How We Reached A Million Before 40
How We Reached A Million Before 40
I always enjoy getting emails from my readers asking questions. Some of you asked about real estate investing, while others have asked about investing strategies. One reader questioned how we were able to grow our Net Worth significantly in 2013 despite not being much older than them. Was it from a large inheritance or because we had large salaries?
From an inheritance stand point that doesn’t exist because I grew up poor in government housing (food stamps aren’t transferable) and worked at Walmart for a summer during college. Upon graduation I had bad money habits but was able to turn it around in time. I bought my first property in 2001 for the tax write off while living in the Bay Area and never sold any of my properties. We were able to leverage our real estate holdings to purchase our current house. In order to obtain financing all properties we held had at least 25% equity. We then purchased another investment property with a partner
I was also investing in the stock market as I was investing 25-30% of my income across retirement and taxable accounts.
I met my wife in 2009, within three months of dating we started discussing finances. She contributed 10% to her 401K, and $100 per paycheck to her Roth IRA. She didn’t like mortgage debt so she was adding an additional $500 per month towards her condo. I had her increase her 401K to 15% and increase her Roth to $200 per paycheck. To pay for it she only paid the minimum on her mortgage. With the volatility of the market my wife lost several thousand dollars based on my advice. (Worst advisor ever). Despite terrible investing advice within a year she contributed the maximum into all her retirement accounts.
Full disclosure: My wife was very lucky she didn’t have student loan debt and her parents helped with a $100,000 down payment on her condo. I graduated with some debt that was paid off in a few years.
Although painful the bear market was a great way to build wealth. 2009 was a very scary time, I was working 70+ hours because the business dictated it. One of the top managers actually told us that we should be grateful to have a job when there were so many job losses. At that point I wanted to be financially independent. On my worst day I lost $14,000, at the market bottom I had lost over 60 percent of my portfolio. Coupled with my real estate losses I would basically be working for free for the next three years. We didn’t panic, continued to contribute the maximum despite naysayers telling us we were foolish to keep losing money.
My pet peeve is when bloggers who has never experienced a bear market declare that it was obvious to invest in 2009. Since most have only known bull markets some of them want a 50% haircut. If you only have $15,000 invested and saving $5000 a year yeah, you thing a 50% haircut is nothing, but once you break into the six figures it’s extremely painful. Remember this statement, “Bulls and Bears make money, pigs get slaughtered”.
In March of 2009 I had around $125K in all of my accounts, down more than $100K the year before. My wife had around $35K in her 401K and Roth, so our combined accounts were around $160K. I get a profit sharing into my 401K and my wife receive a match, in 2009 we saved around $42K. In 2010-13 contributing the maximum with profit sharing and matches averaged around $52K a year. We also added $18,000 into our taxable accounts in that time period.
At the end of 2013 our investment portfolio grew to 708K, we collected $19,300 in dividends. I could never imagine in 2009 that 5 years later my investment gains (without contributions) would be greater than my 2009 portfolio value. That is the power of compounding. 70% of my investments are in index funds, I allocate more towards small and mid caps which have had a nice run.
Building Net Worth takes commitment and stick with your plan.
When we budget we prioritize our investments first. Even when we bought our house and our living expenses went up we still maximized our retirement contributions. On the income side we combined for $191K last year which is a great household income for the US,in Hawaii that is only upper middle class due to the high cost of living. Using this salary calculator living in Hawaii at 191K is equivalent to $123K in North Carolina, which is the salary of a teacher and cop. Honolulu is ranked the third least affordable home market in the world, add in $4+ gas and $8 gallons of milk and you get the idea. Prioritize investing as something always comes up, keep investing regardless of the markets and stick with your plan.