I enjoy learning from others that have had some success, their stories are educational and inspirational. An interesting series is from ESI Money, which does Millionaire Interviews. What I like about the series is they ask a set of 30-40 questions that provides a pretty good understanding of their circumstances.
This blog is a combination of sharing my experiences AND documenting my financial journey for my kids. I’m hoping someone can learn from my mistakes and successes. The good part of me doing this Q&A versus ESI Money and other blogs is that I provide detail most don’t. I’m very transparent, which is the why I stay anonymous.
I’m not a millionaire (yet) but I will be next year. I look forward to answering the questions today and maybe again when I retire in 5 years. So, let’s open up the vault and jump into the “fake” but valuable interview with yours truly.
How old are you (and spouse if applicable, plus how long you’ve been married)?
I’m 57 years old and my wife is 59. We’ve been married 27 years.
Do you have kids/family (if so, how old are they)?
I’ve got two kids that are 26 and (almost) 23. They both earned their college educations and are employed.
My youngest just graduated from college and she’s living at home and working remotely during COVID-19. She is saving nearly $2,000 every bi-weekly paycheck: $500 into her 401(k) and $1,500 into her Vanguard money market account. She’s saving the money so she has the option of getting her masters degree in about 5 years.
My oldest daughter also lived at home for about one year after she graduated college and got a job. Her work was nearby and, like her younger sister she saved most of her paycheck. She’s currently saved about $75,000 already and I’m very proud of them both. They are listening and practicing good financial habits that will payoff for them during their lifetimes.
What area of the country do you live in (and urban or rural)?
I live in the southwest part of the country in the suburbs of a large city.
What is your current net worth?
As of this morning, my net worth is currently $925,000. What seemed like forever ago (9 years), my net worth was $115,719 when I was 48 years old. It took me 25 working years to earn $115,719 net worth … that is entirely terrible and abysmal.
By the end of 2020, I will have added another $500,000 to my net worth in the last 4 years (2017-2020). Just think what it could be now if I was more disciplined in my saving and spending when I was younger. Heck, I’d be worth millions. But rather than beat myself up on past financial errors, I’m focused on controlling what I can do moving forward.
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?
A few weeks before this Q&A, I did an article (Net Worth: $um of the Part$) that clearly explained the components of my net worth. However, to provide updated numbers here are the basic pieces:
- Investment Portfolio = ~$585,000
- $110,000 = Taxable accounts with dividend paying stocks
- $110,000 = Non-Qualified 401(k)
- $365,000 = 401(k)
- Home Equity (value minus mortgage) = $340,000
My debt totals are $59,000: $54,000 mortgage and $5,000 for 2 cars. I’m planning to be debt free by the end of next year.
I’ve got two main focuses in growing my net worth right now. It’s my philosophy that you can grow your investment portfolio and reduce debt simultaneously. In 2017, my wife and I really took attacked our debt and reduced the home equity loan to zero.
Since that point, we’ve focused on keeping credit card balances near zero and recently been reducing the mortgage balance. The mortgage should be gone by the end of 2021. From 2022 until my retirement, we should increase our savings rate from about 40% to nearly 65%. Those last 4 years of working will really finish the job in getting our investment portfolio where it needs to be.
What is your job?
I’m a strategist for a large company … 22 years in one place has been great to my family. My focus is long-term strategy and execution. There are two factors worth identifying about my job. First, I don’t hate my job but I am tired of the corporate life … it’s just very draining.
Second, my job has a generous pension. When I retire, I will have about $66,000 annually sent my way from 62 years old until my wife and I die. I’d need assets of about $1,650,000 (assuming a 4% withdrawal rate) to generate that kind of retirement income.
I’ve been in two industries since I graduated college in the mid-80’s. After 13 years post-college I made the change to the one I work in now. Those first 13 years post-college, I changed jobs every 3-4 years.
The last two jobs in the first industry were horrible. Those companies were purchased after just one year working there. Complete surprise when both those companies kicked out the entire senior team. Those circumstances really set our personal finances back and I was starting over at the age of 35.
What is your annual income?
I’m making about $250,000 annually. It hasn’t always been like that though. And when I started making some money, my kids started college so that took up much of my pay.
Tell us about your income performance over time. What was the starting salary of your first job, how did it grow from there (and what you did to make it grow), and where are you now?
$14,400 was my first salary as a loan collector. It’s funny that I still remember that salary from 1987. It was a horrible job but I learned so much.
The key to growing my income was growing my responsibilities. The more responsibilities you have the more valuable you are to the company and the more they pay you. It sounds simple but you’ve got to build trust with your bosses that you can be trusted with more responsibilities. If you fail then they fail so you’ve got to convince them.
What tips do you have for others who want to grow their career-related income?
This is a tough one because there are so many variables and so many ways to address this challenge. And I can only speak to those people working in a corporate career. You have to want it and ask for career growth. That may sound simple but let me explain through a couple of examples.
In my first industry (financial services), I faced a challenge – lost my job due to a merger, had a 2 year old kid, stay-at-home wife, had a baby on the way, and I was in a small town in a new state (i.e. no support system).
What would you be willing to do? I flew to a major city and literally cold-called at the location of bank presidents. Think about that for a moment. I showed up in the lobby of a bank, asked to see the bank president, and tried to sell myself by explaining my skills and how I could help their bank. That takes major guts but I was desperate for a job. In 4 days, I actually convinced one bank president to hire me at a salary about my last one and we moved.
In my current role, I was in charge of executing on major initiatives but wanted to create strategy. I asked our senior leader and little by little I got involved. Now I lead strategy and execution. In my current company, I’ve created my own job on multiple occasions by knowing the weakness of the organization, developing my skills, and then asking to fill that weakness.
Each time my career grew it occurred because I asked for the responsibility or I asked for the promotion. I knew my skills (and developed them), knew the strengths and weaknesses of the organization, and filled the gap by asking to create my own job. It’s made my career much happier since I got to write my own job description on many occasions.
What’s your work-life balance look like?
The older I got the better I got at work-life balance. I’ve made a commitment to my family to being a part of their lives. And that’s the key – you need to commit to your family or your life. Sure, there were times when I had to work crazy hours but my family knew it was short-term and I kept them in the loop on when it would go back to normal.
For those without families, you need to have interests outside of work. Camping, traveling, sports, or club activities … whatever works for you. It’s too easy to constantly think only about work and then you burn out. With a 30-40 year career to manage, it’s a journey and you need to pace yourself.
Do you have any sources of income besides your career? If so, can you list them, give us a feel for how much you earn with each, and offer some insight into how you developed them?
I’ve got some growing dividend income ($6,000 yearly now) but really nothing else. I’ve not tried to monetize this blog because my motivation is to help others and document my path.
That might sound stupid to some people since I’m already doing the blog but it’s just not of interest right now. I might try to generate some income from the blog in a couple of years but not at this time.
What is your annual spending?
Our spending has been coming down. Some of it intentional (travel, restaurants, and entertainment) and some because those expenses are behind us finally (i.e. college for 2 kids).
(minus college and extra mortgage payments)
One of our biggest expenses now is the extra payments we are making on our mortgage. This doesn’t show up in the expenses above (I tried to normalize them) but we are putting thousands toward that this year. If we do nothing else, our mortgage will be paid off in 3 years but we might try and get rid of that payment by the end of 2021.
We intend to have a $2,000 reduction in our home expense when we payoff the mortgage next year. Also, our transportation expense will be cut in half too.
What are the main categories (expenses) this spending breaks into?
As with most people, the main categories are housing, food, and transportation. For the past 7 years, I’ve had 1-2 kids in college so those were significant expenses but they are behind me now (thank goodness!).
With COVID, my grocery bill has doubled. We’ve stocked up, bought a large freezer, and we’re keeping ahead of potential shortages. Plus, we are making sure our kids (23 & 26) have what they need just in case. I suppose you can never stop being parents.
Once I get rid of the mortgage (next year?), I can see us starting to focus on two types of expenses: Essential and Discretionary. Essential would be things like utility, grocery, and healthcare. Discretionary would be things like travel, hobbies, restaurants, and entertainment. I can see this switch in track occurring in 2022, which is about 3 years before retirement.
My hope that my pension covers all our essential (and some discretionary) costs and any/most discretionary costs are covered by my retirement assets. This will be really helpful heading into retirement to know exactly what I need to survive (essential) and then the rest is fun spending (discretionary).
Do you have a budget? If so, how do you implement it?
We do not have a budget but we have been focused on reducing certain areas. I wrote an article in May 2019 about Plugging Your Expense Leaks. It’s amazing what you normalize in your expenses until you wake-up and really start looking deeper at your spending. It’s possible we’ll have some kind of a budget for non-essential spending when I get into retirement.
What’s your savings rate and how has that changed over time?
For as far as I remember, I always took advantage of the company match opportunities in our 401(k). Even when things were tough I always made sure that happened. With one income, family activities, pets, cars, mortgage, and many other expenses it seemed like we could never save more than 10%.
Eventually, my income started picking up but that happened right about the time when the kids went to college. So most of that income increase went to college. I’d squeak out some 20% savings rates on occasion but it wasn’t until 2018 that I really started focusing on debt and savings.
Personally, I believe that the Secret to Building Wealth can be a focus on increasing the savings rate. It sounds easy but life seems to get in the way. We could have done things differently. My wife could have worked full-time. We could have not done karate as a family or taken trips to karate tournaments. But these are the choices we make and we have to live with the consequences.
Conclusion – Part 1
Well, this has been fun. It seems like many of these questions can be summed up by many of my articles. I’ll be the first to say that I’m so very blessed to be at a company that has a pension. That pension has provided a backstop to many of my financial mistakes.
If the pension didn’t exist then I’d like to think my decisions might have changed but I guess we’ll never know. But there is no doubt that the conclusion of Part 1 can be summed up very easy:
- The savings rate is your #1 action to building wealth
- You’ve got to know where your money is going
- Grow your income
This all sounds easy but it’s not. I’m absolutely certain that even an average US income can build wealth because my 26 year old daughter is driving an old car, lives in a reasonably priced apartment, and saves over 20% of her income. And because she’s starting early she will have the choice of retiring earlier than most people.
Thanks for reading!
Mr. TLR