Zero To Millionaire in Ten Years
Financial voyeurs of the world, rejoice! I dug out all our old tax returns, pay stubs, and my net worth spreadsheet to pull together the story of our ten year journey from nearly zero net worth to millionaire status (and early retirement).
This post answers a lot of questions like: How much did we earn? Did we have six figure incomes all of our careers? Did we work for a start up and make a million when our employer went IPO? Did we get lucky picking stocks?
Our story starts in 2004, a period in ancient times before the launch of Youtube. This is the year I graduated from law school and started what would be my job for the next seven years (in engineering, not law). My starting salary at a small engineering consulting firm was $48,000. The salary negotiation was bizarre. The president of the company asked me what I would like to make. I asked for $42,000 (since I had a job already lined up elsewhere for $36,000). He countered with “does $48,000 work for you?”. I spent about two seconds trying to figure what the trick was before suppressing a smile and responding with “yes, that will be acceptable”. The vice-president’s dumbfounded sideways glance at the president sticks with me even today.
Mrs. RoG was still in law school at the time. Like me, she never worked as an attorney. In 2004, we owned a rental condo that was previously our primary residence in a nearby city where I attended law school. We had just purchased our new primary residence – a house in Raleigh.
We had some investments slowly accumulated during college and graduate school plus a fledgling 401k from a couple years of Mrs. RoG’s employment between undergrad and grad school (at a salary of $24,000 to $34,000). I guess we were the weird ones that graduated college with a positive net worth (in spite of six figure college loans). By the end of 2004, we maxed out our IRAs, I contributed what my company allowed to a 401k, and we added to our taxable accounts. In total we added about $15,000 to our investment portfolio in 2004, bringing the portfolio balance to $64,000. We didn’t start Year 1 with zero dollars, but it makes sense to start when I graduated college since that is when our earnings picked up dramatically.
If you’re really interested in my career before my first post-college job, check out “From Paper Boy to Engineering Manager to Early Retiree“.
Root of Good's Earnings and Wealth
|My Salary||Mrs. RoG Salary||Additions to Portfolio||Portfolio Total|
2005 was a year of big changes for us. Our first child was born in the spring right before Mrs. RoG finished law school. After graduating and spending most of the year caring for our daughter, Mrs. RoG decided to get a job. Her starting salary of $38,000 per year was pretty average for her field, and she was eligible to receive overtime pay. The company offered really good benefits like nearly free family health insurance that would save us a lot of money over the next decade.
Mrs. RoG only worked six weeks in 2005 and pulled in $5,000. I received a small raise to $49,000.
During the year, we sold our rental condo and put the proceeds into our investment portfolio. We also completed a cash out refinance on our primary residence that generated a lot of cash because we purchased the house from the City at a discount of $30,000 from fair market value. These real estate moves helped us add $101,000 to our investment portfolio during the year even though we only earned $54,000 from working.
Our portfolio ended the year at $183,000 with $18,000 in gains for the year. At some point during this year I realized we would be able to save a significant part of our incomes every year and it was a mathematical fact that we would have enough to retire comfortably one day. I thought our “magic number” needed to retire was well over $2 million and it would take at least 20 years to hit that number.
I also discovered the Early-Retirement.org forums this year, which helped crystallize in my mind the concept of early retirement as a thing that people aim for in an intentional manner, instead of something that randomly happens as a result of saving massive piles of money.
In 2006, we had another kid. Mrs. RoG’s swanky job offered three months of paid maternity leave plus the option to take two more months of unpaid leave. Since we weren’t even spending my whole paycheck at the time, Mrs. RoG was able to take off five months. In spite of not getting paid for two months, she still made $40,000 during the year due to overtime and bonus.
I rode the boom time wave at my job, snagging two raises to bring my salary to $55,000.
We kept maxing out our 401ks and IRAs throughout the year and picked up company matches in the process. Including the 401k matches, we contributed $75,000 to our investments during Year 3.
The portfolio ended the year at $295,000 which includes $37,000 in investment gains during the year.
In 2007, we both received small raises, with my salary increasing to $56,500. Mrs. RoG earned $49,000 for the year including overtime and a small bonus. Our combined household income jumped into six figure territory for the first time. We continued saving very aggressively by putting $66,000 into our investment portfolio during the year.
We crossed another $100,000 milestone in our investment portfolio and closed out the year with $371,000, including a $10,000 stock market gain during the year. 2007 also marks the start of the Great Recession of 2007-2009.
2008 was a big year in my career. I earned my Professional Engineer’s license and along with the license came a $7,500 raise to bring my salary up to $64,000. That’s the good news. The bad news is that I would never make much more than that in inflation adjusted terms during the rest of my career. Along with the raise came more autonomy and responsibility at work, however I kept my work efforts steady at forty hours per week.
Mrs. RoG took a small step back in compensation at work but a huge step forward in terms of work-life balance. She moved to a new position within her company that involved a promotion and a switch from paid overtime to exempt status and a base salary increase. Without overtime pay, her overall compensation dropped $4,000 to $45,000 for the year. The upside was a much more flexible work schedule that would prove a huge help once our kids started elementary school (at the worst school in the district). Mrs. RoG is still in the same job that she started back in 2008.
We kept shoveling cash into our investment accounts totaling $73,000 during the year. In spite of the new cash influx, our portfolio dropped to $304,000 by year end due to a $140,000 loss throughout the year. 2008 wasn’t a pretty year in the stock market. In fact, it was ugly! But it marked the start of one of the best buying opportunities many of us will ever know.
In 2009, the company I worked for and the entire industry I worked in was getting crushed by the economic forces at play during the Great Recession. Half my firm got laid off or quit for better opportunities elsewhere. I survived the multiple rounds of layoffs, but not completely intact. Salaries at my level in the company got cut by 6% across the board, bringing my pay down to $60,000 for the year. I wasn’t sure if my company or industry would survive, so I decided to study for the bar exam and get my law license just in case. I passed the bar exam.
The stock market hit bottom in March 2009 and the economy rebounded shortly thereafter. I never needed to switch industries, but I did get the bug to switch jobs so I could make more money and do something different.
Mrs. RoG received a small raise to $46,000 per year. Throughout the Great Recession we continued to save and invest as much as we could, dropping another $71,000 into our brokerage and retirement accounts. Starting in March, the markets took off and left us with $103,000 in stock market gains for the year. This didn’t quite erase the losses suffered in 2008, but it did leave us with $478,000 by year end – perilously close to the half million mark.
2010 saw my salary reinstated to the previous $64,000 per year but left me unhappy. I was still making the same thing I was two years earlier (less in real terms after factoring in inflation). I continued my job search and found a sweet new gig that I would start in 2011.
Mrs. RoG got promoted without changing jobs. The company handed her a fat 20% raise, bringing her salary plus bonus up to $56,000 for the year.
We took a big international trip to Argentina and Uruguay this year, leaving the kids at home on the other side of the world. We didn’t spend much since the flights were free using credit card sign up bonus offers to get American Airlines miles.
We kept saving and investing and put another $68,000 into our investment accounts during 2010. The market continued it’s upward path and after making $116,000 in investment returns for the year, we had $662,000 in our portfolio by year end. At this point, the reality of early retirement set in. We were getting closer and closer each year. We couldn’t have retired in North Carolina, but we could have somewhere in the world if we were willing to relocate overseas to accelerate early retirement.
A few days into 2011, I started my new job with the State of North Carolina and picked up a $4,000 raise, bringing my salary to $68,000. I lost the profit sharing contributions and the off and on 401k match with my switch to government work, but I picked up a (worthless to me) pension plan and the ability to contribute the full amount to a 457 and another full annual contribution to a 401k (= normal 401k contribution limit x2). The extra tax-deferred savings plans were a magic ticket that let us into the kingdom of paying almost zero tax on a growing six figure household income.
Mrs. RoG received another outsized raise and a good bonus, bringing her 2011 compensation up $7,000 to $63,000.
With our growing salaries and decreased tax burden, we contributed $85,000 to our investment accounts during 2011. The market didn’t do well, resulting in a $50,000 loss. However our $85,000 in new contributions offset those losses and led to a small increase in total investment account value to $697,000.
2012 was a mostly flat year in terms of our salaries. I snagged a tiny less-than-inflation 1% raise to almost $69,000 and Mrs. RoG actually brought in $1,000 less than 2011 with a smaller than normal bonus.
This didn’t prevent us from saving $102,000 in our investment accounts during the year. Between our six figure investment contributions plus very strong stock market returns of $141,000, we were just shy of a quarter million dollar increase in our investment account value. By year end, we had $940,000 in our accounts. So close to a million and over three times what we had just four years earlier!
Even more exciting than approaching millionaire territory was the birth of kid #3. This meant (in financial terms) our tax burden dropped once again. Mrs. RoG also enjoyed another three month paid
vacation maternity leave (gotta love a company with great benefits!).
In 2013, I didn’t get any raises. The State decided they weren’t necessary to keep the mediocre employees on board; most of the good ones had already left. Mrs. RoG, however, managed a very respectable $7,000 increase in 2013, bringing her total pay to $69,000 for the year. I finally knew what it felt like to have a wife that makes more than me. It felt pretty good because a higher salary for one of us meant more savings for our joint financial future. We saved $80,000 this year.
We would have saved a little more, except the state abruptly terminated my employment contract. Departmental times were a changin’. At first I thought I was unemployed then quickly realized I was retired! I also started this blog not long after losing my job.
We were right at our financial early retirement goals with $1,244,000 in the investment accounts by year end (with $224,000 of that being investment gains during 2013).
In 2014, I did very little in the way of productive work. I kept Root of Good going which produced a respectable but small side income, and I was asked to do some freelance writing by a few different folks. In total, I made about $12,000 in 2014 after expenses. I never counted on making anything during early retirement, instead planning on living solely on portfolio income and capital gains. My blogging and freelancing income was a pleasant surprise to our early retirement finances.
Mrs. RoG continued her path of excellence at her job in spite of taking an extra five weeks of paid time off and requesting a three month paid sabbatical. She picked up another $5,000 raise, bringing the 2014 compensation to $74,000.
We continued our investment contributions throughout 2014, adding a net of $51,000 to our investment accounts (it was more than $51,000 but I withdrew all the dividends from our brokerage account). We were earning way more than we were spending each month and the continued retirement contributions were a great way to keep our income tax below zero for the year (-$1,268 to be exact).
The $51,000 of investment contributions plus modest market returns of $56,000 brought our investment balance to $1,351,000 by the end of 2014.
We thought 2015 would be the year Mrs. RoG finally quits work, and she even resigned this past September. It didn’t stick but she did negotiate a shift to working four days per week at full time pay and she now works from home 90-95% of the time.
The portfolio values in this article don’t include home equity, just investments and cash. During these 11 years, we were also making extra payments on our mortgage and paid it off completely at the beginning of 2015. Those extra principal payments aren’t counted as “investment contributions” but ditching the mortgage certainly enhanced our financial position in early retirement.
401k matches and profit sharing contributions are not included in salary but are included in the “additions to portfolio” column in the chart. That’s just how I kept track of them over the years. Add in $5,000 to $8,000 if you want to “gross up” our salaries to include the 401k matches and profit sharing contributions.
My reported salary doesn’t include the occasional $500 to $2000 annual bonus I received most of the first seven years of working. I simply don’t have good records of those bonuses. Mrs. RoG’s salary does include all bonuses and overtime pay.
The ten year path to early retirement
So there you have it – our path to financial independence. Abnormally normal salaries that generally (but not consistently) increased as we gained skills and experience. Add to that heavy duty savings while keeping expenses low. We had three kids and paid off a mortgage. Overall, a pretty boring but surprisingly effective path to financial independence.
Neither of us ever reached a six figure salary, with my salary topping out at $69,000 and Mrs. RoG’s at $74,000. These salaries probably seem huge for someone earning minimum wage or for readers from developing countries, but they are fairly normal (or low!) for college educated professionals in the engineering and finance fields. Our highest combined salaries were $138,000.
We never received stock options or worked for a company that went public. No winning lottery tickets or inheritances, either. Just steady saving and investing in our low cost index fund portfolio year after year. We didn’t upgrade our starter home or our cars. Three kids can ride in the back of an Accord, and we even took a 2,500 mile road trip to Canada in that car.
Every year we saved more than half of our income. In other words, we saved all of my paycheck every year and then saved part of Mrs. RoG’s paycheck, too. This meant we were immune to financial catastrophe if one of us lost a job. As a result, we never worried about keeping a large emergency fund and instead preferred to invest as much as possible to maximize our long term returns. It worked.
By 2014, we had lifetime earnings of a little less than $1.2 million while our investment portfolio had grown to over $1.3 million. Because of the investment earnings, it’s almost like we never spent a dime of our salaries over the years!
My advice to those just starting out or part of the way to financial independence?
- Start saving and investing early, even if you don’t have a concrete savings goal.
- Skip a money manager and invest in low cost passive index funds instead.
- Track your spending and investments with a spreadsheet or a free tool like Personal Capital.
- Keep saving and investing
evenespecially in really horrible markets.
- Don’t succumb to peer pressure to upgrade your lifestyle as your salary goes up. Your peers might spend all their raises but you don’t have to.
- Stick with the saving. Even if you don’t have a million bucks in ten years, you’ll still have a lot more than zero.
Are you following an ordinary, boring path to early retirement like me? Or have you figured out a way to turbocharge your path to financial independence?