Millionaire Interview 12 – The Money Commando

Millionaire Interview 12. I have started a series called Millionaire Interviews. There is no better way to learn how to build wealth than from those who have already done so. Along those lines, I ask millionaire bloggers or even millionaires who are not bloggers a series of 11 questions that they answer. The questions are highlighted in bold and the answers are below each question. Hopefully, the answers are enlightening and will help you on your journey to build wealth and attain the $1,000,000 mark and beyond. 

The millionaires in the Millionaire Interview series became millionaires at a younger age than the Secret Dividend Millionaires. This comes down to mostly having higher incomes. Second, they are not very frugal to the point of austerity as some of the Secret Dividend Millionaires but certainly save more than they earn and save more than the average person. Lastly, most have multiple sources of income.

Before we start with Millionaire Interview 12, if you are a millionaire blogger or even a millionaire who doesn’t blog and want to be a part of this series, just send me an e-mail or message me on Twitter.

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Millionaire Interview 12 – The Money Commando

Millionaire interview 12 is with the anonymous author of The Money Commando blog. He is a tech nerd in software sales. The Money Commando is 45 year old with two kids. He has Bachelor of Science in computer science from Stanford. In addition, he is a part-time financial advisor with a CFP. He blogs to pass on things he has learned, meet others in the personal finance community, and allow others to see his journey. He and wife reached the $1 million mark at the age of 35 (2012) through investing in index funds and then stocks and real estate. Their current net worth is approximately $9.5 million. Now let’s take a look at Millionaire Interview 12.

• Tell us a little bit about yourself.

I’m 45 years old and married with two young kids (ages 8 and 6). I live in Santa Barbara, CA (a beautiful but very expensive place to live). I grew up in Arizona (a good place to be from) but once I moved to California, I knew I’d never live in Arizona again. The combination of the weather, the ocean, and the opportunity is just too compelling.

I’ve always been a tech nerd and ended up getting a BS in Computer Science from Stanford. I’ve worked in the software industry since graduation (24 years). About 7 years ago I decided to pursue becoming a Certified Financial Planner©. Taking the classes and then studying for and passing the test was about a 3-year process. In 2018 I started working part-time for a local wealth management company (in additional to my existing job in software sales). The idea is to get experience and eventually make the transition to a full-time investment manager.

• What is your net worth? At what age did you become a millionaire? How many years did it take to become a millionaire? Do you have any debt?

I keep track of our net worth and I publish it and our passive income on my website (here’s our December net worth statement). We ended 2021 at about $9.5M in net worth. Here’s the breakdown by asset class:

As you can see, most of our net worth is in equities and we have effectively 0% of our money in bonds/fixed income. We have a sizeable real estate portfolio that replaces fixed income in our portfolio. 

We have about $1.15M in debt, with $640k of mortgages on our rental properties and $510k on our primary residence (the numbers in the table above are net of debt). All our mortgages are 30-year fixed mortgages at rates between 3% – 4.25%. Given the extremely low interest rates I don’t expect to pay the mortgages off early. We have no consumer debt (no car payments, no student loans, no ongoing credit card debt, etc.) 

I see debt as a potentially useful tool for acquiring assets (all our real estate holdings were purchased with mortgages). However, I would never take on debt to purchase a depreciating asset. 

I’ve been using Quicken to track my finances since I graduated college in 1998 so it’s easy for me look at the long-term trends in my finances. I hit $1M in net worth in 2012 (14 years after I graduated from college. I hit $2M in November 2013, $5M in August 2017, and I expect we’ll hit $10M in mid-2022.What’s amazing is how fast the wealth grows once you get the snowball rolling downhill.

• How did you become a millionaire?

I earned our initial investment money through my current job in software sales. One of the primary characteristics of a job in sales is that your income can be quite lumpy, especially if most or all your income is via commissions. You have good months and bad months, and in bad months you might not make enough money to cover your costs.

The upside is that you can have very good months where you can make a substantial amount of money. This variability forced me to live below my means (so I wouldn’t be too cash flow negative in the bad months) and then save/invest the extra cash from the good months. 

My records show that we’ve invested about $3.234M into our various equity investments and they are currently worth $6.156M. Most of that gain has happened over the last 5 years.

In addition, we started purchasing rental properties in 2012 and we are now 50% owners of 4 rental properties and 100% owners of 6 more. The rental properties are scattered around the country for geographic diversification. The rentals have done at least as well as the equities. We purchased the rentals for about 30% down and we are up something like 200% in cash-on-cash return in the last 10 years, in addition to all the rental income they’ve generated. Perhaps most surprisingly, we have yet to pay a single penny of taxes on any of our rental income as the depreciation on the properties has allowed us to show a loss for tax purposes. 

My journey to $1M and beyond was turbocharged by a few very high earning years. In my best year I earned about $3.5M, which worked out to a bit under $2M after taxes. The year we crossed the $1M mark (in 2012) I had a big year in sales and earned over $1M.

• What is your investing philosophy, and do you use a particular strategy?

I’m a big believer in investing for income, and to me that means dividends and rental income. Dividends and rental income are more dependable than capital gains – the market routinely fluctuates anywhere from -20% to +20% over the course of a year. There have only been 3 years since 1989 where the dividend for the S&P500 Index was negative (2009 it was down 21.07%, in 2001 it was down 3.26%, and in 2000 it was down 2.52). By contrast, there have been 8 years with negative price changes in the S&P500 Index in the same time period. The annual change in dividends ranged from -21.07% in 2007 to 18.25% in 2012 and in prices it was -38.5% in 2008 to 34.1% in 1995. You can rely on dividends to pay the bills more than you can rely on increases in the price of your investments. 

In addition, over the last ~5 years I’ve switched to investing almost exclusively in individual stocks rather than mutual funds or index funds. This is for a few reasons. First, dividends from stocks are more predictable than quarterly payouts from funds. Second, I can precisely control any capital gains. With stocks you only get capital gains when you sell. Funds can generate capital gains that are passed on to you, even if you don’t sell anything. I made the typical mistakes when I was just starting out. I graduated in 1998 and was living in Silicon Valley at the height of the tech boom (and bust). As a result, I lost around $20k investing in long-shots and unprofitable companies. Thankfully I made those mistakes with small amounts of money and quickly learned my lesson. Ever since then I’ve been more conservative and have had much better results.

• What was your best investment? What was your worst investment?

I’m going to limit this strictly to financial investments and exclude things like education, relationships, etc. 

Our personal residence has generated the highest. We are up about 300% when combining our down payment and mortgage payments. The return is even higher if you factor in the rent we didn’t have to pay because we are living in the house.

In terms of equities my best investment has been Apple (APPL). I made substantial investments over the last 5 years ($170k) with most of that in the last 3 years and my investment is up about 2.5x.

The worst investments would be some put options I purchased in 2021 that ended up being worthless (i.e., a total loss).

• How much time per day or week do you spend reading financial news and going over your investments?

I don’t really spend much time reading the news, financial or otherwise. Over time I’ve realized that there’s almost nothing in the news that affects me directly, and there’s nothing in the financial news that’s actionable enough for me to make money on.  

I review my investments every quarter or so. I currently hold 31 individual stocks as well as some mutual funds. However, I almost never sell an investment. My reviews of my investments are mostly to keep my watchlist updated so I know what stocks I’m interested in buying when I have extra cash. 

I am a financial advisor, so I haven’t needed to consult with anybody else about investing, accounting, etc. I do our taxes because I like understanding the nuances of the tax system. This helps me when talking to clients as well as when making decisions about our own investments, rental properties, etc.

• What habits helped you become a millionaire?

The biggest factor to becoming a millionaire has definitely been earning a lot of money. In my best year I earned over $1M after taxes, so that put me in the 7-figure club by itself. 

The next biggest factor is that we are moderately frugal compared to our income. Being frugal means different things to different people. For me it means saving at least 25% of our income on a yearly basis. We don’t drive fancy cars (my car is a 2012 Nissan Murano) nor do we spend much on clothing. We eat out occasionally but my wife cooks almost all our meals at home. However, we do splurge on travel (although not in the last 2 years), and we sent both of our kids to a Montessori pre-school that cost about $18k/kid/year. 

We don’t really have a budget – we just try to spend reasonable amounts on things. At the end of each quarter, I sit down with my wife, we open a bottle of wine, and we review our income, spending, and investments for that quarter. This is mostly me running through the numbers for my wife, who does an excellent job of pretending to be interested. 

I expect to get another large commission check in mid-2022 and I’m going to splurge on a few things for my home gym as well as a new guitar (I started teaching myself to play about 9 months ago to alleviate COVID boredom). Other than that, I think we keep our spending pretty reasonable.

• What are your three favorite books related to investing, personal finance, retirement, and financial freedom?

“Basic Economics” – Thomas Sowell

“The Intelligent Investor” – Benjamin Graham

“The Millionaire Next Door” – Stanley and Danko

“Basic Economics” is the best economics book I have ever read. Reading this book turned me into a huge Thomas Sowell fan, and I’ve since been working my way through his entire body of work. One unique thing about this book is that Sowell teaches basic economic principles without using a single graph or equation. He explains things like supply & demand, inflation, and why rent control is a bad idea using clear, easy to understand language. 

“The Intelligent Investor” is a classic investment book by the godfather of value investing. Warren Buffett has said it is “by far the best book on investing ever written”. It was written in 1949 but the basic principles are just as useful today. One of the most important ideas in the book is Graham’s “Mr. Market”. Graham says to think of the stock market as a person who knocks on your door every day offering to buy from or sell to you stocks at a given price. However, sometimes Mr. Market is having a bad day and offers to buy and sell at low prices. Sometimes he’s in a great mood and offers to buy and sell at higher prices. The logical thing to do is to buy from him on his bad days and sell to him on his good days.

“The Millionaire Next Door” is another classic in the personal finance world. The book is the result of a massive research project by the authors to understand how millionaires actually live. What they found is that most people who are truly wealthy own less-than-glamorous businesses like junkyards, air-conditioning repair business, trucking companies, etc. In addition, most of them live well below their means, don’t drive expensive cars, and don’t look anything like what the average person expects a millionaire to look like. Another big lesson is their analysis of the effect of giving money to children. Their research very clearly shows that giving money to adult children results in the children being less successful economically. This makes sense, as the incentive to work hard and succeed is blunted if all your needs are taken care of by your parents.

• Why do you blog about your investing and journey to millionaire status and financial freedom?

I started my blog 5.5 years ago when I was considering retiring from work completely. I thought that having a blog would give me something to do, allow me to meet others in the personal finance community, and perhaps pass on some of the things I’ve learned over the years. I also decided right from the beginning to share my net worth and passive income every month so my readers could follow along and see our journey to $10M in net worth and $120,000/year in passive income. 

As I’ve spent more time ramping up my financial consulting business, I’ve had less time to spend on my blog, so I only post a few times a month now. However, I still respond to every comment and every email. 

• Besides investing what else do you like to do?

I’ve been playing golf for over 10 years now and while I am still annoyed by how bad I am [because] I enjoy it very much. In early 2021 I started to learn guitar, and this year I’ve decided to join a gym and train Brazilian Jujitsu and boxing/kickboxing 2 – 3 times per week. I also try to read about a book a week. Finally, I’ve always enjoyed lifting weights and I have a solid home gym set up in our garage that I use 3 – 4x/week. 

• Anything else you would like to add?

It’s fun to look back on my financial journey from 1998 to now. I remember how excited I was when my net worth crossed $1M for the first time. That felt like a huge step forward. $5M was another big milestone, but subsequent net worth milestones have felt less exciting. Ultimately you get to the point where you have “enough”, and money is much less of a motivating factor. 

The milestones I get most excited about these days are the passive income milestones. We just crossed $100k in passive income (dividends + rental income) for 2021 and I expect we’ll hit $120k for 2022. I think we’ll need about $200k in passive income to cover our expenses and allow me to retire. My projections show us hitting those numbers in 2027.

Ultimately, I think it’s easy to get too wrapped up in tracking the numbers and watching them grow. As our net worth and passive income has grown, I’ve spent less time reading financial blogs, less time researching investments, and more time doing other stuff. 

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Final Thoughts on Millionaire Interview 12

I hope you enjoyed reading about the anonymous author who blogs at The Money Commando in Millionaire Interview 12.

Check out his blog when you get a chance. He writes about his net worth and investment income each month. You can also see the stocks he owns. There are well-known dividend growth stocks on the list and they are generating a nice passive income stream.

The author of The Money Commando has shown that it is possible to reach $1 million by age 35 and go much further from there.

In an earlier article I identified the three principles of dividend millionaires: spend less than you earn, invest your savings, and reinvest the dividends. Your odds of becoming a millionaire are about 3.6% in the US. Achieving FIRE is a process. But I would argue that through careful planning, high saving rates, and investing you can improve your odds. The author of The Money Commando has showed us it is possible at a fairly young age of 35 in Millionaire Interview 12. Recall, in the US, the average net worth is about $728k in 2016 dollars for those between 35 and 44 years old. I have written previously on net worth targets by age.

As a final note, I have another series called Secret Dividend Millionaires. This one is about ordinary people who became millionaires by investing in dividend paying stocks for the most part. Most of these people were only discovered after they died and left their money to charities and other non-profit organizations. Often, they became millionaires through very frugal if not austere living, investing their savings in stocks that paid dividends, and reinvesting the dividends.

Thanks for reading Millionaire Interview 12 – The Money Commando!

You can read Millionaire Interview 11 – Financial Freedom Countdown as well.

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