We are not celebrities. We are not founders, co-founders or executives of any company. We did not inherit a windfall nor got help from our parents. We are just two software engineers, who started out from college with nothing and worked hard to get to where we are today. And we are still just two software engineers working in Silicon Valley. What does this mean? Let me explain why I wrote that in bold.
We don’t feel different. Even with $10M net worth, our lifestyle hasn’t changed since we reached $1M net worth. The only major difference we realized since we got married was adopting changes for our two young kids. But that’s a different topic altogether.
Here is a primary reason why we don’t feel different. Where we live, the next person you see is potentially another software engineer. We are surrounded by software engineers, so our jobs are not unique. Potentially, the family next door brings in the same income as ours. We see many families driving nice cars, traveling to fancy destinations for vacation, purchasing fancy items like designer clothes, bags, and other accessories. Superficially, a lot of people are doing well.
Does this mean everyone in our neighborhood, or in Silicon Valley, also has high net worth? Actually, that is not the case. But of course, it depends on the age group, family orientation and other factors when it comes to saving potential. So, let’s focus on the groups in our age range with small young families. From the many conversations I had with people who fall into this group, like friends and co-workers, here are some key differences that allow us to grow our wealth quicker.
We Don’t Have to Send Our Young Kids to Private Schools.
By not sending our young kids to private schools, we are not implying a certain school system is better than another. We just haven’t found the need to at this time. Our focus for the development of our young kids for elementary education is their personal development. I’m sure this is the case for all parents, of course. As long as we feel they are developing at a healthy rate, being challenged and socially developing, that would meet our current elementary education goals. Now, I know some families chose to send their children to private schools because of the inflexibility of the public system to meet their children’s learning style. We are fortunate enough that the current public school system works well for our children and allowing us to save on education costs.
We Purchased Our Primary Home Early.
Although a primary home is not considered an investment to many because you are paying down with your own cash, it is a better option than renting when it comes to growing your wealth. This is because many primary home purchases are done through leveraging, meaning through a mortgage. Using just a smaller amount to make the initial step of ownership, it allows you to slowly accumulate what you pay monthly into the home, increasing home equity, which you own. Compared to owning, renting means you are paying someone else to own the property you are renting. You also can benefit from the increase in home value as the demand in your market continues to go up. Paying ourselves early helped us grow our net worth quicker than renting. We are glad we were able to make a home purchase immediately after we were married. Since then, the value of our first home has doubled.
We Don’t Have a Mortgage over $1M Balance.
Given homes here average over $1M, homes in more desirable areas, or are newer or larger, can be $2M plus. Many of the people we know who purchased homes in that range take loans over $1M. If we calculate the monthly payments, with a good loan rate, it could still result with payments over $5K per month. This does not yet include the property taxes, which are calculated according to the home value. With these high valued homes, the taxes could be $1K — $2K additional per month. High balance loans can get you started on ownership of a nice home, but in the longer run, the total interests paid can be costly.
We Take More Risks.
Everyone knows that wealth building is about growing your wealth quickly, and we all want to do it. Yet, not many know how to approach it. Talking to many friends and folks about investments, they are surprised that we have taken out so many loans and being in such large amount of debt. One of the great vehicles of real estate investment is leveraging which we cannot generally do with other investments. The idea about being in debt in general is an alarming notion to a lot of folks: “How are you going to ever pay it off?!” Well, other people will help pay it off. They don’t realize that if we compare it with the debt we get ourselves into with purchasing a primary home, it’s just as risky, if not less risky. Investing in residential properties is a calculated risk if you did homework about its location and the potential income it can bring in. Having someone else consistently pay for the mortgage and taxes and some more to put in your pocket every month is actually a strategy. While many see debt as a risk, we understand enough to know it’s a safe risk and worth jumping on. Today, real estate make up a majority of our wealth.
We Stay True to Our Earning Power.
Although we talk about investments a lot when it comes to growing wealth, it also depends on how committed we are with our current profession. And this is actually the most important about our wealth building. Too many folks want to take the get-rich-quickly route. While we researched and tried out a number of projects, we never quit our current jobs and remain as software engineers. It can be discouraging when there are times when you don’t think you can grow in your current job, or that someone else is doing such a fantastic job in another field while you are stuck in a rut. But we need to also think about the struggles that the successful person had gone through and persistently remained it that field before the success started to play out. Jumping ships and completely going into a new field thinking the grass is greener there too quickly can hurt your career and reset your earning power. Unless you have tried it and have a plan in case it doesn’t work out, remain at where you are until you do. This is very important for building an investment portfolio. If you don’t have the opportunities or knowledge to do creative financing, the boring but most reliable strategy to secure investment loans is a stable career history.
Executing on Opportunities.
“They need to capitalize it!” One of my favorite sports is ice hockey, and that’s what I hear a lot from commentators in the sport. The phrase simply means take advantage of the situation and just shoot the puck. If a player continues to pass the puck around and never shoots, the team will never score and also at risk of a turnover. It’s the same idea with investing and taking risks. There is no perfect timing and just talking about it may make one feel like progress is being made, but it’s not execution, which is what matters. After talking with many folks years ago, many still are just pondering about the thought of investing while our wealth is continuing to grow from investments we made years ago. Everyone has excuses to not execute on projects or opportunities, but those are all just mental set backs. In general, we like to be comfortable and stay comfortable, but getting over that mentality is most difficult. Like they say, the first step is the hardest. Yup, lots of cliches here but emphasizing the truth behind these sayings.
Having a Partner Who Has the Same Risk Level.
Before I discuss about this point, I’d like to remind our readers that this article is focused on folks in the similar age groups and family status. So, we are talking about folks with partners. It is not easy to find someone who has the same mindset, and it is a lot harder to find someone who has the same risk level to fall in love with. Wealth building for a couple is working together and supporting each other. I have seen couples who are too focused on how much each other can bring to the table that they forget they are a team. This can hinder that combined purchasing power. This is one of the most difficult to resolve in a relationship. But I’m very lucky and fortunate to have a partner who supports me and work together to take the risks in building our wealth with ups and downs along the way.
Thanks for taking the time to read and leave your comments about your wealth building strategies and stories.
