I’d like to introduce ANOTHERKINDOF1%ER, an avid reader of this blog and a 1 percenter in terms of net worth. He no longer draws in a 1 percent income, but has accumulated enough wealth to put him in the top 1% in terms of net worth. The opposite is true in my case. I have not accumulated a significant amount of wealth, but our household income puts us in the top 1% of income earners.
He also has a different perspective than me on investing, spending, and taxes, which I think many of my long time readers may appreciate!
He will be contributing to this blog over the forthcoming months.
This is his story.
I’d like to thank IAM1PERCENT for the opportunity to share some thoughts on this site and hope to provide some insights from a very different perspective on personal finance, life, the universe and everything….
What does it mean to be a 1%er in America today?
Is income alone the sole driver of the term or should total net worth be a standard as well? Should net worth be a factor in conjunction with income or should you have a separate test where you qualify under either standard? These questions have been discussed admirably here by your blog host and a number of commenters, and I’d like to add my 2 cents to the discussion.
There are many statistics available both on the top 1% income and top 1% net worth in America, and for these purposes, I’ll stick with the data from here, $6 Million Gets You Into 1% at 40, but Not at 60, and take the standard that for people in their 40s, it takes a net worth of $5.8M to get into the 1%. As my wife and I are now both effectively retired, in our mid-40s raising our 3 kids in central New Jersey, and have a net worth of a little over $7M, we fit in under this less traditional measure of a 1% but have not hit the income standard for a couple of years. This gives me a fairly different perspective on being a 1%er in America today than many, including IAM1PERCENT, but I think personal finance strategies, goals and ideals from this viewpoint can provide a valuable counter. I’m excited to participate in this forum and really look forward to exploring it further.
I went straight to law school from college and then began a career in corporate law at a large firm. After I decided to leave law firm life for the corporate world, I worked at 2 large corporations in mixed business and legal roles generally related to finance. After 20 years of working, I was fortunate enough to be in a position remarkably similar to the one cited in IAM1PERCENT’s post Retired at 45. I was leaving a good job that paid extraordinarily well, but had decided to go in a different direction. I had initially thought that would involve some time off before jumping back into a slightly less stressful and demanding full-time work environment. However, as time passed and I became more involved in the daily lives of my 3 young kids, I began to realize that any role that would put me back into a 1% income category would involve stress, travel, work, demands, anxiety and more stress…..all things that I really hadn’t missed that much. So a few months of ‘taking a pause’ as I used to describe it stretched to a couple of years, and I am comfortable enough that I don’t envision ever jumping full-time into the real high intensity working world again. Thankfully, I’m at a stage that I can consider an ‘encore’ career on my terms rather than something that is critical to pay the bills.
So what are the numbers?
We spend a lot of money and don’t make as much income as we used to. As a snapshot, our annual spending (excluding income taxes and capital improvements to our house) has ranged from a high of $225k down to $180k over the past 5 years. That is an obscene amount of money to spend each year to live. Income comes primarily from investments, dividends, interest, real estate and deferred compensation, and comes to about $200k per year (before taxes) going forward. The difference between income and expenses today is generally covered by appreciation in the asset mix so while I’m often negative on cash flow, appreciation in the asset base and the resulting rising net worth keeps me comfortable with it.
How did I get here?
There are really a number of factors that contribute but I’d say the two biggest ones are a fanatical dedication to work and frugality. On dedication, it has always been apparent to me that good work gets rewarded with more work and responsibility. From this pattern, I concluded early on that you make a really great first impression, which leads to more work and opportunities. Being constantly available and responsive, and going the extra mile while anticipating requests, always keeps you in your boss’ mind when another chance to shine comes up. For example, I was an early adopter of the Blackberry and found that a short quick response to any request at any time showed that I was always on top of things. This led to opportunities to shine further and stay in a person’s mind as someone reliable and efficient who gets things done.
The second major point of getting here is, for lack of a better way to put it, that I am cheap. My guess is you are snickering already at how a family can spend 5 times the average national income and still be frugal. But in my life, I have never understood how someone pays a late fee, allows a subscription to be renewed without negotiating down some $$ off, doesn’t use a cell phone to check a purchase price online before buying or books a last-minute full price airfare rather than getting it six months in advance. I remember switching our NYTimes newspaper subscription, you know the paper kind like in the olden days, between my wife and my name every 20 weeks or so for years because it was literally one-quarter the price of a full renewal. My kids joke that Dad was too cheap to get two hotel rooms, even as we are staying in a luxury Caribbean resort (in hurricane season of course because rates are lower then).
More factors in getting here? Getting into a high paying career track as an attorney and busting my butt to create more opportunities, and taking risks at financial rewards once they presented themselves, would have to be the largest components. This led to high income years which where proceeds where primarily invested in real estate income producing properties to a lesser extent, and to a great extent in relatively conservative investments. I’ve also been fortunate in graduating with very little debt, having a wonderful wife who I adore (and seems to enjoy our being home together) and who during her short working career before she became a full-time mom, had some really successful high income working years.
It has not been a straight and simple course, however, and the recent financial crisis hurt. My philosophy however on the investment side has always been moderately conservative, more along the risk profile of an older individual who would prefer a steady 5% tax-free return over the prospect of 12+% in an aggressive equity mix. On the real estate side, I’ve been fortunate to avoid deals that seemed too speculative and focused on income producing commercial and multi-tenant residential property investing alongside partners, and we bought and sold our homes at fortunate times to stay away from being burned by the downturn.
Where do I go from here?
Thankfully, I can walk my kids to the bus stop each day, do their homework with them until they drive me to need a cocktail, and live a stress free life until I get bored. It hasn’t happened yet, but I continue to look at real estate deals to keep sharp and potentially put my money to work a little harder. And if I do get bored, I always like the idea of teaching so that could be a possibility someday.
How do you get to be a 1%er?
I hope to explore this in broader detail in the future but here is a healthy start:
- Know Where Your Money Goes – About 15 years ago, I discovered the joy of financial management software on a PC. I know, what a geek. What could possibly be cool or interesting about it? If I have to explain it to you, then you won’t get it, but I’ll try. At year-end, when I tell my wife we spent $200k last year and she responds that she just can’t understand how we did that, I present a net worth balance sheet and multi page categorized financial statements breaking it out. I enjoy spending 10 minutes a day updating my Quicken program and can tell at any time where we stand. I can evangelize forever on its importance, but will simply summarize by stating it as a simple fact. You can’t seriously take charge of your financial life unless you make a minimum effort to track your spending and assets, and then take the time to analyze what you have done in the past and use that as a yardstick to manage your future.
- Dedication to Work – Luck is critical in life; I’m a firm believer that I have been fortunate in landing opportunities that had huge successful financial upsides. However what puts a person in this position. Why does one guy get asked to work on a project over another, and then gets a bonus because the project goes well? Because that guy responded to the text at 11:30pm immediately after the boss sent it looking for information. And the response was 90% of the information necessary but was there immediately with a prompt follow-up the next morning. So the boss knows there is someone who is always there when needed. You make your own luck sometimes, and being always available and quick to respond goes a long way.
- Frugality – Take it from a spender, buying things is really fun. I am a tech geek, I need the new device just because it’s new, and newer is obviously better. However, I am cheap as well. So I take my kids to the 3D movie because they like the shiny glasses and blow a fortune on popcorn, but at least manage to snag some cups so they can all share it, and let them refill to their heart’s content. Spend wisely whenever possible, you’d be amazed how it adds up.
- Starting Early – I know you here it over and over, but compounding is your friend. Putting money aside early in life adds up over time, and getting it working on your behalf is the key to cutting back down the road.
That’s all for now. I hope to continue our conversation and give you some more perspectives on the road to 1%erhood. I don’t think anyone has coined that word yet so I’m calling dibs.