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)?
My wife and I are in our late 30's and have been married for 8 years.
Do you have kids/family (if so, how old are they)?
We have 2 preschool-aged boys.
What area of the country do you live in (and urban or rural)?
We live in an urban area in Southern California with a very high cost-of-living.
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?
Our main assets are in stocks ($200k), retirement accounts ($500k in mutual funds, index funds where possible) and cash ($400k). We also have $100k in home equity. Our only debt is a 30-year fixed rate home mortgage with a balance of $380K, recently refinanced from 5.75% to 3.75%.
What is your job (type of work and level)?
I am a software developer. My wife is an insurance broker. We are both senior level in our occupations.
What is your annual income?
$230K gross income, split almost equally between my wife's salary and my salary.
What is your main source of income (be as specific as possible -- job, investments, inheritance, etc.)?
Our only source of income is from our jobs. Our investment income is negligible and I know I have to work on this.
You have been successful growing your career/income. What is your advice for others who want to do the same?
Given how much I hate my job, I don't consider myself having a successful career and don't think anyone should follow my career path. I have a high income but hate going into work every single day. I may have attained financial success, but not personal success.
What is your annual spending?
About $85K roughly broken down as follows:
- Mortgage 21120
- Preschool/daycare 15000
- Property tax 6600
- Gas 5500
- Charity 4000
- Cell phones 3000
- Utilities 3000
- Dining Out 3000
- Travel 3000
- Entertainment 2400
- Life insurance 2350
- Groceries 1800
- Auto insurance 1500
- House cleaning service 1300
- Home insurance 700
- Broadband internet 360
- Gardener 360
- Miscellaneous 3600
- Cash 5000
The "cash" category is for things that I pay for in cash that I don't track by category. I also pay for the cell phone plans and some utilities for both my parents and parents-in-law and the above includes these.
How did you accumulate your net worth?
We are fortunate to have high incomes and my wife and I are both naturally frugal (as were our parents), so we have always lived beneath our means and avoided debt other than our home mortgage. We pay off our credit cards every month, buy cars with cash and don't have cable (we just watch broadcast tv the few times that we do watch tv). Our savings rate is about 45%.
Until a couple of years ago, we were living on only my salary and my wife's salary went straight to savings/investments giving a savings rate of over 50%. Once our kids started preschool/daycare 2 years ago, however, our expenses went up and we had to dip into my wife's salary. I actually didn't realize this had happened until I put together these numbers for this interview. My original response sent to FMF claimed we were still living on one salary but then I noticed the numbers didn't add up. After some investigation, I found that our expenses had crept up the past 2 years (mainly for our kids' preschool, but other areas went up too) and we are no longer living on one salary. This has really been the only method we used to accumulate our net worth: high incomes and high savings rate.
I think I have made 2 mistakes that have hurt my net worth.
1) My stock investments are currently a mess because I never followed a plan. In years past, I have speculated, chased the strategy of the month, tried to time the market and ignored my investments for years at times. Overall, I have probably lost 50K playing the stock market.
I am starting to clean up my investment accounts and implement a lazy portfolio of index funds that I will re-balance every year. As much as I want to make millions trading the market and retire early, it is not happening. I did leave my 401K's and IRA's alone for the most part so they have done well and are more proof that I should just stick with index funds.
2) I wish we had waited a few years before buying a house. I bought pretty much at the peak of the housing market in 2005. Had I waited 2-3 years, I wouldn't have lost so much equity and would have gotten more for my money to boot. I have probably lost $150-200K in home equity.
One other thing that could be considered a mistake is never having had a budget. With a budget, a few more percentage points of savings could probably be had. And with a budget, I probably would have discovered earlier that one salary no longer covered all our expenses. I probably still won't take the time to create and maintain a budget, but will definitely keep a closer eye on our expenses every month now.
What have you learned in the process of becoming wealthy that others can learn from (what can others apply to become wealthy themselves)?
I don't know anything earth-shattering or special. Just don't spend money you don't have and save as much as possible, though it helps enormously to have a good income. The only exception I have to taking on debt is buying a house since they are so expensive where I live. But if you can pay cash for a house, do it! I can only imagine that being completely debt free would be very liberating. I would move to a lower cost-of-living area where housing costs are so much lower, but family ties are keeping me here for now.
What are you currently doing to maintain/grow your net worth?
We will continue to keep up our high savings rate. I will probably analyze our expenses to see if things could be cut so we could live on one salary again and completely save the other; it would take about 20-25K in reductions to achieve this.
I am also looking to invest more wisely (see above mistake) and buy rental properties with my cash in the near future (which is why I have been very interested in your recent posts on your rental property experiences).
Do you have a target net worth you are trying to attain?
I am targeting $2 million in the next 6-8 years, then I plan to cut back on my job hours and ramp up on my own business aspirations (writing/selling my own software and/or do software consulting). I despise my current job with its pressures and stress, but my wife enjoys hers (or at least tolerates it better) so we will still have her income until she decides she wants a change. As for a longer term target net worth, I want to have at least $3.5 million net worth by the traditional retirement age of 65.
What are your plans for the future regarding lifestyle (for instance, will your net worth allow you to retire early, downsize jobs, etc.)?
I believe I can and will downsize my job around the age of 45, if not sooner. Right now, I don't think I will ever fully retire, though I may change my mind later. I want to stop working ASAP in a stressful corporate job, but I plan to write software in some capacity on my own for income as well as manage my own rental income properties.
Is there any advice you have for FMF readers regarding wealth accumulation?
I already said it above: don't spend money you don't have and save as much as possible. Also, learn to invest in your vehicle(s) of choice.
I don't think there is one best way to invest. It just depends on your own personal interests, skills and tolerances. Given the difference in returns between my stock accounts and my retirement accounts, index funds are what I need to stick with.
Wealth accumulation does start out slow, but then accelerates. My wife and I have both been working for about 18 years. We combined finances when we got got married at the 10 year mark and collectively reached 500K net worth at the 14 year mark. We then reached 1M in the last 4 years, due to stock market appreciation and healthy raises at work. I hope this snowball effect continues!