Today I have an update for you from a previous millionaire interview.
I’m letting three years pass from the initial interviews to the updates, so if you’ve been interviewed, I’ll be in touch. 😉
This update was submitted in September.
As usual, my questions are in bold italics and their responses follow…
OVERVIEW
How old are you?
I am 43 years old and my wife is 44.
We have been married for just over 15 years.
Do you have kids?
We have two children: one 13 year old daughter in 8th grade and a 9 year old boy in the 4th grade.
We are definitely trying to enjoy these years as much as possible as they are old enough to do a lot of the things we enjoy and still ‘usually’ kids at heart.
Continuing to get used to the fact we have a teenager in the house and trying to mentally prepare for the prospect of high school next year!
What area of the country do you live in (and urban or rural)?
We live in the suburbs of a mid-sized city on the East Coast.
We have been in our current area for about 11 years having grown fond of the moderate cost of living while still having access to “big city” type amenities.
What was your original Millionaire Interview on ESI Money?
Is there anything else we should know about you?
Both of us were military (Navy and Marine Corps) straight out of our respective higher educations.
I think this opportunity played a pretty significant role in our current financial situation and is important to make note of.
I also recognize that we are in an extremely privileged situation that was the culmination of a lot of hard work, disciplined decision making, and a fair amount of luck (especially for me but more on that later.)
NET WORTH
What is your current net worth and how is that different than your original interview?
Our current net worth is $3.4 million.
We are debt free having paid off our mortgage in 2017.
Looking back to 2018 we were at a net worth of $1.75 million; so to be that close to doubling it in only three years is frankly amazing to me.
From experience, it is fun to watch the compounding snowball grow and it really took off once we had more than a million dollars invested. It still seems crazy to me the fact that we generally increase our net worth more in three months through growth than I made in my best years of salary.
The current breakdown of our net worth is approximately $2.8 million in liquid investments with the remaining $600,000 consisting of equity in our primary residence.
Of the liquid, approximately $1.3 million is in tax advantaged accounts.
The $600,000 in equity seems a little high to me and I have personal feelings and flashbacks from the housing crash however that is the price minus 10% (a personal estimate for cost of selling and moving to actually realize that equity) for comps in our area.
What happened along the way to make these changes?
Over the last three years our household income has continued to increase at a steady rate and we have been disciplined in increasing our savings to match any growth in earnings.
Also, we stayed the course in following our investor policy statement and did not make any rash decisions based on changes in the market environment.
One of the biggest jumps we saw in net worth occurred following the market drop in March and April of 2020 and the subsequent recovery and new highs that followed over the last 18 months. We used those early declines to move approximately $110,000 out of underperforming bond and cash positions into equities over the course of about three months.
I want to clarify and add emphasis that we weren’t attempting to time the market as we continued to use our planned periodic investment schedule. We just took the opportunity at the 10% pull back level to make some planned rebalancing in a more aggressive fashion that has to this date paid off in outsized performance.
What are you currently doing to maintain/grow your net worth?
We remain focused on ensuring that we are continuing to invest a significant portion of our income as well as having a large proportion of our net worth in equities.
Our goal was to hit $2 million in liquid assets by age 45 and $4 million by 50. We met the first target and remain on track for the second at this stage.
We are still in the acquisition phase of our investing path and maintain a bullish view on the long-term prospects for the US economy. Outside of 529 accounts for college expenses we do not foresee touching any of investments for at least the next 13-17 years.
EARN
What is your job?
Remember that part up above where I said I was lucky…
So I am a current stay at home parent while my wife is physician who works in an outpatient clinic four days per week. I left my last position with the Federal government not too long after the first interview took place in 2018.
The plan was to take year or so off for us to travel more and build contacts before eventually working as an independent contractor in my field. To quote Mike Tyson: “Everyone has a plan until they get punched in the mouth.”
The punch for us came in the form of Covid. By early 2020 I had built up a number of contacts and was actively negotiating a contract to provide services for a new facility opening in our area in the summer of 2020. Unfortunately all that changed on Thursday, March 12, 2020.
I was on a field trip with my son’s 2nd grade class when we got word that they would be canceling school for the next two weeks. The next day, my wife came home from clinic with the news that they where going to move to a virtual clinic (something she had never done or even thought possible.) We spent most of that weekend exploring off the shelf software programs with which to run a virtual clinic with me serving as the guinea pig patient.
My wife ended up running a virtual clinic exclusively from our home for the next four months running clinic exclusively and still managed to maintain an impressive patient volume of about 90% where she was pre-covid.
My job became IT support for her and the kids who spent the next 543 days at home only just returning to in-person learning this September.
Staying at home for so long was not something I had planned to do, however our built up savings and my wife’s amazing income provided us that flexibility. We are not certain what the future holds as far as me going back to work. I do feel guilty at times, however my wife is extremely supportive of me staying at home as she gets to focus on just being a doctor while I handle all of the child and household tasks. This includes managing all of the money as despite my best attempts to have family finance and budget meetings her eyes quickly glaze over and she loses interest.
So while I am always looking for the next opportunity it would take a pretty amazing and flexible job to disrupt our current set up.
What is your annual income?
In 2021 we expect our annual income to be approximately $520,000.
There is some variability based on bonus timing and payouts.
How has this changed since your last interview?
Our income at the time of the last interview was approximately $450,000.
We actually had planned for this to decrease slightly as I left the Federal government, however my wife has continued to out perform and take advantage of opportunities at her work without increasing the amount of time spent in the office.
We also initially expected the challenges of the Covid pandemic and virtual clinic to negatively impact her earnings however she has been financially rewarded for her efforts to keep patient volumes up and actually increased her income over the last year as well.
Have you added, grown, or lost any additional sources of income besides your career?
We have not added any significant sources of income.
We had looked at potentially getting into residential real-estate however the past year has definitely changed our perspective on the risk benefit analysis of that investment and instead will just increase or exposure to that sector through REITs.
SAVE
What is your annual spending and how has it changed since your interview?
Our current spending has increased along with our salary.
That being said, we definitely pay ourselves first. We are on track to save and invest approximately $200,000 in 2021, equating to just under a 40% savings rate.
We estimate that we will pay approximately $165,000 (Federal, State income taxes, Medicare, and Social Security payments) with the rest being what we get to spend (about $155,000.)
What happened along the way to make these changes?
There has been nothing fancy about our path.
We have enjoyed a high income for a sustained period of time and we continued to increase our level of savings to reflect.
Our savings rate has remained consistently between 37-42% over more than a decade.
We have also increased our spending on things we enjoy. My wife likes driving a luxury vehicle so we traded in her Toyota for an Audi in 2018.
We also enjoy traveling and have increased our travel budget substantially over the years to the point that we are budgeting close to $30,000 (shoutout to Costco travel for saving at least a little money on this) on travel in 2022 or about 20% of our total spending.
INVEST
What are your current investments and how have they changed over the years?
We have doubled down on being average.
What I mean by that is that we remain disciplined and don’t try to chase individual stocks or hot trends (meme stocks/crypto) that we do not fully understand.
We are content to just be the market and our largest individual investment is in the Vanguard Total Stock Market Index fund.
What happened along the way to make these changes?
Along with the fact we are content to invest in the market, we also tend to be somewhat conservative in our asset allocation.
Early on we focused on paying off our home (while also investing at the same time) which from a purely mathematical perspective was not the most optimal for returns.
We also maintain a significant cash position (around 8%) for emergencies and or investment opportunities.
These two actions have cost us in total net worth however the peace of mind provided trumps any monetary gains we gave up.
MISCELLANEOUS
What other financial challenges or opportunities have you faced since your last interview?
The biggest opportunity came in the form of my wife’s compensation plan.
She had the opportunity to move from a strictly productivity payout to an alternative value and qualitative payment structure being tested by the Centers for Medicare and Medicaid through her employer. The biggest personal bonus was that it locked her payment floor at an already high level.
For perspective she has maintained a salary that is double the average for her specialty according to MGMA physician salary data for the majority of the last five years.
Overall, what’s better and what’s worse since your last interview?
Other than a global pandemic…
While probably a poor attempt at humor we have weathered the direct impacts of the pandemic (healthcare related job, elementary/middle school aged children, etc.) as well as can be expected. Had I not left my government position prior to the pandemic beginning, I have little doubt I would have been forced to pretty early on based on our lack of support in the area for childcare and virtual schooling.
I think overall, our quality of life and general happiness remains pretty high.
What are your plans for the future?
Our first priority is to continue to focus on our children as they grow up and move increasingly into the real world. We are focused on providing them with every opportunity for success but also ensuring they remain grounded (much easier said than done.)
We are also focused on enjoying the ride that financial independence has provided to us. This includes being content with what we currently have.
For example, we have lived in the same house for 11 years and probably have another 11 before we seriously consider moving once the kids are gone. We have watched a lot of friends move to larger and more expensive homes within miles of the one they used to live in for what we would consider only a modest or minor improvement in their overall lives.
While we know we could easily afford to move to a million dollar home, we also know that it would make us any more happy after we got settled in. Avoiding the temptation to succumb to the hedonic treadmill on the big things like housing has been a significant part in our financial success in my opinion.
Given that you have a bit more wisdom and experience, what advice do you have these days for ESI Money readers?
First, I recognize that our high income has given us a leg up on most folks in the FIRE community or those on a path to becoming millionaires.
That being said I do believe most people have the ability to become financially independent with the right plan and execution. No matter how much money you make it is always important to save something for the future.
I also think picking the right partner and associating with quality people is critical to your success. Having a teammate to build you up and keep you motivated is crucial to meeting goals over the long term. And when you meet those goals it is important to celebrate along the way. We still make it a point to identify milestones or little victories and reward progress when we achieve it.
Finally, irrespective of where you are in your career or investing stage it is vital to have perspective on how fragile life can be. Our greatest perspective came in the form of our second daughters passing as an infant due to a Congenital Diaphragmatic Hernia. Her death reinforced our strength as a family and made us realize that in the end it is only money and what matters most is not the amount you have but what you do with it.
This is a fantastic update! It’s great to hear that things continue to go well for you. My wife and I share your approach to investing. Like you, we e keep it very simple.
Here’s wishing you continued success and good health.
Thanks and to you as well!
What are you currently doing to mitigate the bloodbath you are taking on taxes ?
Unfortunately, since 95% of our income is W-2 we are limited in options. We max out tax advantage accounts available and have consulted with legal and CPA for options but there really isn’t any good ones. Moving to a contract position, which would open options, is not possible with my wife’s current employer and she would likely take a serious pay cut to find new position. Definitely a sore spot in our overall financial picture.
How has your portfolio fared in this market? Maybe ESI should ask everyone to update their figures or at least comment on this in their interviews.
There is some discussion on this topic in the forums, but unless I publish something the day I get it, there is always the potential for changes from the time it’s receive to the time it’s posted.
But I do put the date on the post so you know when it was submitted (for context).
We have definitely seen a decline as can be expected. Our return year to date is down 9% which is beating the SP at down 11%. This can be mostly attributed to our cash and fixed asset allocations. Also, since this interview took place last year we have added just over $100K into the market which has helped lesson the overall impact on our net worth. Bottom line, we are doing nothing different and using this volatility as buying opportunity for the future.
There is increased talk of a recession as well as fed rate hikes that are necessary. Buying at these heightened levels doesn’t seem to be a value proposition. What is your opinion?
It depends on your investing time frame.
If you’re investing for 10+ years, as you should be if you’re buying stocks/index funds, then I don’t see an issue.
If you’re looking to invest money for a shorter period of time, that’s when you run into issues.
I agree that a recession is both possible and as some are saying even probable. However as ESI states, our time horizon is long. Over the past 22 years I have bought high and bought low. I have no plans of changing that for at least the next 15-20 years, the only caveat being for our 529 plans in our kids names. My daughter will be entering high school this fall and we had begun shifting her allocation to a less aggressive target at the end of 2020 when we were five years out from her first withdrawal. Even than, if it is not advantageous to pull out at the start of her education we can cash flow first year (or four) and use later for her or our son who is another four years back. In the end, recessions and pull backs are normal even if a lot of folks got used to ‘stocks always going up’ and we have in my opinion a balanced portfolio built for the long haul.
Hi OP,
I am a primary care physician as well, just under 50. You seem to be on target with your goal of $4M by 50. We hit $4M+ at the peak 11/2021 in our retirement accounts, currently down to $3.9M. 3 years ago that number was only about $2M. However, I did a lot of selling 12/2021 and am over 70% cash currently in our retirement accounts.
I was and remain concerned about the headwinds in the current market. Treasury spreads are narrowing, and another inversion can signal recession in the next year or two. Labor markets are so tight already. However, consumer demand remains very strong, and our problems are currently on the more palatable supply side rather than demand. So, we can end up with a good run after the current correction subsides if we successfully mitigate the supply bottleneck, so I’m cautiously looking for buying opportunity. However, if demand wanes (evidence suggests demand has already started waning) and if unemployment starts on a consistent uptrend, I’d rather play it safe. Oil prices, wage pressures and high inflation coupled with rising interest rates are major wild cards here that look to remain consistently high this year and can reverse demand.
In an environment like this I’d rather protect my gains than any disappointment in losing out on any early market rebound. Not saying we’re going to repeat the Great Depression, but in that instance peak to trough in the market took about 6 years, most other significant recessions end in about a year or two, but still psychologically bruising in the meantime. I just don’t have a risk appetite here…and have not recently heard Warren Buffett excited about taking any major positions lately.
We’re still young enough to wait for a healthier economy. Patience and discipline here.