Author Topic: High net worth mustachians: when did your money really start to grow?  (Read 12959 times)

tyd450

  • Bristles
  • ***
  • Posts: 297
I feel like we are making slow but steady progress and our net worth is starting to creep up.  I always hear from people who have high net worths, let's say $500k, $1M, $1.5M, etc that at some point it became very obvious that their money was "working for them" and before you knew it $500k became $600k and then $700k, and before you know it you are a millionaire. 

Can anyone comment on this?  At what point for you did it seem like less work to build that nest egg?  Like more progress was being made in a shorter period of time?  I feel like I am constantly checking mint and tracking my net worth...  I just wish the magic of compound interest would hurry the hell up.  I understand the math but I would like to hear some more personal stories and the more psychological side of saving/investing if anyone would care to share.

nereo

  • Walrus Stache
  • *******
  • Posts: 9402
  • Location: la belle province
    • Here's how you can support science today:
I feel like we are making slow but steady progress and our net worth is starting to creep up.  I always hear from people who have high net worths, let's say $500k, $1M, $1.5M, etc that at some point it became very obvious that their money was "working for them" and before you knew it $500k became $600k and then $700k, and before you know it you are a millionaire. 

Can anyone comment on this? 
I'm still quite a ways from FI, but I can comment on the mathematics of net worth increases.  When you first start out building your 'stach, virtually all of the increase in your portfolio comes from your contributions (savings).  Very little will come from interest.  Depending on your savings rate, roughly when you get about halfway to your FI number (say $500k if you are shooting for $1M), gains in your portfolio start coming more from dividends and interest than from your periodic contributions.
As a result, getting the second 'half' of your FI number is much easier (and faster) than getting the first half.

An example to illustrate my point. 
Assume the following (simplistic) assumptions: Target $1M, 7% real-annual returns, $25k annual contributions.
It will take almost 13 years to reach the halfway point ($500k), and total contributions of $325k.
But, it will take just 6 more years to go from $500k to $1M, and only $150k in additional contributions.

The take-home here is that contributions matter a LOT during the first several years (and returns matter very little).  Conversely, during the last few years your returns matter a LOT and contributions matter much less.

catccc

  • Handlebar Stache
  • *****
  • Posts: 1663
  • Location: SE PA
We broke 500K a few months ago, and honestly, from a month to month basis, it still seems like we are only creeping along. 

But then when I look at it on an annual basis, I get a really different feeling.  Knowing that my NW increased 99K year-over-year in 2013, that our salary was only 85K (40K spending, 35K savings, remainder taxes, approximately).  Essentially, for the year, the investment return would have covered our annual expenses and then some.  That feels pretty good!

I'm still a good bit away from FI, probably 7 years if things go really well and maybe 10 years more conservatively.  But I am very excited about the next 500K coming a heck of a lot faster than the 1st 500K!!!

My situation basics:  I'm 34, and I've been working full time for about 10 years.  We are a one-income family of 4.  (Is that what people usually care about?)

Spork

  • Walrus Stache
  • *******
  • Posts: 5753
    • Spork In The Eye
We broke 500K a few months ago, and honestly, from a month to month basis, it still seems like we are only creeping along. 


It always feels like this.  I like to look at graphs of 1 year/2 years/10 years ... It becomes really obvious, then.  You have that "Holy crap, do you know we went from X to Y in the last 2 years" moments.

tyd450

  • Bristles
  • ***
  • Posts: 297
The daily/weekly/monthly grind can really feel overwhelming at times but it definitely helps to take a step back and look at the big picture and see the true progress being made

anisotropy

  • Pencil Stache
  • ****
  • Posts: 630
well, the % growth is the same regardless of the stash size.

if you play the stock market, at some point along the journey, the "passive income" from the stash will eclipse your work income. while that's something to be happy about you gotta be mindful that it could easily have been the other way around: ie, in a bad year you could very well lose more from the stash than your annual work income.

one major bonus though, is that the tax rate goes down as your passive income overtakes your work income. And you can use clever loss harvesting techniques to offset taxes in the future.

meadow lark

  • Magnum Stache
  • ******
  • Posts: 4909
A big part is what the stock market is doing - not on average, but in reality.  At the beginning of 2013 we had about $400k net worth.  The returns were so good it felt like we were going up $10k every month!  (Do not check my math, I didn't check it before writing that!). This year still going up, but not quite as fast.  On the other hand it feels like my rentals are standing still. 

Weedy Acres

  • Bristles
  • ***
  • Posts: 278
Two times:
1. When I went to b-school I had ~$300K net worth.  I was cash flowing expenses at a top 10 school, so not cheap, and even though I was withdrawing money to pay tuition and live, the market was going gangbusters, so my net worth stayed even.  Nice feeling.  Only lasted till the market went the other direction a couple years later. :-(
2.  When I financed my SO's 2 rental properties from the bank to me.  The mortgage payments almost covered my living expenses, so money was piling up in my bank account from my well-paying job, and my stash was growing quickly.

bogart

  • Handlebar Stache
  • *****
  • Posts: 1023
well, the % growth is the same regardless of the stash size.

Not for me it isn't.  The vast majority of my passive income comes from my retirement-sheltered tax accounts, which are heavily invested in stocks. 

In 2013, my passive income was ~115% of my (gross) earned income.
In 2012, my passive income was ~50% of my  (gross) earned income.

Believe me, the changes in proportion do not reflect either significant changes in my earned income or (particularly) significant changes in the underlying portfolio value. 

And while it's been -- knock on wood -- some years since my passive annual "income" was -100% of my annual earned income, I'm pretty sure that's happened too.

To answer the OP's question, I'm about 15 years into saving (I'm not particularly interested in RE, so "how fast" isn't as big a concern for me as it is for many here).  I'll note, though that my first 2 years' worth of retirement savings took 13 years to double (This was easy to track, as I left a small 401K at my first employer whom I left after my first two years' of work.  In 1999, the account was worth about $10K.  In 2012, it hit $20K).  In contrast, the (different) $60K 401K I rolled into a Roth in 2010 is now worth $102K -- so, it hasn't quite doubled in 4 years, but it's not nuts to think it might, by 5.  Or not, we'll see.  Contrary to what all the "annualized" descriptions will tell you, when you start (something you cannot readily control) and how long your time horizon is (something you typically more readily can control or at least, adjust), matter.   

soccerref

  • 5 O'Clock Shadow
  • *
  • Posts: 6
I have experienced two market declines (2000 and 2008/09) that have had a significant impact on my portfolio.  I have started to use the average net gain over a five year horizon to provide an indication of the potential income from the portfolio, and now that it exceeds my spending, I can feel confident that I have achieved FI.

anisotropy

  • Pencil Stache
  • ****
  • Posts: 630
sorry, let me clarify what i meant.

I did not mean to compare growth with the earned income.

What I meant was, in a given year, % growth on two portofolios of the same composition but different stash size, would be the same all else being equal. The change in terms of dollar will be different but the % will remain the same.

I think we can agree that a steady earned income can be very useful when the passive one dives into the negative terrirtory.

rmendpara

  • Pencil Stache
  • ****
  • Posts: 602
Still very early in the investing game (almost 3 yrs out of undergrad). I do indeed feel very cash poor sometimes, even though my net worth seems to be going nuts since I got a new job last fall.

I calculated it out, and based on the following:

Aftertax income - rent - avg expenses* + 401k contributions + 401k match = ~$4k/mo.

I used "avg expenses" since I try to budget for non-recurring expenses throughout the year (e.g. vacation, flight home to visit family, infrequent purchases, etc).

Though net worth is increasing $4k/mo (~$3k in investments and $1k in net cash flow) not including any investment gains/losses, I'm an impatient person, though I do regularly remind myself to extend the time frame on Personal Capital to help see the solid upward trend in net worth over 6 mos vs the last 30 days.

Current NW $140k+, and will hopefully reach $400k by age 30. I think by then, earnings on investments will start to seem more substantial.

Michread

  • Stubble
  • **
  • Posts: 212
I DON'T know!  Obviously, the more you have the faster it grows.

We didn't watch our money grow that closely.  We started saving before we were married (late '80s) and continued over our 23+ yr marriage.  Last spring, I consolidated my 3 retirement accts into one (Vanguard).  We knew we were close to 1M in investments so then we started watching to find out when that milestone occurred (mid-2013).  We were too busy living our lives and not thinking about retirement to watch that closely.

But I will tell you that in 2008-2009 I told my dh to STOP looking (he was telling me how much we lost).  I told him, it's only a paper loss (until you cash it).  We held on, kept investing and did NOT cash out.  I wasn't worried because retirement was too far away to even think about.

It's not less work for us, it's the same; live below your means and save the gap.  Slow and steady wins! 

NewStachian

  • Stubble
  • **
  • Posts: 218
  • Age: 35
  • Location: DC
    • VarsityFinances
For me, I started feeling it around 500k. It took me 10 years to get from 100k to 500k and another year to get up to 650k.

frugaliknowit

  • Handlebar Stache
  • *****
  • Posts: 1605
You have to have at least 5 digits in equities and go through a few stock market cycles.  Fortunately, I stayed fully invested through the crash of 07-09 and kept adding.  From 09-14, it's felt like a tailwind with good progress.

MgoSam

  • Magnum Stache
  • ******
  • Posts: 3642
  • Location: Minnesota
I highly recommend avoid looking at your stash. The reason is that you might get discouraged and not see the long-term benefits. This is something that I also struggle with and am getting better at. Instead, I have setup weekly contributions and plan to go in around December to invest any extra money and to rebalance the funds. Not wanting to share too much personal information about my NW, I will say that I am currently about 30% of the way to where I need to be for FI. With a 8% annual increase and my current contribution rate (not assuming any changes up or down), and 3% inflation, I am expecting to reach FI in 10 years. Of course this doesn't account for standard raises. If I were to assume that I will increase my contributions by 3% each year, I can shave a year off. 

tipster350

  • Stubble
  • **
  • Posts: 185
I'm starting to see things move a lot quicker over the 500k line.

clifp

  • Pencil Stache
  • ****
  • Posts: 528
For me the number was about $500k. It was the in the 90s and the market was doing well so the 15+% years weren't uncommon.  The first year that my unearned income exceeded my base salary was an aha moment for me. I remember tell my coworker,  you know if I can figure out a way of getting an extra couple of percent from my investments, that will pay just as well as getting a promotion.

bigchrisb

  • Handlebar Stache
  • *****
  • Posts: 1120
For me it was when I got my shit together on the saving side.  I drilled down my expenses while on a grad level pay, and tried to avoid lifestyle inflation.  10 years later and my income has increased fourfold, while my expenses have increased about 30%. That means that in absolute terms, my monthly savings have been increasing rapidly. 

Its also been helped along the way by being highly geared to stocks since 2008, but I don't like to think too much about my market gains over the last 5 years, as its been a bit of a good anomaly! I've also been more focussed on what my portfolio income is (about 30% of salary, but 110% of expenses), as that's more predictable to track than asset values.

In short, don't stress about it.  FI works when you have good financial habits for the long term.  Thinking that "I'll be set after xx years and  be able to spend whatever I want" is probably a recipe for disaster...

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8242
  • Registered member
« Last Edit: May 28, 2014, 09:44:48 AM by arebelspy »

Rube

  • 5 O'Clock Shadow
  • *
  • Posts: 85
I wish I kept better track. We didn't realize it until after we filled out some paperwork before a financial planner meeting. Sorry, that's lame!

But it's been less about a number and more about the living within our means lifestyle. I was just reminding my wife that when I first was eligible for the company retirement plan I went to her house and connected via dial up internet to the website of whoever had the money to see my $400. I was excited. :-)

ambimammular

  • Bristles
  • ***
  • Posts: 370
  • Age: 41
  • Location: Indiana
We used to post our mortgage amount in the kitchen, but even with extra payments progress was such a slow crawl.  I'd live in anticipation of the day I could lower the hundreds (thousands!) column.  The other 29 days of the month the number felt oppressive, and I would still have to stare at it every time I went to the fridge. 

We eventually erased it for a while, because it made me too twitchy!

I think it's best to check net worth annually.

Pave

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Started my journey year 2000 with $120 in my bank account and about $3000 student debt. Living and working happily in my home country that has a nice combination of low salaries, high tax rate and high COL. Somewhere along the way I bought a property for about $100k, and by 2006 my investments pretty much matched the remaining mortgage. So I had the property. Nothing impressive to me.
Around the same time my company gave me a chance to work abroad in a developing country; western salary, housing and health care paid. The rental income paid my living expenses and 100% of my net salary added to my stash. After four years expat life I was at $350k + my property. At that point I knew it's working out.
[Add two year back home when I managed to grow my stash by 50k. Nothing to write home about given that the market was actually pretty nicely recovering from 2008 crash.]
Next, in 2010 I wanted to make a move and ended up with a position in California that pays more than I never thought I would earn. Living frugally I can save about 70% of my net salary and at this point I'm borderline FI. I have already decided to give my notice on Monday after Superbowl Feb 2nd, 2015.

To wrap up: in building my assets it's been mostly just finding a job that pays well above your expenses. Only recently (perhaps at around 700-800k) the actual investment gains and yields have made a difference.



chasesfish

  • Magnum Stache
  • ******
  • Posts: 2758
  • Age: 36
  • Location: Texas
    • Years in the making, I created a journal!
I think it varies for a lot of us depending on how much we have invested, how much we spend, and what year it is.

Mine was in 2013 - I was around $500k in investments early in the year and got to enjoy a 25% gain in the stock market and was adding to it while spending ~ $36,000/yr outside of housing.

I also agree with the other poster that said when you get halfway to your savings goal - you see just how much quicker then second half goes by so much quicker.

quilter

  • Stubble
  • **
  • Posts: 149
Agree with all the other posters, the first $100,000 is the hardest. We have a graph and it looks like the first half of a bell curve.  Now that we are taking out, it has stayed pretty even at the top.

You can't time the market but you can take well known advice from multiple money gurus to avoid huge setbacks. The following rules have really helped us

1.  Never have more than 10% of any one stock. Obviously sometimes people get some fabulous stock option deal, but for the large majority of us this rule is a good one.
2. Never invest in the next best deal, things you don't understand, sales pitches that are too good to be true
3. Pay close attention to fees and loads. Before buying something like an annuity make sure you read the fine print and read as much as you can about the type of investment from all sources
4.  Rebalance.  Decide on a rough asset allocation and every six months or a year rebalance. By doing so we only had a few quarters when we did not have an increase in our net worth.

Jon_Snow

  • Magnum Stache
  • ******
  • Posts: 4759
  • Location: An Island in the Salish Sea (or Baja)
  • Continuing Lumberjack Adventures..but..Baja calls.
I would echo those who mentioned 500k as a turning point. It was around then that incoming dividends were higher than our spending, though not by much, and certainly not enough to declare FI. Now seven years later, my dividend income has doubled, and I'm trying to nail down my exit plan.

catccc

  • Handlebar Stache
  • *****
  • Posts: 1663
  • Location: SE PA
Interesting, it seems that several folks have noted that at 500K, things started to feel different, and for a lot of people, that is the halfway point. 

I hope in a couple of years when I look back I will be able to concur...  It took about 11 years to get to 500K.  I'm hoping to get the next $500K in 5 years.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27226
  • Age: -999
  • Location: Traveling the World
http://forum.mrmoneymustache.com/ask-a-mustachian/at-what-dollar-level-does-the-$$-start-compounding-fast/

This is what I immediately thought of - basically the exact same question as this thread.

So anyone interested in this thread should go read that one too.  :)

In terms of it appearing to increase faster, there are two points that stand out to me:
1) When the amount it grows is more than you spend.
2) When the amount it grows is more than you contribute.

Flip those around if you save < 50% of your income.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

tyd450

  • Bristles
  • ***
  • Posts: 297
I can't wait for that day when the stash is growing by more than I spend.  I think that will be a really amazing feeling to know that at that point I am going to work because I "choose to" rather than "have to."  That must be such a free feeling.  To know that at any point you can flip the bird and ride off into the sunset.

catccc

  • Handlebar Stache
  • *****
  • Posts: 1663
  • Location: SE PA
http://forum.mrmoneymustache.com/ask-a-mustachian/at-what-dollar-level-does-the-$$-start-compounding-fast/

This is what I immediately thought of - basically the exact same question as this thread.

So anyone interested in this thread should go read that one too.  :)

In terms of it appearing to increase faster, there are two points that stand out to me:
1) When the amount it grows is more than you spend.
2) When the amount it grows is more than you contribute.

Flip those around if you save < 50% of your income.

Great milestones to note...  I have hit both of these.  I think maybe I have forgotten how slow going it was years ago, so habituation is probably at play for me.

DoubleDown

  • Handlebar Stache
  • *****
  • Posts: 1989
In terms of it appearing to increase faster, there are two points that stand out to me:
1) When the amount it grows is more than you spend.
2) When the amount it grows is more than you contribute.

Agreed, and even:

3) When the amount it grows is more than you earn (that happened to us last year when the stock market and real estate went up so much)

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27226
  • Age: -999
  • Location: Traveling the World
In terms of it appearing to increase faster, there are two points that stand out to me:
1) When the amount it grows is more than you spend.
2) When the amount it grows is more than you contribute.

Agreed, and even:

3) When the amount it grows is more than you earn (that happened to us last year when the stock market and real estate went up so much)

Good point.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8242
  • Registered member
In terms of it appearing to increase faster, there are two points that stand out to me:
1) When the amount it grows is more than you spend.
2) When the amount it grows is more than you contribute.

Agreed, and even:

3) When the amount it grows is more than you earn (that happened to us last year when the stock market and real estate went up so much)

Good point.

How do you guys feel when you lose more than you earn?  Or did nobody have a large stache in 2008?

ShortInSeattle

  • Pencil Stache
  • ****
  • Posts: 580
I was actually pretty stoked during the crash of 2008. We had some $$ set aside from rebalancing, and I had finally made the connection that market crash = stocks on sale. We bought, bought, bought. It was awesome.

I think crashes will be scarier when we are no longer working. But when you don't need that money for 10-20 years, a crash is kinda exciting.

:)

tipster350

  • Stubble
  • **
  • Posts: 185
I had a lot less in 2008 but just stayed the course. I didn't check on my investments much, because it made me feel anxious.

I figure we are in for another good dip within the next five years. Dips are inevitable.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 27226
  • Age: -999
  • Location: Traveling the World
In terms of it appearing to increase faster, there are two points that stand out to me:
1) When the amount it grows is more than you spend.
2) When the amount it grows is more than you contribute.

Agreed, and even:

3) When the amount it grows is more than you earn (that happened to us last year when the stock market and real estate went up so much)

Good point.

How do you guys feel when you lose more than you earn?  Or did nobody have a large stache in 2008?

I love when I contribute lots and my net worth goes down. 

Buying opportunities, baby.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

ambimammular

  • Bristles
  • ***
  • Posts: 370
  • Age: 41
  • Location: Indiana
I was actually pretty stoked during the crash of 2008. We had some $$ set aside from rebalancing, and I had finally made the connection that market crash = stocks on sale. We bought, bought, bought. It was awesome.

I think crashes will be scarier when we are no longer working. But when you don't need that money for 10-20 years, a crash is kinda exciting.

:)

Totally agree!  I'm pretty eager for the next one.  I think once you've live through a CNBC's "end-of-the-world" crisis and found the world still standing and thriving a year or five later, you recognize it as panic for panic's sake. 

MDM

  • Walrus Stache
  • *******
  • Posts: 8962
Here's ~20 years worth of our quarterly net worth (from when we put things into Quicken) plotted on a logarithmic scale.  Some ups and downs - 2008/2009 in particular, but more or less "steady" increase.  Best fit exponential curve has ~9% annual increase.  As others have noted, mostly due to work income early and investment returns later.

Always nice when the value increases to some round number.  Also not so nice when it decreases to what it was ~10 years previously, but in 2008 life went on and we just let the existing investments ride and continued to invest any excess cash flow each month.

No single "defining moment" - just life with all it brings.  After all, the money itself isn't as important as what one does with life.