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. š
This update was submitted in July.
As usual, my questions are in bold italics and their responses follow…
OVERVIEW
How old are you?
My spouse and I are both 34 years old.
Weāve been married for 11 years.
Do you have kids?
At the time of our last interview, we were just starting our family. We now have 3 kids under the age of 6! Boy, are they expensive!
Our middle child was born shortly after our original ESI interview, in the early days of Covid. No visitors were allowed in the hospital, which made things challenging. We welcomed our third, a daughter, in June 2023, so our house is constantly noisy!
Many developed countries, including the U.S., are starting to encounter demographic headwinds due to declining birth rates. Having children is incredibly expensive, and I personally know a number of people who are opting out because of the cost. I think this is one of the top challenges facing us as a society.
What area of the country do you live in (and urban or rural)?
We live outside a major Midwestern city, in a medium-to-high-cost-of-living suburb.
What was your original Millionaire Interview on ESI Money?
I completed our original Millionaire Interview during the first few weeks of Covid lockdown.
Is there anything else we should know about you?
Iāve lived in small towns, major cities and everywhere in between. Itās given me a wide perspective and appreciation for how individual backgrounds, experiences and choices color personal finance decisions.
That said, success in personal finance can largely be based on a set of principles (ESI, anyone?) that translates across cultures and geographies.
NET WORTH
What is your current net worth and how is that different than your original interview?
Our net worth is about $2.83 million, up from $1.57 million in our previous interview, or an increase of about 80%.
Iām happy with this progress, considering we are in what I would consider peak-expense years.
Weāve also made some intentional decisions to shift our āsave for the futureā mindset to āsave for the future and spend some now.ā
What happened along the way to make these changes?
Over the past several years, weāve mostly continued the trajectory we were on at the time of our last interview. Weāve continued in the same jobs and expanded our family, largely keeping the same positive financial habits that made us millionaires in the first place.
The past few years were very busy and challenging for both of us at work (particularly for my spouse, being in healthcare), but our companies performed well and we continued to grow our incomes.
Last year we decided to purchase our forever home (~$900k in a medium to high cost-of-living area). I struggled with the decision because I view everything as a financial investment, but we ultimately decided that financial ROI should not be the No. 1 driver when it came to our primary residence. We want this to be the house our kids grow up in and eventually bring their own families back to. There are some things you just canāt quantify on a spreadsheet.
We havenāt regretted it for a minute. The tradeoffs are what youād expect them to be. Utility bills, maintenance, insurance and property taxes are significantly higher with our new home.
We were fortunate to pull off some incredible timing, doing very well on the sale of our previous home and locking in a low mortgage rate before rates began to spike. Previously we enjoyed the freedom of no mortgage, but knowing this is our forever house, I made the conscious decision to take on a 30-year mortgage and allow inflation to make our monthly payment smaller in real dollar terms every year. Only a year in, it looks like that will be one of the best financial decisions weāve ever made. Having record high inflation in the first year on a 30-year amortization table has a compounding effect over the life of the loan.
What are you currently doing to maintain/grow your net worth?
Up until this point, our W-2 income has been our primary net worth driver. Weāre now hitting a fantastic tipping point where investment growth is starting to outpace income, which should give us a lot of upside in the coming decades.
Being in our early (now mid) 30ās, our investment allocation has been aggressive ā non-cash investments are nearly 100% equities, mostly U.S. stocks but with a sizable portion of international equities as well.
We have been keeping an outsized portion of our net worth in cash and cash equivalents (CDs, high-yield savings, T-bills, etc.) due to high interest rates.
Our mindset has been to invest early, invest often, and stay invested for the long haul. Itās boring, but it works.
EARN
What is your job?
Iām a senior executive at a professional services firm, and my partner is a pharmacist. My compensation includes a comfortable base salary and a highly variable bonus (over $100k is achievable in a year with fantastic performance).
I enjoy working in a āpeopleā business where success comes from a mix of hard and soft skills. Iāve always felt in control of my own destiny.
Unfortunately the earning potential in the pharmacy world is not what it used to be, but my partnerās position has been stable and predictable. There are plenty of opportunities for lateral moves in healthcare so we feel confident in the long-term potential there.
What is your annual income?
Our household AGI was a bit more than $500k last year.
How has this changed since your last interview?
Over the past four years our AGI has varied between $400k and $700k, dependent in part on variable compensation. I suspect our income has plateaued, as neither of us is aggressively pursuing career advancement right now.
I highly recommend pursuing a career in which you have some upside (bonus, RSUs, etc.) due to individual and/or company performance. For me, this has been a meaningful and growing portion of compensation.
Have you added, grown, or lost any additional sources of income besides your career?
With interest rates increasing, interest and dividends (set to automatically reinvest) are becoming a meaningful source of income. Over the past 5 years, this income category had a CAGR of 35%. This year, we expect to earn about $25,000 from interest and dividends. (How cool is that!?)
While I donāt expect this rate of growth to continue, a CAGR of 15% over the next decade would get us to $100,000 in passive income before we turn 45. This is a big motivator for us and helps us stay invested (and keep investing) and mostly ignore market ups and downs. I recently saw an ESI post in which the interviewee had over $300,000 a year in dividend income. That is hugely inspirational!
SAVE
What is your annual spending and how has it changed since your interview?
Last year we spent about $158,000. In 2023 weāll be close to $200,000. This is up from $102,000 in our last interview.
Our largest expenses are childcare (approximately $50,000 per year), property tax ($20k per year) and a new family SUV (paid cash) in 2022. With three young children, I would consider us to be in peak expense years, and I expect this number to moderate in the future.
Despite spending about $200,000 this year, I do not consider our lifestyles to be extravagant. We drive Toyotas (my Camry is a base model). We eat a relatively healthy diet with groceries (about $1,100 a month) sourced from Costco and Aldi, and we donāt buy expensive clothing ($150 a month). With young children, we havenāt done much traveling the past few years.
Since moving into our new home, improvement and maintenance has been a larger line item, averaging $2,200 per month last year which includes prepping our previous house for sale. It has now moderated somewhat to around $800 per month. This will scale back further as we settle in.
What happened along the way to make these changes?
Not including 401ks, weāve saved more than $150,000 after taxes in each of the past three years.
Last year we saved about 39% of our after-tax, after-retirement-contributions income. While this number could be higher, we have become more comfortable with spending for conveniences (cleaning service, grocery delivery) and enjoyment (dining out occasionally without regret, nice accommodations when traveling).
INVEST
What are your current investments and how have they changed over the years?
Hereās a breakdown of our investment categories, in descending order by total value. Growth (combination of both new investments and portfolio performance) over the past 3 years is in parentheses:
- Brokerage (up 204%)
- Retirement, including 401ks and IRAs (up 87%)
- Cash (up 67%)
- Primary residence (equity value down 18% due to moving)
- Alternative (new category)
Our brokerage account holds mainly mutual funds and ETFs, though a portion is allocated to individual stocks. While I realize the odds are against me in terms of outperforming the index with stock picking, I enjoy getting to know specific companies more intimately as an owner with a vested interest.
Our cash position is currently sitting at more than $500k and is earning about 5% across a mix of savings accounts, Treasury bills, I-bonds, and CDs. We continue to dollar-cost-average into the market, though this cash position has continued to grow.
Alternative investments are primarily in real estate crowdfunding and some venture-like technology investments.
What happened along the way to make these changes?
Our brokerage and retirement accounts have benefitted from:
- Automatic investments
- Continually reinvesting dividends
- 100% equity allocation
Although this might be an unpopular opinion, we have little use for bonds in our 30ās. We reserve the right to reevaluate our investment mix down the road, but we have a growth mindset right now.
I consider myself a Boglehead, and our mutual funds and ETFs are all low-fee, allowing us to capture the vast majority of the returns in the underlying holdings.
I was fortunate to invest significantly in total stock market ETFs during May 2020, within 1% of the bottom. In hindsight, I only wish I bought more!
MISCELLANEOUS
What other financial challenges or opportunities have you faced since your last interview?
With three young children, saving for college is on our minds. Weāve set up a 1099 account for each child, and weāre targeting about $50,000 in each account. In the event one of our children decides on a different path than college, or receives a meaningful scholarship, we want to avoid overcontributing and tying up funds unnecessarily.
With our new family size, our health insurance premiums have become significant. Iāve read dozens of ESI interviews in which health insurance in retirement is cited as the biggest future challenge. I expect that will be the case for us, too.
Overall, what’s better and what’s worse since your last interview?
Inflation is much, much worse! Itās concerning to see purchasing power erode so quickly. I stopped at a Subway for the first time in years, and they have a premium sandwich on the menu that costs $19. At Subway!
On a larger scale, Iām concerned inflation and interest rates are still in the early days of taking their toll on U.S. consumer spending, which is the backbone of our economy. People on modest incomes are routinely taking out 7-year car loans at 8% on $50,000 vehicles. This isnāt sustainable.
Our focus is on staying the course and controlling what is within our control.
What are your plans for the future?
We donāt have any plans to change whatās working for us from an investment perspective. Weāre still in the wealth accumulation phase, so our plan is to stay the course.
Within the next 5 years, we do expect weāll have at least one career change to bring a bit more balance to our increasingly busy family schedule. In the long term, we see an opportunity to do something more entrepreneurial, or at least make a career choice based primarily on enjoyment and impact rather than earning potential.
Given that you have a bit more wisdom and experience, what advice do you have these days for ESI Money readers?
Time only moves in one direction. Dollar cost averaging is your friend. The best time to invest was yesterday. The next best time to invest is today!
It wonāt matter at the rate youāre going, but I would warn you that early childhood is nowhere near the peak of family expenditure !
I hate to break it to you but you are nowhere near the height of expenditures. We are in a similar situation to yours financially with income and spend (although about 10 years ahead) and teenagers can be expensive. Ours arenāt even really into clothes or competitive sports but with music lessons and scouts we could spend $600 a month on these alone. When they stop sharing an adult meal at a restaurant and each eat their own-wow!
We had the same thought when it comes to saving for college. We also have about 50K for each with another 50K in custodial accounts for each. We can use the custodial account for a car or college expenses or whatever a 20 something may need. If we did save too much for college then with secure 2.0 the kid can use the leftovers for his/her retirement contributions when working.
Sounds like you have put yourself into a good position financially to make excellent choices for your family. After the kids started school, one of us has always been around in the morning or when they get home (you never know when a teenager wants to talk). We have both fashioned our schedules so we have this flexibility. Not uncommonly, both of us are home at 3-4 pm and can hang out together and get family stuff done. We are in accounting and medicine.
Congratulations on an excellent start to a wonderful adventure with your kiddos.
Apologies but I will correct myself. Been so long since we paid for daycare I forgot about that HUGE expense. Was so nice to get a 25K āraiseā when stopped paying for daycare when kids went to school. Teens are still expensive, especially if you let them develop expensive shopping habits. We have avoided that so far. .
Entrepreneurial adventures take up more time than a new offspring. You might consider earmarking that adventure to a later chapter in your lives. Be sure to enjoy your 18 years with the children because you might blink and they will be off to college or their own lives.
By 1099 account, you meant 529 account right?
This is so impressive, especially at 34! You’ve learned the right things at the right time and thankfully the market and RE values have been bonkers the last decade.
Curious as to your profession, as I didn’t know one could earn $300-$400k unless they were a CEO or surgeon, along those lines. How did you get into that line of work and decide that’s what you wanted to do and enjoy each day?
Stocks and bonus
Great job, but I read this and cringe thinking you are prioritizing more money, nicer stuff, and a bigger house over raising your own children.
There is no greater use of money than utilizing it to be able to have a stay at home parent to raise your little bundles of joy especially in these years they are most formidable instead of paying a stranger to do the job for you.
You are already wealthy, and your NW will only continue to grow and balloon to more than youāll ever needā¦but your kids are only young once. Iām so thankful my parents made this sacrifice and I paid it forward by doing the same for our family. News flash is that you will still end up decamillionaires just like we did.
I loved your update. Your financial approach is balanced and thoughtful. Ignore comments on parenting and childcare. There is not just one way. Stay the course!
Thanks for updating us. Your last paragraph is great thought and advice. Blessings!
Congrats on growing your family (and your NW)! Enjoy the time with them. We currently only have 2 under 4 and it feels like a madhouse most days š. Fully understand how you feel re: peak expenses – daycare isnāt cheap!