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 November.
As usual, my questions are in bold italics and their responses follow…
OVERVIEW
How old are you?
My wife and I recently turned 37 this year, and yet we still feel much younger, which is a good thing.
The scary part of that is that we realized that 50 is only 13 years away…that doesn’t even seem possible. It still feels like it is so far away but when you put it in the context of years, it feels far too close for comfort.
We have been together for 18 years and married for 11.
Do you have kids?
Yes, we have two kids.
Our son just turned five, and apparently, we didn’t get the memo about social distancing during the pandemic because we ended up welcoming our daughter to the world in August of 2021. She turned two this year.
What area of the country do you live in (and urban or rural)?
We still live in sunny SoCal but have somewhat recently migrated to wine country as we settle into our dream house.
We put down the initial 25% down payment in March of 2020, right before the pandemic lockdowns began. This was accidentally opportunistic timing as we locked in a price that proceeded to double only a year later.
We made some improvements, and didn’t officially move in until late December of 2021. We are now on 5 acres and have transformed our property into a resort that we never have to check out of.
What was your original Millionaire Interview on ESI Money?
I was Millionaire Interview #201, which was published on September 21st 2020.
I remember being so excited to finally have the opportunity to participate in the interview series, as I had previously participated in the ESI Scale Interview series as Interview #33 (published almost exactly two years earlier).
Is there anything else we should know about you?
As you will observe as you read below, a constant theme in my life has been that of accelerating timelines.
From the financial standpoint, what I mean by this is that I’ve hit major financial milestones in both income and net worth far faster than I had originally set out to do. I attribute this to both luck and intentionality (I’m just not sure how to split the credit).
NET WORTH
What is your current net worth and how is that different than your original interview?
I will go for some extra credit here to satisfy all you financial voyeurs out there – you know who you are! Below, I share the entire trend since I started tracking net worth a little more than a decade ago. Not pictured below is the fact that we really started our journey with a negative $300,000 net worth in 2009, as my wife and I had just graduated college.
Correlating to the two prior interviews that I’ve done for the ESI blog, in October of 2018 (ESI Scale Interview), our net worth was $806,918; in September of 2020 (original ESI Millionaire Interview), our net worth was $1,911,820, and today it clocks in at $11,408,379.
We have very minimal debt in comparison to our net worth, and that’s mostly because we prefer to maximize for peace of mind and optionality. We don’t have a mortgage, and we pay our credit cards off every month, but the $69,242 you see in the graphic below is for a car loan I took out when I bought a new car in October of last year. It was before interest rates really started to increase, and I decided to finance the purchase of my Genesis Electrified GV60 at 3.5%. But I’m so debt-averse that I’m now planning to pay it off before the end of this year.
What happened along the way to make these changes?
The biggest change was that back when I had written the original interview, my business was only 18 months old, and I hadn’t sold any of it. Since that interview, I have monetized the business and sold it in two increments. This has been the ultimate wealth accelerator and has driven more than 90% of our total net worth.
I started the business with an initial investment of $267.42, and the valuation when I sold the remaining 40% was $20,500,000. I never put any additional money into the business. I gave equity out along the way, but personally, I extracted $9,265,249 in the form of compensation, profit distribution, monetization of equity, and what I rolled over into the acquiring company’s stock.
I’ve deployed a significant amount of capital over the last several years. In the last decade I had favored illiquid investments for the forced discipline they provided. Now that we’ve exceeded our original $10M net worth goal, I plan to spend the next five to ten years simplifying our financial lives with a move toward more liquid assets. Our current net worth is about 28% liquid and 72% illiquid. The first target is for a 50/50 balance and thereafter a likely continued shift to more liquid investments.
What are you currently doing to maintain/grow your net worth?
I would say we are doing two main things to continue growing our net worth:
(1) Earning Active Income – Although I have sold my business, I am still earning an income, bonus, and profit share from the acquiring company as I continue running the business they bought. My wife has also “sold” her business but still works 2 days a week for the new owner. Our earned income more than covers our lifestyle, so we continue to practice the golden rule to “spend less than you make and invest the difference wisely.”
I put “sold” in quotations because she really gave it away in exchange for the working capital (~$265K of cash in the bank) at the time of the agreed transfer date.
(2) Re-investing dividends, interest, and returned capital.
EARN
What is your job?
Well, I’ve sold my business, but I still identify as an entrepreneur. I’m technically a partner in the firm and not a W-2 employee. My pay shows up on a K-1 at the end of the year, but I do have three forms of income: base salary, variable bonus, and profit distribution based on my pro-rata ownership.
I’d describe my position as a Managing Partner for my particular practice and P&L that I’m responsible for. I was able to extricate myself from billable work about 18 months ago. I’m mostly responsible for sales (I still bring in the majority of the new revenue), recruiting, and strategy.
What is your annual income?
My base salary is $402,000 with a target bonus of $100,000+ (based on performance of course). In addition to this, I also receive my pro-rata share of the profits – at least on paper – and for 2023, that will work out to be about $200,000.
My wife will earn somewhere around $100,000 for the year. We also have another $150,000 in passive income (although the potential is much higher if everything were to cash-flow as expected – to the tune of ~$350,000 per year).
So, the income I can count on, I’d say annually, is currently around $800,000+.
How has this changed since your last interview?
In my last interview, I had projected we would gross about $1M in 2020, and as you can see in the chart below, that actually came in at $1,305,126. The income you see in the table and chart below represents all sources of income – including the monetization of my business’s equity through the two transactions I mentioned above.
To help with tax planning and the associated tax liability with such a high income, we structured each transaction in two payments to spread the income over a total of four years. We do have one final payment coming in January of 2024, but we expect our income to fall to around $1.5M in 2024 and then to between $800,000 to $900,000 in 2025 – barring any additional liquidity events.
It blows my mind that a “bad” year of income based on recent history is still pretty darn close to seven figures.
The more important item to note that doesn’t show up in the numbers is that as our income has risen, we have been intentional with decreasing the amount of time we exchange for that income. These days, I only work four days a week and will have taken almost 8 weeks off by the end of 2023 (on top of having a 3 day weekend every week, and sometimes a four-day weekend when Monday happens to be a holiday).
Have you added, grown, or lost any additional sources of income besides your career?
Over the years, we have lost and gained income sources, but since the last interview, the majority of our passive income (approximately 95%+) was created in the last three years. My profit share has gone down significantly, but that was in exchange for millions of dollars upfront and the ability to roll part of my gains into a much larger compounding machine. My current expectations for the $2.5M that I rolled over will be worth $7.5M to $15M by 2026, which also corresponds to an anticipated liquidity event :-).
SAVE
What is your annual spending and how has it changed since your interview?
In short, our spending has definitely gone up with our increase in income, but it hasn’t been proportional. We adopted the law of 50/50 a long time ago, which says we need to aim to save 50% of our after-tax income and are free to spend the remaining 50% guilt-free. The reality is that our desire to spend hasn’t kept pace with our earning ability.
Here is a snapshot of our spending with historical context:
(1) We secured our dream house in early March of 2020 prior to the pandemic breaking out and real estate going crazy; the value doubled within 18 months after we bought.
(2) Related to the above, our goal was to turn the dream house into a resort that we never have to check out of as well as to take care of deferred maintenance. This is what you see in the “One-Time” column, as it represents the money we have put into the house to transform it into our vision, which is now largely completed in 2023 as I type this follow-up post. We have cash-flowed all of these improvements over the last four years.
(3) We have been super intentional not to get crazy with fixed expenses that would keep our expenses elevated to what I would consider an uncomfortable level of spending.
(4) We have a pretty good sense of where we will end the year for 2023 as we only have two months left as I type. I’ve also included 2024, as we still pull together a rough budget of what we think our spending will be. It’s not really to control our spending, just to make sure we are being intentional with our spending. If you ignore the $75,000 placeholder for two projects we still have on our wishlist, of the $220,000 of what I will call “regular spending,” only $80,000 of that is fixed and necessary (in 2020 this was about $60,000 when I completed the same exercise), and the remainder is completely discretionary.
What happened along the way to make these changes?
I think the obvious one is that we bought our dream house and had to make a fairly large investment in it to make our dreams a reality. The good news is that the maintenance in terms of fixed lifestyle costs for upgrading to our dream house is fairly minimal, considering we have a 5-acre property and a resort home.
The other big variable is that we had our second kid, and as they both get older, they have become more expensive. For example, part of 2022 had almost $90,000 in combined childcare expenses that included (1) a full-time nanny for the first year of our daughter’s life and (2) daycare for our son. In 2023, that has decreased to $30,000 with both kids in the same daycare. The good news is that it will continue to decrease as each kid is old enough to go to public school.
We have also dialed up the discretionary bucket for travel to between $40,000 and $50,000 per year.
INVEST
What are your current investments and how have they changed over the years?
You’ll notice that I included a high-level breakdown of how our net worth is split in the above graphic, which I will detail a bit further below. I’d say it has become more diversified in both categories as well as in the number of investments. I will also admit that our financial life has become a lot more complex from both a tax and investment standpoint, but it has been intentional, as I have been obsessed with keeping our tax liability as low as possible.
I’m a big believer in the old adage, “It’s not what you make but what you keep that counts.”
We still skew very heavily illiquid vs. liquid, and until recently that has also been by design for the forced discipline and less brain damage due to irregular mark-to-market (i.e., valuation changes).
Net Worth Breakdown (see pie chart in Net Worth section above)
- Crypto (2%) – This is entirely made of Bitcoin. I started acquiring a position back in March of 2021 and now hold ~8 BTC. Although I find the information and philosophy behind Bitcoin compelling, with hindsight, I recognize now that I was more motivated by FOMO than anything else. I read several books, read many blog posts, and listened to many podcasts before jumping in. I also didn’t get comfortable with buying any until I found LedgerX, which would allow me to sell calls against my position to reduce my cost basis. Although my initial basis averaged about $45,000, my actual basis as I type is around $29,000 due to all the option premiums I have collected by selling calls.
- Stocks (7%) – This is still much lower than I expect it to be in the longer term, but it is up more than 2X as a percentage of net worth (and 13.3X in absolute dollars) from my original interview three years ago.
- Other (11%) – This bucket is really a catch-all for everything that isn’t stocks, real estate, or crypto. For example, we have investments in private companies, life settlements, private equity funds, debt funds, etc.
- Real Estate (13%) – This represents investments through the CrowdStreet platform, a few private syndications, and a couple of real estate debt funds.
- Primary Residence (17%) – We have no mortgage and a significant piece of net worth tied up in our home. We like the peace of mind of knowing that our house is paid for. Over time, we still aim to get this to be less than 10% of net worth.
- Cash and Equivalents (19%) – We keep about $20,000 to $40,000 in our checking account to cover our regular expenses, but the rest of this is tied up in either short-dated treasuries earning ~5.5% or a CD earning 5%.
- Business Equity (31%) – This represents the equity I hold in the company that acquired my company, which I will detail more in the next question below.
What happened along the way to make these changes?
We used ownership (i.e., equity) to build robust cash flow and eventually converted that equity into cash to diversify in other investments (acquiring more equity). We have always been more focused on increasing our income than we have on reducing our expenses, mostly because we prefer relative frugality vs. extreme frugality.
We put a lot of effort into increasing our income outside of a W-2 income stream while building equity through the leverage of other people’s talents, knowledge, time, money, and experience.
We remain diligent and committed to living by the golden rule of wealth building: “spend less than you earn and invest the difference wisely.”
MISCELLANEOUS
Overall, what’s better and what’s worse since your last interview?
Hands down work/life balance is much better. I spent a decade working 80+ hours a week and loved it but always recognized that it was an end to a means, not a lifestyle I wanted for myself indefinitely.
Additionally, “F*ck you” money is real. It is absolutely freeing to make decisions on how to spend your time divorced from your financial obligations when those are already covered. I’ve made my family my top priority when it is them against work, which sadly wasn’t always the case before becoming financially free.
What are your plans for the future?
From a financial standpoint, the big plan is to balance out the mix of illiquid vs. liquid investments. The current goal is to get to a mix of 50/50 and then re-evaluate. This will be accomplished by deploying all new investment money to liquid investments and re-deploying proceeds as they come back to us in the same manner. I won’t say I’ll never make another private/illiquid investment, but they are off the table until we get to a 50/50 mix, and then we will re-evaluate.
We already exceeded our Big Hairy Audacious goal of hitting a $10M net worth (goal was to do it in 20 years and we did it in 7), and we don’t have any intention to move the goalpost, at least not in a way that requires us to trade more time for more net worth. We like the work/life balance we have at this stage in life. We both just turned 37 this year, and our kids are at the age where they still think we are really cool.
We do plan to travel with the kids to more international destinations – Italy is the spot for 2024, and we intend to go for a 30-day trip. I have taken a 30-day sabbatical twice in the last four years and now plan to take every October off annually.
Although we are not officially setting the goal post higher, I don’t think $25M+ is out of the realm of possibility in the next 5-10 years based on the seeds that have already been planted.
Given that you have a bit more wisdom and experience, what advice do you have these days for ESI Money readers?
I would repeat what I said the last time I completed an interview:
I said it earlier and I will say it again the golden rule to building wealth is to spend less than you earn and to invest the difference wisely. The bigger the āgapā between earning and spending, the more powerful the invest component becomes.
You get to choose how you operate in that framework. Personal finance is like an āall you can eatā buffet where you can pick and choose what to put on your (financial) plate.
I truly believe ā which explains where I have focused my efforts ā that a high income paired with a high savings rate is the fastest path to financial freedom. I chose this path due to my preference for relative frugality over extreme frugality.
Itās not rocket science!
The only thing I would add is that for those who are looking for the ultimate x-factor and have the risk appetite, try intelligent entrepreneurship and you may just end up with an amazing wealth accelerator.
Onward & Upward!
Steve says
Your net worth is all subjective. Very little real money. You assign a heavy valuation to your business equity which may change suddenly. It may help to come back to reality and realize you have very little hard cash.
Dom @ GYFG says
Hey Steve,
I like it, you show up as āthe 10th manā to challenge people to think differently.
Iām curious what your definition of a large amount of hard cash would be? With almost 10 years worth of living expenses in hard cash (mostly short term treasuries), I thought that was a lot but Iām curious what your benchmark is?
You very well could be right that my net worth is subjective and with more than 70% in illiquid assets and as you point out a heavy allocation of 31% in the business equity category – I can see and acknowledge your observation. My business equity valuation is based on two things: (1) contractual payments for the sale of my business to the company I now work for and (2) the formal valuation that is done 2X a year.
That said, like any asset (public or private), anything can happen between the last valuation and when you go to sell it. That is why I have tried to always de-risk anytime I can. That is why we own our home outright with no mortgage and have no material debt. Iāve also tried to invest in cash flowing assets that produce regular income.
Your point is also well taken as part of my goal as you read in the above to shift more net worth from illiquid to more liquid assets. I should point out that if I were to leave the company that bought mine, my stock agreement requires the company to buy my shares back at current market value, which is based on the latest formal valuation – so makes the value a bit more real.
Lisa says
I cant help but reply to Steve’s comment. 19% cash and 7% stock is still over $3million. I am not sure what reality you live it, but that doesnt seem like very little hard cash from my perspective.
Dom @ GYFG says
Hey Lisa,
Sounds like we live on the same planet but Steve has a much higher bar – LOL
Dom
Mitch says
So happy for your family! Made a plan and executed. Philosophy is spot on! I also loved working and put the crazy hours in when I was young and before having my first child. After my first child I started prioritizing family over wealth accumulation.
I have been trying to get my 17 year old boy to read these, and while he is intelligent and interested in money and savings, he doesn’t find this kind of information interesting enough to hold his attention. He is obviously a teenager so probably not all that uncommon, but if anyone has a teenager reading these and could provide any insight, I would appreciate it.
Dom @ GYFG says
Thanks, Mitch.
Sounds like we have taken similar paths to prioritize family over wealth accumulation. Iām just grateful that I took an interest in personal finance early and had enough self awareness to hit some major milestones earlyā¦although there were no guarentees. Luckily it worked out!
My kids are only 5 and 2, so I donāt have much to offer on how to get your 17 year-old engaged. That said, Iāll be watching the comments for hints.
One of my concerns we have with our kids is a sense of entitlement. They are going to live a very affluent life compared to the one I came from. Adversity was my greatest advantage and motivator. We want to give our kids an advantage but we also want to make sure they have empathy for others. We want to make sure the understand that they are lucky and no better than others.
We also want them to develop a good work ethic. My hope is they find their own ambition and path to living a fufilling life.
MI says
Can you talk more about your business and what it actually is or how it works? I think thatās probably the most important thing to talk about in the post.
Dom @ GYFG says
Hey MI,
I was a bit vague due to my anonymity. That said, we are a value-added reseller, which means we sell software and professional services to implement the software for our end clients.
From a revenue perspective, we generate revenue from professional services or implementation fees, commissions on the software we sell, and managed services post-implementation.
I wrote more about the business in a few of my shareholder letters – but still removed some details to maintain my anonymity:
https://genyfinanceguy.com/2019/08/04/open-for-business/
https://genyfinanceguy.com/2020/04/16/annual-shareholder-letter/
https://genyfinanceguy.com/2021/02/18/annual-shareholder-letter-2/
I don’t expect you to go and read all of these, but if you’re interested in more details than what I’ve shared in this guest post or comment, this is the only place I have expanded details on the business and its performance.
MI says
Awesome, thanks!
Youāre very skilled at your business and are the first customers of your own product which is a big learning.
James says
I disagree with the negativity of Steve the commenter above. You seem to be very well allocated. Your doing an excellent job especially for your age.
Dom @ GYFG says
Thanks, James.
I figure since he never commented back that he was just trying to get a rise out of all of us. Always happy to be challenged but it doesnāt seem like he wants to have a conversation.
M139 says
I have been following http://www.genyfinanceguy.com for a while and always look forward to reading your latest post. You have done an absolutely amazing job reaching your goals and building the life you dreamt of and planned for. Compounding $10 million plus at 37 will definitely be really interesting to follow in future years. I am really surprised to see you are dialing back on your spending since you could easily be spending double your current spend rate and still afford increased spending from that level in future years. Have a very Merry Christmas and thanks for the update and all your gen y posts.
Dom @ GYFG says
Thanks, M139.
Iām grateful for you following my blog.
I probably still suffer from a paranoia of losing it all after coming from such humble beginnings. I have also witnessed first hand folks that get so used to living such an expensive lifestyle and it gets away from them. Iām okay with spending more as long as it is planned, intentional, and variable.
We have doubled our spend rate over the last five years, and I suspect and plan that it will increase again in the next 5-7 years.
That said, although our goal was a $10M net worth, which we have achieved, it was paired with a passive income goal of $600,000. Until I know we have that much coming in regularly, it will be hard for me to get comfortable elevating our expenses too much higher on a sustained basis.
That said, Iām curious what you would you spend the additional money on if you were in my shoes?
Merry Christmas!
Dom
M139 says
That said, Iām curious what you would you spend the additional money on if you were in my shoes?
If you look at spending money as maximizing your marginal utility from money. There are definitely some areas in travel, experiences, donating that might give you more utility than accumulating more money. Warren Buffett is 93 and has very few things he could spend money on to enjoy his life more. At 58, I have more choices than Warren Buffett and at 37, you likely have more choices than I do. My comment came from your spending dropping from the prior year level even excluding one time expenses the last couple years. You are doing absolutely awesome with spending to enjoy your life and building your dream home.
Have a blessed and very Merry Christmas with your family.
Dom @ GYFG says
I certainly appreciate the perspective.
A few things come to mind:
(1) Our spending excluding the one-time improvements to our home/property is actually going to come in around $240,000.
(2) The YoY drop in spending down to the $220,000 level is mostly driven by paying off the one and only loan we have on the car I purchased in 2022, and our electricity bills since we put in solar and batteries in 2023.
That being the case, I certainly donāt want/need to accumulate money just for the sake of it. I was just responding to someone the other day that I will probably never be able to adopt Warren and Charlies favorite holding period of āForeverā because in the context of a human life, that is pure fantasy.
I tend to think in 5, 10, and 20 year time frames at most. We also try to be very intentional with make sure we find ways to convert the wealth into something we and others can get joy and utility out of.
One area that I do see stepping up in the next five years, will be the giving category. One of the items on the list for 2024 is setting up a Donor Advised Fund. My wife is on the board of an organization and involved with several othersā¦and I know she wants to do more to give back.
Cheers,
Dom
MI-343 says
I like the golden rule of wealth building: āspend less than you earn and invest the difference wisely.ā Investing a portion with seven or eight historically reliable growth investments is wise because we never know what trouble may come upon our economy. Great job! Thanks for sharing.
Dom @ GYFG says
Thanks, MI-343.
I canāt say I came up with the golden ruleā¦only that I adopted it. I think I got it from Todd Tresidder of Financial Mentor.
Dom
MI-365 says
Hello, thank you for sharing and congratulation on your success in the many aspects of your life. Do you mind elaborating on your definition of “intelligent entrepreneurship”? I have always tried to work smarter, not harder. It seems you have followed this mantra. I am curious on your definition and how it has impacted your life decisions. Thank you