Six Figure Interviews 8

Here's the latest in my series of six figure interviews, discussions with everyday people who have grown their incomes to at least $100,000 annually.

My questions are in bold italics and their responses follow in black.

Let's get started...

Tell us a bit about yourself (age, marital status, kids, where you live, etc.)

I am 29 years old, my wife is 32, and we live in the Washington DC metro area.  We recently just had a baby a few months ago, so we are getting back into the swing of things after maternity leave, and everything that comes with being first time parents.  I would say it is not uncommon for people in this area to earn more than $100,000, considering all the lawyers/lobbyists/politicians/executives in the DC area.  These higher salaries are offset by the higher cost of real estate, which is common in the larger cities.  I have a Bachelor of Science with a focus in IT, and and MBA with a focus in IT.

What do you do for a living?

I work in the IT field and my wife works in the Hospitality industry.

How much do you earn annually?

My current salary is $128,000 (not including any bonuses or additional comp/benefits).  I like to use these "base" salary numbers for any type of budgeting or planning, and not to include bonuses as they are not guaranteed (but I have consistently earned them in the past several years).

How does this amount break down (salary, bonuses, etc.)?

In addition to the base salary ($128k), I have been averaging a performance bonus that is paid every December of around $9,500-$10,500 for the past 3 years.  This is highly dependent on the health and success of the firm where I work, but it is not uncommon for high performers to get this consistently, assuming the company is healthy.

Do you receive any additional compensation/benefits from your employer (401k match, stock options, etc)?

I have the following additional benefits that I receive from my current employer (outside of salary and bonus);

• Long Term Disability: 80% of my salary (my cost = $0)
• Basic Life Insurance: 1x my salary (my cost = $0)
• Pre-tax transportation: I have the option to designate money that will be allocated pretax for transportation needs.  This could be for public transit (Metro) or parking.  If I were to use this benefit, I would save about $28 for each $100 due to the pretax classification.
• 401k Matching: The firm matches 0.25% of every 1% I contribute, up to 4% -- this means if I contribute at least 4%, they will put in 1% of my salary. This is deposited into my 401k account with each paycheck, and is immediately vested at 100%.
• 401k Profit Sharing:  I also receive a one-time deposit into the 401k every December 31 which is equal to 6.5% of my salary, regardless of what I contribute to 401k that year.  This benefit started after being with the firm for 2 years.  This contribution is immediately vested at 100%.

The 401k matching/profit sharing adds together to total a combined match of 7.5%, assuming I put in a minimum of 4%.  With my current income levels, I'm able to contribute the max to the 401k ($17,500 for 2013) without much strain in our normal monthly spending.

Total 401k contributions (mine + firm) for 2013 will be approximately $27,100

How long have you been working?

I have been working at some capacity since I was about 16.  I didn't start full time work until 2005 and I was 21 and a junior in college.  I was offered a full time job before I graduated with my undergrad degree, which made me extend my time in undergrad from a planned 4 years into 5 years, and to take courses at night to complete the requirements.  At the time, I gambled that the extra full time work experience was worth delaying graduation by one year.  This paid off immensely as some of my friends had difficulty finding full time work after they had graduated.  I was able to "lock in" the full time position early.  I've heard it mentioned before, and it's worth repeating, if you are in college don't wait until late senior year or graduation to start looking for a job!  Putting in the leg work early does pay dividends.

How long have you earned at least six figures?

I have been earning six figures since I was 26 (so going on the 4th consecutive year of six figures)

Here is the breakdown of my yearly earnings since I started working full time at age 21 in 2005:

• 2005 - $38,000 (was working at a company that is over 100 miles away from the DC Metro area "Company 1")
• 2006 - $49,000 (Company 1)
• 2007 - $80,000 (moved to the DC Metro area, "Company 2")
• 2008 - $85,000 (Company 2)
• 2009 - $90,000 (Company 2)
• 2010 - $110,000 (Company 3 in DC Metro area)
• 2011 - $116,000 (Company 3)
• 2012 - $120,000 (Company 3)
• 2013 - $128,000 (Company 3)

The jump to six figures did not come until I switched to "Company 3" in 2010.  The largest jumps in salary so far have been when switching jobs between companies, and also switching locations to a larger metro area with more opportunities.

What have been the key steps you have taken that have allowed you to earn this level of income?

As cliche as it sounds, you have to enjoy (to some degree) what you do for a living.  The reason I mention this is that, for the most part, advancing your income requires you to be a top performer.  In order to be a top performer, you have to put in work outside of the normal 9-5.  I think this is especially true in IT, as technology changes so rapidly, keeping abreast of the new tech and changes and what is trending will stretch past your day-to-day schedule.  So you have to be willing to at least follow industry trends and keep up with how your industry is progressing.  I don't think you can keep a sane life if you don't at least enjoy what you do for a living when you are spending the most hours per day doing it.

You can also separate yourself from the pack if you are able to turn your tasks into things that either (a) generate more income for the company, and/or (b) reduce costs.  Even more important than figuring out how to do this, and executing it, is quantifying it to management so they are aware how you are contributing to the bottom line.

I also think having the willingness and curiosity to always be learning.  If you are not learning something new, then you are stagnant.  Top performers are never stagnant.  This is very evident in IT, as it is constantly changing, so I am constantly learning.  I sometimes feel it is just a treadmill of learning that never ends; I realized this early in my career and I'm at peace know that my industry requires constant learning and training to keep alive.

Which of the following career advancing strategies did you employ (if any) and which were most effective: a. Doing well within your current company and being promoted. b. Jumping around from company to company always seeking a higher salary & responsibility. c. Entirely changing your career path from a lower earning field to a higher earning field (going back to school, etc).

I have always been in the IT field since I started working, so I don't have any exposure to completely changing my career path and the impact that would have on my salary.

I have done item "B" and jumped from one company to another for a bump in salary and responsibility.  My jump from Company 2 to Company 3 was a pay increase of +22% along with a company size that was about 3x larger.

I think there are advantages to both a smaller company and a larger company.  The smaller company allows you to get noticed faster if you are a top performer, and can lend itself to moving up the ladder faster, but the smaller companies do not always have the deep pockets that large multinational companies have.  Larger companies seem to pay better, but it is more difficult to move up the ladder due to the many layers of management.  I guess it all depends what your end goal is; a nice title or a nice paycheck.  You can have both if you are willing to work for it.

I am working on item "A" at my current firm -- I've been branded as the "go to" guy by our CIO, and interact with them frequently.  I'm currently working on my future career path with the help of my boss, carving out a new position that I can grow into.  I'd like to stay with my current company for the foreseeable future, as I feel like I'm starting to gain some momentum.

Someone gave me a good piece of advice that answers the question "should I move on to a different company/job?" -- stay with your current company/job as long as there is something to learn and you haven't 'topped out'.  I used this piece of advice when moving from Company 2 to Company 3, as I felt I was topping out at the firm, and did not foresee anything to challenge me to learn in the immediate future.  In my current position with Company 3, I feel that I am around the 80% top out mark so I have a little bit more work to do until I reach the 100% mark and either need to get new responsibilities (promotion) or a new company.

What are you doing now to keep your income growing?

I think there a few things that I am doing that can be repeatable by most people.  The first is working on my "hard" skills.  Within IT, there are certifications from all the major vendors - Microsoft, Cisco, etc.  Those are a somewhat cut and dry way to separate yourself from others, to build your resume, and to assist with the yearly review question of "what have you done to improve yourself in the past year?"

A second thing is working on my "soft" skills.  Being able to communicate with upper level executives is a skill that needs to be practiced.  I'm making a conscious effort now to try and stay on their "radar" by getting my name out there by volunteering for projects, providing input when I feel it's valuable, and generally stretching out of my comfort zone.

I believe these things will contribute to being a top performer at my day job, which in turn would hopefully increase my income.

I have also started dabbling into the world of dividend investing, to work as a second stream of income.  This has been going fairly well so far, as I'm able to invest excess cash flow monthly to keep growing the stream.  In 2011, my portfolio was kicking off an average dividend of $8/month.  In 2012 this grew to $30/month, and in 2013 it is averaging $75/month.  I feel I can keep at it for several more years and allow this dividend income to supplement my day job income, possibly allowing me to reduce my hours or responsibilities (and pay) if I wanted to go that route.  I don't foresee that desire in the near future (10 years) but I'd like to have that option if the desire arises.

What are your future career plans?

At this point in time I would foresee myself staying in the IT industry.  I am currently nearing the top of the curve on the engineering side, so I believe my next logical step would be getting into management of some sort.  My career path thus far hasn't directly used the skills from my MBA degree, so it would be fun to try and leverage them in a new position while still keeping my hands in the IT side.

As I mentioned before, I would like to stay at my current company assuming that I am still challenged there and don't top out.  I feel that if everything stays constant, I will possibly top out in the next 12-18 months, at which point I would start to actively look at alternative positions.

Have you been able to turn your income into a decent net worth?

I'd like to say 'yes' to this question, as I think our net worth has growth pretty well in the past few years.  I started to keep track of a detailed monthly cash flow and net worth 2006.  Here is the overlay from my salaries outlined above with my net worth ending on Dec 31 of that year;

• 2006 - $49,000 (Net worth: $20,500)
• 2007 - $80,000 (Net worth: $56,500)
• 2008 - $85,000 (Net worth: $72,000)
• 2009 - $90,000 (Net worth: $124,600)
• 2010 - $110,000 (Net worth: $169,600)
• 2011 - $116,000 (Net worth: $206,000)
• 2012 - $120,000 (Net worth: $365,000)
• 2013 - $128,000 (Net worth as of Sept 30: $440,000)

I do include our house equity and car equity in the net worth calculations.

2012 was a big year for the net worth jump due to a few factors -- my wife and I got married, so we combined financial accounts and started including that in the net worth.  We also purchased a house, which appraised for higher than our purchase price so that invisible equity was included in the net worth as well -- since the purchase I have not adjusted the book value of our house, even though sites like Zillow and others have shown it increasing.

Why or why not?

I think a major factor in the growth of my net worth is the fact that I was able to go to college [undergrad and grad] without having to take on student loans.  I would highly advise anyone in college, or going to college soon to do everything in their power to avoid student loans -- go after every scholarship, work as much as you can to supplement the needed income and minimize the amount of loans you take out any way possible.  I have numerous friends [lawyers, doctors, etc] that earn an extremely high income, but their monthly student loan payments are more than my mortgage.

I think it has been important to invest money in the market each and every month, regardless of the ups and downs.  This has been habit forming for me, and I still contribute monthly to this day, regardless of what the overall market is doing.  This has helped my net worth accelerate in the past couple of years when the market has rebounded.

Another important contributing factor is our level of spending.  We are able to keep our spending in control and have a pretty decent "gap" between net income and expenses.  We average around $9,500 net income per month (after taxes, medical insurance, 401k, etc) and we spend on average around $5,500 per month.  This gives us around $4,000 per month to save/invest, which greatly enhances the growth of our net worth.

What advice do you have for people wanting to grow their incomes?

I think it may be as simple (or difficult) as you want to make these steps;

1) Find a field of work (or industry) that makes you excited to be a part of

2) Work to become a top performer in your current company - this could likely mean putting in more hours than the standard 40hrs/week

3) If you "top out" at your current company (see comments earlier), look to switch to another company to gain more exposure to the industry.  This will give you a trail of experience that you can bring along and hopefully jumpstart your "top performer" status at the new company

4) Get comfortable interacting with upper level management -- these are the people that ultimately decide your pay/bonuses/promotions/career paths

I check FMF frequently, so feel free to post questions and I'll do my best to answer them!

Comments

[Luis]

Wow, feels like you made all the right moves! Where around DC did you buy and is that a down market or something else that got you that opportunity?

[VA]

Thanks for sharing your story. Are you planning early retirement or any other big plans for the future?

[Old Limey]

You're on a great career path - your parents must be very proud of you.

Like you my third job was the one that I ended spending 32 years at. I also cultivated an excellent relationship with my Manager, Division Manager, and the Chief Scientist, and did my utmost to please them. My degrees were BS and MS since I wanted to stay in the technical field. It's very important that you are happy in your work and all of the people that you work with.

We were married in 1956, ended up having 3 children, born in 1958, 1960, and 1963 and everything has worked out beautifully for us. My wife went back to work as soon as the children could be left.

Buying a home is also a wise decision when you plan to stay put, and as you continue to prosper there will come a time when you will want to step up to a nicer home in an even nicer neighborhood. We only ever bought two homes and that has worked out perfectly for us.

Yours is probably the best profile that I have read and I think you are on a great path to even greater prosperity. Above all, keep your wife happy, treat her very well, and you should have a great life and a very long and happy marriage. We always felt that for the children's sake it was essential to keep our relationship very happy so we used to get a babysitter most weeks and have a date night out.

[Six Figure #8]

@Luis -- Thanks! We were able to purchase within DC proper. I wouldn't call it a 'down' market that gave us the opportunity to purchase. It was more of the decision that we could get a mortgage that was only about $100 more than our 1BR apartment rent, so it made sense for us at the time knowing we would be trying to have a child in the near future. The market in DC seems to be well insulated from the market throughout the country as a whole -- some people attribute this to the job stability that the Federal Government provides.

@VA -- At this time, I don't have any formal plans for an early retirement. We are still in the wealth accumulation phase, so many more years to contribute to savings before we start drawing on them in a retirement fashion. Ideally, I would like to have enough to feel comfortable to downshift my career in my early/mid-50's, and maybe work an abbreviated ~20hrs/week (possibly consulting, or teaching?) Lots of possibilities at this point.

@Old Limey -- Thanks for the kind words! I have been a long time reader of FMF and always enjoy your comments, thoughts, and experiences. I absolutely agree with you that you should be happy in your work along with your coworkers to make the most of your career (and earning potential). Great tip for getting a weekly babysitter to have a dedicated date night. Our baby is almost 6 months old and the date nights have been few and far between so far, but I don't think either of us mind (yet!) as we love spending time as a family. We also took the mindset that we wouldn't stay at home with the baby, so it is common for all 3 of us to be out and about (at restaurants, friends, stores, etc). It has worked well so far!

[jim]

You've gotten great raises in the past 5 years. Even without that big raise for 2010 your increases are about double the average.

[PJ]

Great job all around! Like you, I am building a dividend stock portfolio in a brokerage account, and I would like to hear more about your strategy on that point. For comparison, our dividend stocks brought in about $10/month last year, and we'll be at about $15/month this year.

Do you have a set amount you plan to invest each month in dividend stocks?

How does that compare in size to your monthly investment in 401k/IRAs?

Do you have a minimum dollar amount you buy to keep transaction costs down?

Essentially, a dividend stock portfolio is like running your own little mutual fund. Are you aiming for a portfolio of a certain number of stocks?

How do you pick stocks to be in the dividend portfolio?

Thanks for any insights you can share.

[Sam]

Great job on putting down your career/financial path. Best one in the series. You seemed pretty organized and disciplined with your finances. What have you doing to get comfortable with upper management. My profile is pretty close to yours. I have been working on building rapport with Management bur not happy with the results yet

[JTS]

Congratulations on your career success, and thanks for sharing the details. Your path and mine have quite a few similarities, which is always interesting to read.

I definitely agree with many of your points regarding enjoying what you do, putting in the extra effort, and keeping the big picture in mind during projects. I'm in the IT field as well, and it's easy to set yourself apart from many peers by having a problem solving mentality rather than a simple "technology is cool so we should use it" thought process.

Good luck to you going forward.

-Jon

[Six Figure #8]

@jim -- Yes, I have been fairly happy with my overall pay raises and bonuses over the past few years, keeping in mind what the economy has been doing. I would like to think it is attributed to being a top performer :)

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@PJ -- Thanks! I've had pretty good success thus far with my dividend portfolio. I'm sure it could go into it's own dedicated FMF series, but i'll try to answer your questions as best as possible :-)

We don't have an exact amount we invest each month into the dividend portfolio -- we are generally able to save between $3000-$4000 each month after all expenses are paid. So, as an example, some months we will invest $2500 and save $500 into targeted savings (i.e. upcoming vacation or upcoming large purchase). In 2011, we averaged $600/month in contributions, 2012 average was $1100/month, 2013 is averaging $2100/month.

I max out my 401k at $17,500/year ($1458/month). So far this year I have averaged more in monthly contributions to the dividend portfolio compared to the 401k contributions.

I generally look to make 1 trade each month. If I am torn between 2 companies, I will split it 50/50 and buy both with the contributions. Transaction cost is $7/trade, so investing $2000 in one trade with a $7 commission is a one time 0.35% fee. If I had to set a ceiling on it, I would say try to make the fee lower that 0.5% per transaction ($1400 trade with a $7 commission)

I aim to have each company not to overtake more than 5% of the portfolio -- so that leaves me to target having approximately 20 companies to hold/track.

Some of the criteria for selecting a stock for me, (1) Long history of yearly dividend increases, at least 10+ years, (2) Low payout ratio, (3) moderate entry yield, 2.5%-5%, (4) competitive P/E ratio compared to industry, (5) positive EPS over past 1/3/5 years, (6) positive revenue growth over past 1/3/5 years.

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@Sam -- Thanks for the kind words. I would say that building rapport with management does not seem to happen quickly or with ease, but is worth the effort if you want to advance. Some things that have worked well for me in recent years;

(1) Consistency & Dependability; if you commit to doing something, do it! An example would be status reports biweekly or monthly, it might not pay off immediately but it will build a good work trail to tie your name to. If you want to be the "go to" person that gets recognized you will need to be dependable.

(2) Brevity; the higher up in management, the less time they will have to dedicate to any one person, so make your point quickly and succinctly. From my experience all the long/wordy emails do not get read - if you can't get away from a long email, provide a 1-2 sentence summary at the very top so they can scan it quickly to get the gist of the content. Also using bold/underline helps draw attention to important points.

(3) Quantify your efforts; the bottom line matters the most to upper management. Figure out a way to quantify your efforts (if you can translate anything to a dollar amount that gets the most attention) and don't be shy about letting management know how much you have saved the company by reducing some costs, or how much you have increased revenue by closing an unexpected contract.

[SR]

Great job! I'm your age and earn a similar amount, although I don't have a $4k gap between income and expenses, unfortunately. I'd be interested to see a list of your monthly expenses. You should probably contribute to a Roth IRA if you're not already doing so. I'd even suggest lowering your 401k contribution, if necessary, to contribute to the Roth IRA. Finally, you're clearly a leader and well written. Keep up the good work and remember to consider those who are less fortunate.

[Six Figure #8]

@SR -- Thanks! With risk of turning this into a FMF Reader Profile, I'll just say our average monthly surplus is between $3000-$4000 a month. Some months are lower when we have higher expenses (i.e. around the holidays, or when wife was on maternity) and some months are higher when we have increased income (i.e. bonuses from both wife and I).

I would love to contribute to a Roth IRA (and I have in the past), but currently our joint income surpasses the limit for contributions. However, I do contribute to both a Traditional 401k and Roth 401k to split some tax liabilities for the future.

[Steve F]

FYI, there are no limits on Roth conversions. You can get a back door Roth IRA by contributing to a non-deductible (regular) IRA and then rolling it over to a Roth. If you have other IRA funds then you have pay taxes on a ratio of the conversation. However, if you have no other pre-tax traditional IRAs then no-tax (except on any gains). I do this every year -- rolling it over the day after I make the contribution.

Perhaps not an issue for #8 since he has Roth 401K options (I don't).