This post initially ran on Wealth Lion. I have added the comments from the interviewee on that post to this one to provide more clarity.
Here's the latest in my series of millionaire interviews, discussions with everyday people who have practical tips and insights into growing and managing wealth.
My questions are in bold italics and their responses follow in black.
Let's get started...
How old are you (and spouse if applicable, plus how long you've been married)?
I am 37 yrs old, wife is 35 yrs old. We have been married 9 yrs.
Do you have kids/family (if so, how old are they)?
3 kids: Boy (6), Girl (4), Boy (2)
What area of the country do you live in (and urban or rural)?
Florida, in between rural & urban. Would not call it fully one or the other...suburban.
What is your current net worth?
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?
- Real estate (non-primary resident, investment properties) = $551K which generate approx minimum $35K annual income not considering equity increases
- Notes carried $140K at 6.25%
- 401K = $278K
- Brokerage fund with large brokerage house (mixed assets: stock, bond, etc) = $768K
- TD ameritrade = $7K (stocks)
- Company stock at separate brokerage house = $450K
- Cash (money market, savings, etc...) = $200K+
What is your annual income?
Varies. Last year after tax about $397K... this was my net worth increase last year... Salary is $165k.
What is your main source of income (be as specific as possible -- job, investments, inheritance, etc.)?
Main is still job, heavy bonus/incentive based, but my portfolio (including investment properties) is becoming substantial enough that it is a big part.
What is your annual spending?
Negligible for someone in my situation. I say this based on my peers, and even family making significantly less and with less net worths. We are "hyper savers". This is a big key to the big net worth increases realized over past few years (averaging about 20% or so annually for past few years). My wife is incredible, I am more of hyper saver than her, but she is not far behind me. We don't feel like we are missing out on things, we search for great opportunities to do with kids or ourselves but don't lose sighe of cost. I can't give you an exact dollar amount since I subscribe to "pay yourself first" so I really don't get caught in counting where every penny goes. I used to try this and I am just too anal to do it. I freak out over chewing gum $25 cents at a machine when I try to track. I realized my income was huge and I just don't spend enough to stress over tracking it...nor does my wife. I would feel differently if I saw my account not increasing as much. I know this goes against all the logic and all the blogs but it works for us.
How did you accumulate your net worth?
Always was a hyper saver, just did not spend money frivolously, even when everyone around me did. I avoid almost ALL financial temptations.. I love gadgets and other cool stuff too... does not mean I need to have every one of them, or have them immediately at highest price... My kids all have Iphones now. My parents and friends passed to them as they upgraded to knew ones. We don't ask for hand me downs and don't act poor, but we often take things that folks just don't want and it is nice to us... simple folks.
Another thing that helps a lot, my wife does all the cooking at home. She does not work now, she stopped working after our 2nd child was born. She was never a big earner, so this made sense. Prior to her leaving work we were living off her income alone though I was making significantly more.
What have you learned in the process of becoming wealthy that others can learn from (what can others apply to become wealthy themselves)?
Money makes Money. Having a plan helps create money, it is not accidental. Use it wisely to produce more versus throwing it away on material stuff that will depreciate or be obsolete soon. Earn as much as you can (grow your career as you always say... I did this and it has really paid off. My parents came to US from another country and are not college graduates. My wife's parents are poor living in a foreign country, not American. So we are self-made, no silver spoon at all. I earn more than all of our parents put together, by a lot, just on my base salary), save as much as you can, marry wisely.
What are you currently doing to maintain/grow your net worth?
(1) continuing to focus on career to hit incentives get promoted, etc...
(2) make sure all additional money I get is going towards some investment mechanism: (1) buying stocks/bonds, (2) real estate, (3) dividend opportunities, (4) buying notes...
Key is to create different money streams to diversify and grow versus buying material objects. Time is on my side if start now.
Do you have a target net worth you are trying to attain?
$4M. I used to have a target of just generating $80K a year since I don't need much, this is assumed house paid for and some money for kids college. However I have raised that amount over the years so now looking at $200K a year. For me it would be a dream to have this coming in each year without working, but the dream is getting pretty realistic fast (as I put above, averaging approx 20% annually past few years and I am at 2.4M, so the math shows it could happen... I don't expect to continue this pace since harder to maintain as total dollars go up)... at 5% $4M would give me my $200K, but I know the preferred withdrawal rate is often quoted at 4%... so we'll see what I do.
What are your plans for the future regarding lifestyle (for instance, will your net worth allow you to retire early, downsize jobs, etc.)?
Retire early. It may be semi-retirement, not sure, since I am so young I may not stop all together. I think my childhood poverty has really focused me to make enough I never have to worry again, whether I have a job or not... this is probably a big driver for me not commonly openly discussed. My wife just lets me take care of the money, she does her part by keeping costs way down, but keeps me in check since we do have kids and need to have some balance... she is amazing in this regard.
Is there any advice you have for FMF readers regarding wealth accumulation?
You have a choice of what to do with each dollar, so why do so many people struggle to delay gratification and throw away so much money on temporary things? My advice is don't be materialistic, avoid competing with friends and neighbors, and be very conscious and cautious of ALL marketing.
Here are some initial comments the interviewee left in response to reader questions:
Education: 2 Master’s degrees (Eng + Business). I went to public state university and worked. For Grad School I had assistanceships through the university + other jobs. I lived in the residence halls on campus (where I worked), and took out very little student loans. After some initial support during my first year of college, my parents were not in a positionto do more. I left college with minimal student loans, around $10-15K…
Work: Large corporation, P&L + Customer Management responsibility.
Net Worth increase in 2012:
— 401K = 52K. I put in the max, 17K; company matched up to 10K (their max, but 4% matching). the rest was portfolio gain. I really had not looked at this portion that closely, wow, nice gain there for sure!
— Real Estate = approx 45K.
— Portfolio + Dividend + interest from notes: was a good part of the equation. I have this in separate buckets tracked and added in extra cash during the year, so not a clean way for me to quickly quantify the increase.
— Largest portion was from primary job. It was a great year bonus + long term incentive wise.
For reference, the $165K is base. I am also eligible to make other bonus and incentives, which have gone well for me in past few years. Each of the past 4 yrs has been a new record high from my prmary job (promotions and maxing out, or close to, on the additional opportunities). My compensation has grown substantially from when I started back in 2001 at 55K (no bonus). Same company.
Debt: I don’t have much, so it is not a big factor.
– My primary residence has outstanding approx 190K, 15 yr mortgage at 2.875%. I could pay it off if I wanted, but am trusting arbitrage here. Also note, I don’t consider my primary residence in my Net Worth. I bought at the right time, so I am about 120K positive if you believe Zillow.
–For my rental properties, $335K of financing. which is signifcantly less than my total portfolio. Note: 140K of this debt I actually hold the note for. I bought some property in a partnership and aside from my 50% take in the business I hold the note and make decent interest on it…
– no other debt. I have ALWAYS been debt averse. I had a little from sudent loans, but did not do credit cards, vehicles, or other stuff through debt before… Hard to build real wealth doing so…
Employee: Sr. Director in Manufacturing.
Real Estate Note: as stated above. I bought some property with a relative. We had a note through the bank. I had the cash sitting in the bank and the interest rate was good, so we agreed that it was better for me to get the interest than the bank, so I bought out the bank and now I get the interest holding the note.
How much do I spend? Sorry, I don’t keep this level of detail. As I shared, I really struggled before when I tried to budget and track my money. I think I became to obsessive over it. Since I pay myself first and am a hyper saver by nature, I just don’t overspend. So I can’t tell you a dollar figure since I don’t track in this manner. If my Net Worth ever stopped growing due to outflow then I would reassess.
My assent allocation is not aggressive. I use a broker, we discuss a lot, since I leave a lot of money on the table, especially compared to current stock market rocketing up, but bottome line, I don’t need the risk. He helps me in this regard to stay grounded. I have a mix of bonds & stocks and helps me stay diversified to my risk level.
I think my 165K salary through some folks off. it is not my total comp, just the salary portion. My story really is more about career, since I make a lot more than that, it just varies a lot. I easily have doubled (before taxes). From there I was lucky with my investment choices. I started iwth real estate earlier, and then moved to the stock market/brokerage after the crash (around 2009). I don’t consider myself overly savy investor, but I do follow and am articulate in it… but still rely on professional support versus some of you that do yourself. I do try to find different ways of generating money through notes, dividends, etc… that helps.
Haha! You are correct. My wife works a TON more than me. My intent for this scope was to share that she does not currently generate income, however she is the key to keeping costs low and family together happy and healthy! All the credit to her.
Good question on the long term goals. Inflation and downturns in the market are always concerning for one. A big reality is that kids can be expensive, depending on what you want to expose them to. I want to be able to offer them some experiences and opportunities should I chose. I want to give back a portion, we have family that is in pretty rough situation so being able to share more with them is something we discuss. Ultimately, we want flexiblity. More money later in life will allow that.
As for the rental property, I have some nice cashflow properties (a good portion of my real estate) like “mobile homes” that don’t appreciate and are high maintenance. I will need to convert these to a different asset group over time.
Here's his second comment in response to more questions:
I understand my weighting in my company stock is a pretty high. I actually just sold off a good bit. Right after I did it went up 20+%, but did so since weighting was high. It’s clear that this is pretty risky since individual stock and same as my primary income source, so both can get hit hard at sametime (e.g. Enron) and hurt me…
Also, I get your feedback on my CFA/Broker, which is 1%, it’s something I am evaluating. Overall I am currently satisfied with the service since prior to engaging with them I was just heavy in (1) Company Stock, (2) Real Estate, (3) Cash. I was not doing anything in the market additional, so I knew in my mind the hurdle to beat was about 1-2% at the time to beat what I was getting in my MM… Pretty low hurdle and of course we have passed that pretty well. Now my portfolio is getting larger and I am starting to think through the cost impact of the service, which will drop soon when I hit some larger milestones (1M, 1.25M etc…), but the dollars are pretty significant so it’s on my radar to comparison shop and/or start to do some myself.