Hey $avvy people! We have yet another interview, you guys seem to like them A LOT =). This interview is from DIY$. He is a 30 something former financial advisor now working in corporate finance. He was able to pay off $45k in 9 months! DIY$ is a huge advocate to do as much as you can on your own. For example, home repairs, car repairs, and money management.
We have been very blessed this month with so much veteran knowledge coming to the site. Hope you guys will have some great takeaways from a former financial advisor. Enjoy! – T$C
1. Tell our readers a little about yourself and your blog?
I am a 30-something former financial advisor who now works in corporate finance. I started my blog to have a place to provide education, motivation, and random thoughts about money. My wife has a degree in construction management and prior to staying home with our kids used to build homes. Because of her professional interests, we find ourselves doing a lot of home renovation projects. What we’ve learned is that in both finance and construction, doing things yourself can save a ton of money.
2. If a recent graduate walked up to asking for your advice on investing and you only had a few minutes to give ‘em your best tip, what would it be?
If you have student loans, pay them off as soon as possible and don’t buy a new car. Save as much cash as you can for life events that are likely in your near future (buying a house, going to grad school, getting married, etc). I mentor a new-hire each year at work and I’m 1 for 3 in kids following this advice. The one who followed my advice lived in such a way as to enable him to accept an ex-pat assignment in Paris.
I don’t recommend always refraining from buying the latest gadgets or other fun things. However, restraining yourself for just a few short years while you build a strong financial foundation will set you up to be miles ahead of your peers for the rest of your life.
3. Now let’s say a couple in their late 30’s comes up asking for investing advice. Does your advice change? Why?
The advice is different mainly because we’re now talking about a couple, but also because they have had time to develop some financial habits. The first priority is to make sure the couple shares the same goals. Then I’d want to break down their current spending habits to see how they align with their stated goals. Most likely, there is some disconnect that should be addressed by adjusting lifestyle. The simple investing advice is to stick with index funds, but it’s all for naught if you can’t control spending and aren’t working towards the same goals.
4. The standard rule of thumb for retirement has been 1 million since we can remember. Has that changed? Is 1 million really enough in today’s economy?
It all depends on your lifestyle, but it wouldn’t be enough for me. I remember my dad used to tell me if you had $1M in the bank, you could just live off the interest. Maybe that was true in the 80’s when you could get double-digit interest from a savings account, but certainly not anymore.
I think the only people that this could work for now are those who are very frugal, or who have a hefty pension coming in. These are becoming rarer, but I did have a few clients whose retirement income was greater than in their working years (one client had 20 years with local police department followed by 20 years with federal law enforcement and the two pensions combined to ~125% of his highest income year).
For me, I think if I had a net worth of $2M and no mortgage, I’d feel comfortable dialing back from work, but really would want a net worth of $2.5-$3M to truly retire.
5. How have you built your networth so rapidly? What sacrifices in life have you had to make to have the extra money to invest?
Short Answer: Regular, consistent investing into 401k and Roth IRAs, never selling in down markets, quickly getting out of debt and throwing every extra amount we can towards our mortgage.
Longer Answer: My first job out of college, I started putting 20% of my pay into the 401k. They provided a very generous match and profit sharing straight to the 401k. My current employer puts in 9% of my pay to my 401k if I put in 6%. I haven’t checked, but of our ~$350k in retirement accounts, probably $200k came from employer contributions and their growth. If you are ever considering joining a new company, in addition to doing research on pay I suggest looking up that companies 401k plan on brightscope.com and look at the Company Generosity and Total Plan Cost to truly compare total compensation. I’m fortunate that I’ve had generous employers but it is also on purpose since I look at total compensation when considering a job and not just the salary.
When we were both working, we saved or put towards the mortgage 100% of my wife’s paycheck for a year to prove to ourselves that we could survive with her as a stay-at-home mom. Almost the exact same day as her last day of work, I got a promotion that more than replaced her lost income. Even when our household income increased, we continued to live on the same amount.
Early in my career I looked around and saw a position I aspired to and realized I could get there in 15 years by working my tail off, or get an MBA and be there in 5 years (still working my tail off). I opted for a part-time MBA to avoid giving up my income and to have my employer help with some of the tuition. Rather than take out student loans for my (still very sizable) portion, we saved up and paid tuition with cash while putting any extra money towards paying off our mortgage. We came within 6 months of paying off our house before I graduated and we moved out of state. Selling that house helped us have a hefty down payment for our next house, but we did delay our mortgage payoff date by buying a more expensive home.
I guess you could say that we have sacrificed a lot but it doesn’t always feel that way since we’ve lived this way for so long. Our period of peak sacrifice was probably while I was working on my MBA. We did some crazy things like selling a car and being a one car household for several years. I ate PB&J every night for dinner at the office before heading to school. We rarely ate out and when we did it was the dollar menu at McDonald’s. Since graduating though, we aren’t at that level of intense frugality. We travel quite often and have been able to expose our children to things we never got to see/do growing up (our latest big trip was taking three kids to London for a week).
We’re not minimalists but have become very content with our lifestyle. My co-workers may drive nicer cars, take more extravagant vacations, and go out for lunch more often, but I don’t feel any regret or jealousy for me not having those things. When I tell co-workers I plan to be able to retire at 50 they have a hard time seeing the impact of how their decisions prevent them from doing the same.
6. What is your main reason for starting your blog? Are you making substantial income off of it or is it more of a hobby?
When I worked in the financial services industry it was strictly prohibited to talk about finance online, even anonymously. Now that I’ve left, I felt the need to document my thoughts on investing and retirement.
I originally got into the financial services industry because I wanted to help people make better financial decisions. What I learned was that in order for me to make money, I couldn’t spend time with people who didn’t already have a lot of money to invest. To give you an idea of what that means, I wouldn’t accept a new client unless they already had $1M to invest.
If someone doesn’t have a lot of money, they will have a hard time getting access to a very good advisor, but anyone can access all the great websites that make up the FIRE community and DIY their investments just fine.
I would say that many within the financial industry are not practicing what they preach and are not conducting their financial lives in a way that I would trust their advice. If you have an advisor, look them up at brokercheck.finra.org and you may be surprised at what you find.
My blog is definitely more of a hobby but ideally, it’s one that pays for itself.
7. How long have you been in the finance industry? What got you started? What exactly do you do from day to day?
I worked in the finance industry for 7 years. I had an interest in the markets and landed a job in a call center for a major investment firm right out of college. I spent about 2 years there before transferring to a regional branch where I worked as a face-to-face financial advisor, primarily to high-net-worth individuals. My daily activities there were to stay in contact with my clients, set up appointments as needed to review portfolios and provide recommendations.
Really my job was to make sure people deposited a lot more money than they took out, and that they invested in products that generated fees and commissions. I got paid if clients invested in pretty much anything besides individual stocks or cash. I learned that those who do well in that type of job are those with sales skills, not financial knowledge.
I left that industry to work in corporate finance, where my analytical abilities could be put to better use. In my current job, I manage a $1B budget and every day I’m looking at a different part of it and working on various initiatives to save money and run the business more efficiently. You’ve probably heard of my company and may have even read about some of the things I’ve worked on in the news, but I’ll refrain from getting too specific to maintain anonymity.
8. How have you been calculating your networth over time? Do you use an online software like personal capital or excel? If you use excel can our readers have a free copy of your template?
I’ve used Mint since 2009 and started using Personal Capital in 2016. We’ve shifted away from using Mint and I find that I like Personal Capital better for net worth tracking and portfolio analysis. I track my net worth in a separate spreadsheet but it’s not ready for primetime sharing yet.
9. We have talked about cars on our blog before and how they are money pits. Can you explain in your opinion why you drive used cars with high mileage? What’s the cheapest way to own a car?
I would argue that if you buy a reliable car that you can afford it isn’t a money pit at all. My car cost around $14,000 in 2007 and is worth ~$3,000 today. In any given year, I probably spend $2-300 on routine maintenance (oil change, tires, brakes, etc). When you look at it that way, my ownership cost is under $1,500 a year. This is an incredible value. I have a friend who drives a $100,000 car that needs a new set of tires every 12 months that cost $2-3,000! His ownership costs are clearly MUCH higher than mine, but his income is several times higher than mine.
I’ve never bought a new car, but am considering doing so for my next vehicle because the gap between new and two years old is so narrow for the type of car I’m considering. Having high mileage cars is really just a product of keeping them a long time. Properly maintained, many cars these days can easily get to 200,000 miles or beyond and I don’t feel the need to replace a car that still meets my needs and works just fine. The cheapest way to own a car is to keep it for a long time.
10. What would be your advice on Millennials trying to buy their first house? Can you compare the pro’s and con’s of renting vs. owning?
I would argue that houses are bigger money pits than cars. Don’t believe for a second that you can afford a house if you are only comparing the cost of the mortgage to rent. We may do a few more home improvement projects than the average homeowner, but we average 30-40% of our mortgage payment on house maintenance, repairs, and other things that we will stay with the house when we sell it and that wouldn’t be our responsibility if we were renting. Much of this expense, if neglected, would lead to our house being ‘the ugly one’ on the street and would make it harder to sell for top dollar. This is the biggest con of homeownership and why it doesn’t make sense for anyone to buy who doesn’t have a healthy emergency fund and enough income to cover all the extra things that come up.
My other advice would be to hold off on buying until you are sure you’re comfortable settling somewhere.The first house we bought was a huge mistake, mainly because we bought when we still hadn’t figured out how home ownership fit in with our other goals like grad school. We ended up living in that house for less than a year before moving cross-country for a job transfer and to attend grad school. Don’t buy anything that you don’t plan on living in for at least 3-5 years.
To me, the biggest pro of owning is that I don’t need anyone’s permission to knock a wall down, redo a bathroom, or bathroom, or paint new colors. We’re always doing something and it brings us satisfaction to frequently see the fruits of our labors.
Homeownership has historically been a forced savings account that can be cashed in at retirement. This is a good thing for those who haven’t saved much, and a reminder to those who want to rent forever that you need to save a lot more on your own.
Have you started a retirement account yet?
How much money will you need in retirement to live comfortably?
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