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White Coat Investor Podcast
MtoM #210: Engineer Becomes a Multimillionaire with a Six Figure HSA and Finance 101: FIRE
00:28:49
Today we are talking with an Automotive Engineer who has built a 6 figure HSA and gown his net worth to over $2 million. He shows us that you do not have to make a half a million dollars or more a year to become a millionaire or to reach FIRE. He has...
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- [00:00]
Jim
This is the White Coat Investor podcast.
- [00:02]
Ben
Milestones to Millionaire celebrating stories of success.
- [00:06]
Jim
Along the journey to financial freedom. This is Milestones to Millionaire podcast number 210 Engineer becomes a multimillionaire with a six figure HSA. One of the most underrated financial moves in medicine is working Locum tenants. It pays significantly more on average, and you can work Locums full time or on the side of your full time. And when you work with Comp Health, the number one staffing agency, they cover your housing and travel costs, which on top of higher pay really adds up. Locums also gives you more control of your career, allowing you to go where you want, when you want, with a schedule that works for you. It's the perfect way to get ahead financially while getting focused on what you love. Whether it's locum tenants or a regular permanent position. Go to whitecoatinvestor.com comphealth to build your career your way with the power of Comp Health. All right, don't forget, wcicon is coming up. By the time you hear this, I think it's only like two weeks away or even less. But you know what? You don't have to come in person. You can come virtually, and you can get a hundred dollars off until February 27th by using code VIRTUAL100 when you sign up. When you register for the conference, we'd love to have you there virtually. We find lots of people just come virtually every year, but for others, it's a little bit of a gateway drug. They come virtually once and it looks so fun to be there in person. The next year they're there in person. But either way, we'd love to have you go to wcievents.com, use code VIRTUAL100, and save another 100 bucks off the conference price. Not to mention, you save the travel costs, you save the hotel costs. You save a lot when you come virtually, I suppose, but here's another 100 bucks you can save doing it. All right, today we've got a great interview. It's not a doctor, it's somebody else. And it's pretty cool because it's a little bit of a classic fire story. So afterward, we're going to talk about fire, financially independent, retire early and the fire community, and all things about financial independence and early retirement. Our guest on the Milestones to Millionaire podcast today is Ben. Ben, welcome to the podcast.
- [02:17]
Ben
Great. Great to be here.
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Jim
Tell us what you do for a living, how far you are out of school and what part of the country you're in.
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Ben
Yeah, So I live in the Midwest. I am an automotive engineer. For my job, I test vehicles. Basically, I'm about 13 years since finishing grad school.
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Jim
Very cool. And this is a master's. This is a PhD.
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Ben
Yeah, I got my master's degree because when I graduated, the market wasn't so great. And so hanging out in grad school turned out to be really beneficial. And then I've been working at the same company ever since I graduated.
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Jim
Very cool. And tell us what milestone or milestones we're celebrating today.
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Ben
Yeah, I'm excited because our HSA finally hit six figures. And it's been a milestone that's kind of been on my mind for a long time. And it's harder to achieve because you're limited in how much you can contribute to an hsa. But we were just really excited to get through the six figure HSA milestone. And then also our net worth has recently creeped over $2 million.
- [03:10]
Jim
Very cool. You're a multimillionaire.
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Ben
Yeah. Pretty exciting.
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Jim
Yeah. So did you ever see this happening 13 years ago? Did you ever think you'd be a multimillionaire?
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Ben
I knew someday I would, but I didn't expect it to happen within 13 years of leaving. I thought I'd have to work for 60 years or so and eventually I'd have a couple million when I retired. I just didn't expect how quickly it would be able to come.
- [03:31]
Jim
Very cool. Well, let's talk for a few minutes about the hsa. I also have a six figure hsa. We basically, ever since I got out of the military, I've been using a high deductible health plan and been eligible for an HSA and maxed it out every year and invested it aggressively and really didn't withdraw from it. And when you do that, it grows pretty quickly, especially, you know, with market returns the last couple of years. Tell us the story of your hsa. How did it become a six figure hsa?
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Ben
Yeah, it really was an evolution though, because I just thought that it was a, you know, a health account. And so I invested minimally. I was still trying to pay off a little bit of student loans that I had. And I realized quickly that this was a way to reduce the amount of taxes that I was paying. And so I started running every one of my expenses that I could through the hsa. And then I realized that you were limited on what you could contribute through payroll based on that enrollment period. But I found out that you could contribute after tax if you wanted to and then write that off on your taxes. So then I started to max it out, but I was still running all my expenses through it. And then I got the idea that you had presented where, you know, if you save up this nest egg, it creates a snowball, and you can basically let that money continue to grow and live off of the inertia of that. And so that's when we decided to cut all spending on it. And I basically have 10 years of receipts inside my filing cabinet, which I can pull out at any time. And actually, that really enabled me to do something else, which was to really reduce the amount of money that I had cash on hand for an emergency fund. And instead of taking that money and just leaving it in a high yield savings account, I actually put that into a brokerage account, because I know that at home I have a stack of 10 years of receipts that I can pull out at any time for my emergency fund should I need it.
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Jim
Have you added them up? How much do you have in receipts after 10 years?
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Ben
You know, it's not that. That much. We've been pretty fortunate. There's probably like, you know, $20,000, I guess, that we could submit at any time. So we do have a little bit of a. More of an emergency fund, but it's certainly helpful to know that that's available.
- [05:28]
Jim
Yeah, it's very cool. And sometimes people forget that you can. You can get into these accounts for a lot of different reasons. You know, there's a bunch of exceptions to get into retire accounts before age 59 and a half. And of course, any receipts or expenses you have start making HSA money accessible, even, you know, before age 65 or without a new healthcare expense. So very cool.
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Ben
Right?
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Jim
So 10 years you've been eligible to contribute to it.
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Ben
Yep.
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Jim
And how many of those years do you think you maxed it out?
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Ben
I would say every one of them. Maybe like, the first two or I didn't, but after that I did.
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Jim
Okay, so that's 5500, 6000, 7000, $8000 or so you put in there every year. And what have you invested it in?
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Ben
Just S&P 500 index fund. Pretty boring.
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Jim
Well, that was a fortunate decision for the last 10 years, wasn't it?
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Ben
Yep.
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Jim
Very cool. Mine's in essentially the same thing, a total stock market index fund, which is almost identical performance over that time period. And that certainly helped it grow, without a doubt. Okay, well, that's awesome. And obviously a significant part of your net worth. But, you know, you're a multimillionaire. You're doing A whole bunch of things. Right. Let's talk about your income. What's your income average over the last 13 years?
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Ben
Well, right out of grad school, it was about 75K. And then my wife and I have both been working recently, but originally she just stayed at home. And so our household income has fluctuated from that 75 up to about 220.
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Jim
Okay. So never knocking the top off the stadium by any means. For most of the people listening to this, that sounds like a very reasonable income to make 220. And yet, despite only making 75 to 220, you have become a multimillionaire in just 13 years, which is incredibly impressive. I assume you save quite a bit of your money.
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Ben
Yeah.
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Jim
Do you have any idea how much?
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Ben
Yeah. We have a goal to have at least a 50% savings rate.
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Jim
50% of gross or of net?
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Ben
Of net.
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Jim
Okay. So still that's probably what, something like 40% of gross.
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Ben
Yep. And we've been able to go over that several years, especially early on, before I had learned a lot about, like, financial independence. We had maybe too much in our savings. So some of those years, to reduce the savings, we invested more. So I think that that rate has gone all the way up to 90% in some years.
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Jim
Wow. Wow. So this is clearly important to you to become financially independent relatively early. Why is it important to you?
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Ben
Well, I just want to be able to do whatever I want and not have to be having the stress of knowing that I have to work for an employer and being able to have the flexibility to continue to work if I want to, which is likely going to happen, because testing cars is an amazing job and it's a lot of fun. But I wanted to be able to have that freedom, to be able to make that choice and volunteer if I wanted to instead.
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Jim
Very cool. At some point, there was a conversation with your spouse where you guys decided you were going to save a whole bunch of money that you could be spending and still be financially secure. Tell us about that conversation.
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Ben
Yeah, I think that we both kind of had a frugal background growing up, and that helped a lot. My wife helps balance that too, because she helps us to make sure that we're spending and using that money for a good cause, to make memories and have vacations and do things like that. We also, just because I'm an engineer, I tend to like to optimize stuff. So we like to use credit card rewards and points and just try to be really efficient in the way that we do it. And so even for the groceries that we do, we just try to lean towards a little bit of optimization and not let it inconvenience us too much. But really I feel like that's one of the huge enablers that we've had with my wife and I as we just try to optimize. And that aggregation of all those marginal little gains really does add up. And that's why I think we're in the situation we are today.
- [09:34]
Jim
You sound like you work for British Cycling. They're always talking about marginal gains and 1% improvements and, and those sort of things, but they do add up. You're absolutely right about that. Well, very cool. Let's talk a little bit about your net worth. How's it divided? I mean, how much of this is home equity? How much is in retirement accounts? How much is in a taxable account? And obviously we know how much is in the HSA.
- [09:58]
Ben
Yeah, yeah. So $120,000 in the HSA and then I have about 1.2 million in my 401. We've been very fortunate that our employer allows for mega backdoor Roths. And so we've been pulling that lever every single year that I knew about. And then we have about another 300k in IRAs, 200k in a brokerage account, and 300k in our equity in our home.
- [10:21]
Jim
Very cool. I bet you can tell me your ratio of Roth to tax deferred money, can't you?
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Ben
I don't have that calculated right now, but it definitely is heavy on the Roth side. And ever since our income, we're in our higher earning years now, so I've tried to shift some of that. Employee contributions are definitely traditional, but everything else is Roth.
- [10:44]
Jim
All right, There are people out there that maybe they're not docs, maybe they're making an income of 75,000. Right. I mean, not that there aren't docs making that. Right. That's about what residents are making these days. 65, 70, maybe 75,000. They want to do what you've done. They want to have this financial success, they want to have these, this sort of freedom that you now enjoy by mid career. What advice do you have for them?
- [11:11]
Ben
I think that the best thing to do is to get started. When I was in grad school, actually I audited a personal finance class and the instructor told me that in order to audit his class, I would have to create a financial plan, which was a ton of work. And he said that if I didn't do that, I would have to buy mint brownies for the entire Class. And as a serving college student, I was not going to fork over that kind of money.
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Jim
Better to make a financial plan, make brownies.
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Ben
Oh, yeah, yeah. I am not going to get going to do brownies for the class. And so I was forced to create this financial plan and in so doing it helped me get off the couch, so to say, and to actually get my hands dirty. And then that financial plan created a passion for me to learn more about it and then also to, you know, make the calculations and figure out what I would need to do and how I wanted to invest things and how to make sure that my estate was taken care of. And so I personally believe that that financial plan has saved me millions of dollars. And those brownies are million dollar brownies at this point. And I definitely am glad that I chose to write the plan instead of buy the brownies.
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Jim
Give us a sense of what your lifestyle looks like. You mentioned you live in the Midwest, so presumably a relatively low cost of living, but tell us what you drive and what vacation looks like for you, what, what sort of a house you live in, et cetera.
- [12:32]
Ben
So we were fortunate that when we graduated it was at the bottom of the housing market in the Midwest. And so we got our house for pretty inexpensively, but we live in a typical middle class neighborhood for vacations, we still travel. We love to go to Puerto Rico and we love to go out west to visit family that's out there. But typical 9 to 5 job for work. Actually, I drive test vehicles every day. So every day is a different car potentially.
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Jim
And mostly electric, I understand.
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Ben
Yeah, mostly electric, yeah.
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Jim
So you've got a fast car.
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Ben
Yep. And so, yeah, pretty typical 9 to 5 job for the most part.
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Jim
Very cool. All right, if we had your spouse on this call with us, how would she describe your financial habits?
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Ben
Hmm, that is a good question. I think she would say that I'm passionate maybe more than she is. There's a lot of times where I come from, my commute, my commute's about an hour and I'm listening to you and I come home and I'm so excited to tell her about all the things that Jim has taught me. And you know, the kids are going crazy and so she's like, you know, Ben, just calm down. I'm not ready to talk about this quite yet. But then later on she's really able to listen to that and she's just so supportive. So I think that she would say that I'm passionate about it and she's totally on board and supportive and she does a lot to make sure that we're able to do what we're able to do.
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Jim
All right, very cool. What's the end game look like? What would it take for you to loosen the purse strings, spend a little bit more money, et cetera?
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Ben
I think we do have a number in mind for being totally financially independent. And at that point, you know, we potentially might follow our kids out to school, and then I could be like an advisor to one of our engineering teams at college or something like that. But I think we want to be able to serve and help the communities that are around us. I would love to actually teach some personal finance coaching type classes and just to be able to help other people. You know, it's tough because I want to be able to tell everybody about these milestones, but it feels like you're bragging sometimes. And I think that sometimes the world kind of receives that as bragging. But I just wish that more people understood that even with not a doctor's, a surgeon's salary, you can still make this goal achievable. And we were able to do it in 13 years. And even if it takes you 15 to 20, that's a much faster trajectory than most people think is possible.
- [15:03]
Jim
Yeah, for sure. That is the attitude in general out there in our culture and our society. People actually celebrate with you, your milestones, your net worth. Lots of bloggers have published their net worth as they go along until you get to about seven figures, and then nobody's celebrating with you anymore. And envy rears its ugly head. And that's kind of a truism that I've noticed over the years. Well, very cool. This is pretty exciting. I mean, you talk about a number where you're financially independent. That number is not much higher than where you are, given what you're spending, what you have. So you will be there very quickly, I suspect, barring a massive market meltdown. And so I suspect that's your next milestone. Yes. Is that what your next goal is?
- [15:48]
Ben
Yep. Absolutely.
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Jim
Very cool. Well, congratulations to you, Ben, on your success. It's well earned. You've been working hard for 13 years and obviously paying attention to all this stuff, and it's paid off. And you should be proud of yourself. And we're grateful for you for coming on this podcast and using it to inspire others to do the same. Thank you so much.
- [16:08]
Ben
Yeah, great. Thanks, Jim. You've been a huge part of that, and so grateful for all the work that you do to give us the tips and tricks and the assets that we need to be able to make this happen. Thanks so much.
- [16:17]
Jim
We appreciate your kind words. All right. I hope you enjoyed that interview as much as I did. Ben's a classic example of a fire person, right? Figured out financial independence or financial literacy early. He took a class in college that forced him to make a financial plan. And there's nothing quite like starting at the beginning, right? If you become financially literate at the beginning and start applying all this stuff very early in your career, it's amazing what can happen. I wouldn't say I was financially illiterate right at the beginning, but certainly by the time I was midway through residency, I was. And so when I became an attending, we hit the ground running, right? We had a high savings rate, we were investing intelligently, we were checking the important boxes when it comes to our financial plan. And it all worked out very well. We became millionaires about seven years out of residency, multimillionaires a few years later, and ended up becoming financially independent at about 43 years old. I was 43. Katie's younger than I am. And that's pretty cool because it gives you independence, gives you financial freedom, gives you the ability to choose what you want to do with your life without having to pay attention to the financial ramifications. And everybody chooses something different when that happens, right? And your why matters? Because, as you can see, to get there and get there quickly. If you don't just become very fortunate and happen to have started company that really takes off like we did. It takes a lot of discipline. It's a lot of discipline for money that you could spend. But instead, in order to become financially independent early, you have to save. You need a big fat savings rate. I tell people to save 20% of their gross income for retirement more if you're saving for other goals, like a second house or college savings or something like that. That's not for financially independent retire early. That's not to be financially independent at 40 or 45. That's to be financially independent at the end of your career. If you want to be done financially by mid career, you got to save more than 20%. That's not quite enough. And in fact, your savings rate is actually the most significant number in that calculation. The more you save, the sooner you're financially independent. That's just the way it works. As Ben mentioned, he saved one year like 90% of his net income, right. And that's hard for a lot of us to do. It's particularly challenging if you live in a high cost of living area and if you pay more in tax than Ben likely does. Right. If you're making three or four or five hundred thousand dollars a year, you're not going to save anywhere close to 90% of your gross income. I can tell you that, because 20, 25, 30, 35% of it's going to be going to taxes. Maybe you can get to 90% of your net income, but that's tough in a high cost of living area. But anyway, what can you do with financial independence? Well, you can make these decisions without thinking about the financial consequences. Let me give you an example of this. I'm going to brag on Katie for a minute. Maybe she'll listen to this episode, maybe she won't. Katie's on the school board. She ran for election this fall. While I was busy getting my head right after falling off a mountain, she was campaigning. We had a gazillion campaign signs in our garage and they're put up all over the neighborhood. And she's off seeing people and at these Meet the Candidate nights. And anyway, she got elected. And that's something that you can do when you're financially independent. You have time to go pursue something like that. Now, it's technically a paid job. I think it pays something like $13,000 a year. It also qualifies us for health insurance. But she turned both of those down. She's actually doing this for free, just like she was volunteering in the schools on the school community councils and the PTAs and all that sort of stuff. She's doing this essentially as a volunteer thing as well. And a lot of people don't have that option. They don't have that option in their mid-40s. They don't have that option even in their mid-50s. Why not? Because they need to be working, they need to be earning, and they need to be earning more than $13,000 a year. Financial independence gives you options like that. And that's the really cool thing about it. All right, so how does this work? You want to be financially independent. You want to do it as fast as you can? Well, the key is to have a plan and follow the plan just like it is anything else. Now, the sooner you started earning, the better. That's why you hear about all these people in the tech world that are in the fire community. Right. Become financially independent by 32. A lot of us weren't even out of training at 32. Right. This doesn't translate very well to the life of a doctor, but if you come out of college at 22 or 23, get a tech job paying six figures, save $80,000 a year for the next eight or 10 years. Yeah, you become financially independent. It's pretty amazing. The Dr. Version of that is likely coming out of your training in your early 30s, knocking out your student loans within a couple of years, saving some big chunk of your income, 40, 50% of your net income perhaps, and there you'll be 10 years from then, you'll be financially independent. Right. What do you do with the money? Well, you stuff it into retirement accounts. You invest it in taxable, because most people saving that much don't have enough retirement account space to put it all in there. So you end up with a big taxable account as well. And you invest it in some reasonable mix of low cost, broadly diversified index funds. Probably need to be relatively aggressive in the beginning, mostly in stocks. Things like a total stock market fund, a total international stock market fund, maybe a little bit in a bond fund, a muni bond fund, if that's appropriate for you. And you're having to do it in a taxable account, those sorts of things. I run into people as well who pick up a second gig, a lifestyle job, whatever you want to call it, of direct real estate investing, right. They go out and they start buying some properties. They buy a new property every year. And after eight years they've got eight properties and a bunch of them are partially paid off and they're all cash flowing. And all of a sudden when you look at that income, in addition to what they have saved, they're financially independent. So there's lots of different ways you can do this investment wise. But the key is you've got to have the money to invest. And the way you do that is just by having a really high savings rate. It's probably higher than 20% of gross. It's probably something more like 40% or even 50% of gross. Right? So if you're paying 25% of your money in taxes and you're living on 25% of it, well, that gives you 50% that you can save. And if you do that for a decade or so, you're going to have a lot of money. That's the way it works. I got an email the other day from a surgeon and I can't remember what the question the surgeon was asking is, but this surgeon had provided enough other information that I made an additional comment and said, hey, you know, I think the surgeon was about four years out of training, had about $120,000 saved up for retirement, and I know what surgeons make, right? Even the average general surgeon, something like $350,000, $400,000, $450,000 a year, something like that. Well, if you're saving 20% of that, by the time you're four years out, you probably ought to have something more like, you know, $300,000, $400,000, $500,000. And this doc was sitting there with 120. And so I made a comment about the importance of maybe bumping up that savings rate a little bit more. And I don't think that situation is uncommon at all among doctors. I think a lot of doctors, they come out and all of a sudden now they've got to make their student loan payments and they just bought that big house they deserve because they spent so long in school. Eight years in school and five years in residency and maybe a year in a fellowship after that. They've been deferring gratification for so long, they want that nice house. Now they got a couple of payments on a Tesla. You gotta have a Tesla and you gotta have a nice truck and a boat to go with it. And all of a sudden that savings rate gets so low that it's not only not gonna get you to fire by mid career, but it might not get you to financial independence by the time you hit normal retirement age in your mid or late 60s. So pay attention to that. Whether you want to fire or not, your savings rate is a number worth calculating every year and seeing where you're at. And if you calculate it and you find you're at 18 or 19%, okay, I'm not going to yell at you. There's Nothing magical about 20%. It's just kind of a rule of thumb. But if you calculate it and the rate is 6%, that's a problem. 6% is not enough. It is not enough to get you where you want to be by the end of your career, that number needs to be much closer to 20% for most doctors. So pay attention to financial independence. It gives you a lot of options in your life. You know, hitting early financial independence or even retiring early might be among your financial goals. It might not be. When I got there, I found I didn't want to stop working. I enjoyed my jobs, I enjoyed what I was doing. I thought it was a meaningful part of my life. It gave me purpose and it allowed me to help a lot of other people. I didn't quit working when I became financially independent. Now, that in itself certainly has lots of financial benefits. We're allowed to support a lot more charities than we ever thought we were going to be able to support. But you don't have to retire early just because you become financially independent. You can continue to work, but you're now working on your terms. And I tell you what, it is fun to work on your own terms. I work the number of shifts I want to work with my group. I work the types of shifts I want to work with my group. Nobody even asked me to be on committees anymore because they kind of know the question they're going to get. I'm still on a couple of committees. I help with the 401k committee and I help with the recruitment committee. But nobody's coming to me and asking me to be the medical director because they know the answer is going to be no if they ask. And that's okay. I'm working on my terms. And that's what you can do when you become financially independent. So work hard, make sure you're getting paid fairly, save a big chunk of your money, determine your financial goals, write them down, make a written financial plan and follow it. You'll be amazed what you can accomplish in the first 10, 15, 20 years of your career. Earlier, we mentioned working locums with Comp Health, the number one staffing agency. But Comp Health isn't just a locums agency. Comp Health staffs regular permanent positions across the nation as well. They also offer telehealth, medical missions and more, and that's what makes them unique. They can look at your situation and offer multiple solutions to build your career the way you want it and meet your financial goals. And they know their stuff, especially when it comes time to negotiate contracts, which they're willing to do for you. So whatever career move you're looking for, go to whitecoatinvestor.com comphealth and use the power of Comp Health to build your career your way. That's maybe something else we ought to mention while we're talking about financial independence. The fun thing about locums is they generally pay your expenses, too. So if you come out of residency and you do nothing but locums, they're paying all your living expenses plus paying you a pretty darn good wage. And so all of a sudden, your expenses go way down, your income goes way up, very high saving rates are possible, and all of a sudden, five, six, seven years, you're looking at financial independence. So it's pretty magical. This is important to you. It is still possible. As a doc, you're probably not going to be financially independent. At 32, but it is hardly impossible to be financially independent by 40. If that's something that's really important to you. All right. This has been the Milestones to Millionaire podcast. We'd love to have you on this podcast. You can apply@whitecoatinvestor.com Milestones and we'll bring you on. Celebrate your accomplishments and use them to inspire others to do the same. Until next week, keep your head up, shoulders back. You've got this. We'll see you next time on the podcast. The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only.
- [28:37]
Ben
It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.