exchange in your state (Obamacare). In some states the exchange is competitive and dynamic, in some it is not. In CA it’s pretty good. Most states have an online calculator to give you some idea what the premium will be.
Because I’m not a big believer in anything but catastrophic insurance we’re on an HSA qualified Bronze plan. Our out of pocket max per year is something like $7000 but I also get the HSA which is probably the most tax-advantaged investment you can make. Also, if one of us got something chronic you can always up your plan the next year. So, if my wife and I both got heart disease or something we’d be out $7000 plus premiums the first year and then the next we might up the plan to something with a lower deductible.
The premiums are driven by income…it’s a bizarre system that actually punishes you for making more money. The premiums are very reasonable below a certain income threshold, then they change in a non-linear fashion. This “cliff” varies by state and by family size and is based on your MAGI (Modified Adjusted Gross Income). For example, a family with a MAGI of $79,999 might pay a reasonable $250/mo but if they make one more dollar then suddenly they’re paying $1000/mo.
In my case I’m relatively new to this and can only estimate my income for tax purposes. I have the dividends and I have capital gains. I have some capital losses I can use to offset for a while plus I have tax advantaged stuff like the HSA. I punted my income and ended up with something reasonable on premiums. There’s no penalty if you guess wrong.
You’re right; it’s a great topic and not discussed as much as you’d think. Also, the “individual mandate” or the requirement to buy medical insurance is gone after this year so there’s a big unknown looming in 2019. Hard to say if prices will go up or down.
Hi, just wondering what motivated you to leave your well paying job? Sounds like a pretty good salary to give up. Thanks.
Hi Arrgo. What happened at my last position was we were getting out of a business that interested me and getting into something that I found vague and useless. I ended up really not liking what I was doing and was just going through the motions. Also there was a reorg and I ended up working for a guy I didn’t care for. I’d done the math many times and while the salary was high, I was making money I wasn’t likely to ever spend and was not enjoying my life. I think this is not uncommon for people in big company careers who are late 40’s, early 50’s.
I was going to bail anyway when our daughter graduated in two more years. I would have been 50 and my thinking was that I’d still be young enough and energetic enough to start a second career…one that I could do anywhere and not just in a large company.
As it turned out I ended up two years ahead of my own schedule and I’ve started working towards that 2nd career. I can’t say what it is or I’d identify myself but I certainly can do it anywhere and I expect it to be rewarding. It doesn’t pay well but at this point, I don’t think that matters so much.
I think we only go around once and doing something completely different…well, it makes things much more interesting.
Interview 62 (and all previous interviewee’s)… Always something to learn or question in each interview!
To all of you, to ESI himself, for months now I have been (very) casually seeking an answer to 1 question. When you calculate your invested asset net-worth, do you factor-in the tax liability? For example, said invested asset is valued at $1M, where the cost basis is $500K and tax will be owed on this amount. Lets say $100K in taxes will have to be paid, should that invested asset be value at $900K? What is the FP industry norm?
I do not deduct taxes from my net worth. Here’s why:
Net worth is generally defined as ASSETS – LIABILITIES.
Assets are things you own, like a house, car, investments, etc.
Liabilities are debts you have incurred by borrowing money like a mortgage, credit card debt, and so on.
Taxes are neither of these and thus do not fit into this equation.
Taxes are an expense. Just like food, clothing, utilities, etc. are expenses. You do not deduct any of these expenses from your net worth do you (for future years)? Then why do so with taxes?
Furthermore, expenses are related to income in that INCOME – EXPENSES = CASH FLOW (which then adds to your net worth). If you were to include any expenses for taxes you’d have in future years in your net worth calculations, you’d have to include income too, right? And what about capital appreciation? Certainly that will happen over the years as well.
See how it can get messy?
So I abide by the strict ASSETS – LIABILITIES for my definition of net worth. I handle taxes as a non-net-worth-impacting expense I’ll have in future years — the same way I handle the income and appreciation I’ll get between now and the time I sell those assets.
Does that make sense?
You make perfect sense and are clear in terminology and approach.
Analysis pertaining to retiring has an emotional vector, for me. Hence my “need” to quantify expenses as liabilities. Grin.
Yeah, interesting . . . I personally had to run wild across the landscape, for years, eating income away like a madman, then down the rabbit hole toward near oblivion before even the idea of careful mgmt entered the picture. Somewhere around 40 . . . I still like various stuff, but eventually forced it into preciousness or boutiqued it through fastidious penny and dollar-aware zero-sum budgeting, until formerly wild junk became a cultivated line item and percentage, only AFTER every other self-pay, investment, and/or bill of importance. Roughly two hundred per paycheck now, child’s play to others, except there’s only so many bitchin’ shirts, good movies or superior albums to buy, and I don’t like to eat out . . . whereas dumping it back into savings, partially unspent, beyond the killer margins gives me major wood and feelings of victory (lol). It’s a struggle, just a lot less nasty now. For experiences, I choose to do what few others can, running circles around lightweights in their 20’s at 51. Kind of reverse-engineering the Joneses, making others jealous. Eat it, baby, is my attitude, not really revenge, just some competition, but the charge eventually fades into calm and reason ever since I put business first. The real bottom line, sugar butt. Everything else is candy, or terror, although the planet remains beautiful.