Welcome to the Route 2 FI interview series.
I’m starting this series to get inside the heads of people that inspires me on my way to Financial Independence.
Today’s guest is John from Perpetual Money Machine.
John is actually a multi-millionaire already, so this could be a really interesting interview!
John has a net worth of $ 2.25M, and in this interview we will get deep under his skin to reveal his ideas and get to know him better, so we can copy this great guy!
For us who are still on our path to becoming FI, it’s important who we get our information from.
I hope you’ll find this interview interesting and might learn some things that you can put into action in your own life.
I consider myself a pretty normal guy, at least on the outside.
I might seem fairly introverted, but I warm up quickly and enjoy trading life experiences with people.
That’s when people tend to be a little surprised by who I really am.
I keep honeybees. I lived in Russia for two years right after the fall of the Soviet Union. I had five minutes of fame as viral YouTuber.
I have the world’s largest collection of (censored for privacy), and I develop products that you probably own, for one of the world’s most admired companies.
Any one of these experiences is good for some unique story-telling, but the one life experience and passion that occupies most of my thoughts is the one that I can’t really tell people about.
By age 38, I had saved and invested a million dollars.
And, I did that while raising three kids together with my wife, living in a higher than average cost of living city, and earning a normal salary.
I still haven’t made $100k in a year yet, but I should finally pass that milestone this year.
Very few people know that I am a multi-millionaire, because discussion of wealth makes work and social interactions awkward.
That’s unfortunate, because I think almost anyone could do what I have done, and I’d love to help them by sharing what I have learned.
That’s why I started my blog.
I want other people to have the peace and contentment that comes with financial independence.
If it’s too awkward to share my financial experience with the people close to me, maybe I can help some random cyber friends.
I grew up in the Western United States.
I was the second of seven children.
I won’t say that we were poor, but my dad struggled as an inventor and entrepreneur.
Money was almost always tight.
I was responsible for all of my own expenses, other than room and board, by about age 12.
I am very happy to have had that upbringing, because I learned to work and provide for myself.
I knew from experience that I could have anything I was willing to work for.
Along with this heavy portion of responsibility, I was also given a great deal of freedom.
As a teenager, my parents would drive my friends and me into the mountains and drop us off with little more than an agreement to meet back there in several days.
We would backpack across miles of wilderness, eating mostly the fish we caught along the way.
My college education was non-traditional.
I spent three semesters in three different universities, then completed the rest of my bachelor’s degree through independent study.
Since grade school, I had been running my own business, and independent study gave me the flexibility to concentrate on work first and fit my studies into the time at the margins.
This unusual degree might not have opened a lot of big corporate job opportunities, but my intention from the beginning was to get an MBA.
By the time I graduated, I already had several years of solid work experience, so I was able to start right into a very good business school as one of the youngest students ever to attend.
Higher education is a great way to increase one’s earning potential.
Unfortunately, that value is being watered down as more and more colleges cater more and more to pleasing the student rather than providing rigorous educational opportunities in areas of study that business and industry have a need for.
My education was definitely a good investment of both time and money, but that is not the outcome for more and more people. My educational investment was profitable, because I chose a good school with inexpensive tuition, then chose a field of study that employers need and pay healthy salaries for.
College is not for everyone. If you don’t want a desk or lab job, then don’t go to all the effort and expense of obtaining a college education. Trade schools, apprenticeships, or starting a business may be better options depending on the individual.
Starting at the bottom and working up can also be a great option.
It may take longer to climb the ladder, but you can start four years earlier and you make money rather than paying tuition.
My work is in product development of consumer goods.
My role is project manager.
The work begins after a product line manager has verbally defined the new product they need and a designer has visually represented the product.
I orchestrate the efforts of experts in various fields, making sure that everyone knows what the expectations are so that they are prepared with their contribution to the project at the appropriate time.
In practice, my job is providing protypes at increasingly rigorous check points, taking feedback, and making improvements for the next round, ultimately delivering awesome products on time and on budget.
On a day to day basis, this mostly looks like a lot of in-person communication with people at the office and email communication with people at the off-shore factories.
It is very satisfying work, but often quite stressful as every day brings new problems that have to be solved now.
Most of the time, I work 40 hours a week and have pretty good flexibility to leave for personal and family issues.
I also live just one mile (4-minute bike ride) away from work, so I get to have lunch with my wife most days.
Let’s get on to it, John!
What is the story behind your blog name “Perpetual Money Machine” ?
Most people see money as a way to get the things they want.
I prefer to look at money as a way to manufacture more money.
This manufactured money can then be used to get what I want while the original money continues to make more money.
Or, the manufactured money can be reinvested to expand the machine’s production capacity, so that it eventually generates more money than I need – without ever having to work.
That’s a Perpetual Money Machine.
The “thing” that I want most is freedom.
A perpetual money machine is the only way I have found to support financial freedom.
The first post I read on your blog was “My Completely Predictable Road to Financial Independence”. The post showed that totally normal people can gain financial independence. How did you do it and what was has been your average salary?
I finished my university studies 19 years ago (in 2000) and started with a salary of $66k.
I was in that job for less than a year before I was laid off with the dot com bust.
I spent an entire year looking for my current job, which I started at $48k.
In 17 years, my salary has increased at a fairly smooth rate to my current salary of $100k.
I think the biggest factor in my financial success was getting married young.
My wife and I spent three of our college years married.
During that time, we had total annual expenses (excluding tuition) of $12k.
We were completely happy and had everything we needed.
When we finished school and got our first jobs, we literally didn’t know how to spend so much money, so we saved most of our salaries.
Our expenses have definitely increased with kids and general lifestyle inflation, but we have always saved a generous portion of our earnings.
Now, my savings rate (around 40% of my salary) is hardly even relevant, because my investment gains tend to outpace my savings by several times.
Could you tell us about your investing strategy. Could you explain why and how you do it? Do you have a long term plan for your investing?
My single biggest savings vehicle has been my 401k, where I have invested in the large cap, small cap, and international funds.
I have also invested in Roth IRAs for myself and my wife.
For many years, I purchased individual stocks in these accounts and accumulated about 65 companies.
In recent years, I have come to realize that my performance with these stocks has been pretty average.
I invested a lot of time in research, money in transaction fees, and emotional capital in nurturing those stocks.
And, I have to admit that I would have underperformed the market had I not been so lucky with just one pick – Netflix.
I could have had the same results from Vanguard Total Market with much less effort, risk, and stress.
Now, all of my new money goes into broad market index funds like VTI.
I recommend VTI whenever anyone asks me what they should invest in.
Can you explain why you continue to work even if you’ve got more than enough money to quit? You’ve sent me a really interesting take on this on Twitter, but can you please explain it to the readers of Route 2 FI as well?
Over the years, I have spent plenty of time and thought preparing financially for retirement.
I didn’t think much about the timing of my retirement.
Instead, I saved liberally thinking it better to be over-prepared than under-prepared.
I enjoyed my job and assumed that retirement was decades away.
A few years ago, my company reorganized and the whole work situation turned disappointing.
I started looking at other options and bumped into the FIRE movement.
I was financially prepared for retirement, but not emotionally.
My job has since improved with another company reorganization and new management.
I am no longer feeling intense burnout.
I am a little concerned about unexpected expenses and lifestyle inflation in retirement, so it is comforting to let my nest egg grow a bit more while I continue to work.
Also, my biggest reason to retire would be to travel, but as long as I still have school-age kids at home, traveling would be difficult.
For all these reasons, it has just made sense to work a little longer.
My biggest frustration at work has been getting passed over for a promotion several times in the past few years and realizing that my career has plateaued – maybe permanently.
This could be a good reason to retire, but I have a had time admitting defeat.
I am not a quitter.
Sometimes I think I should keep working for that promotion just so I can go out on top and show my employer that I could not be kept down.
Could you describe a typical day in your life? What do you want to use more time on when you retire?
The thing that scares me about my typical day is how comfortable I have become with my habits and routine.
It is really easy to fill my time and my thoughts with work.
On vacations, I often think about what I could be doing to get ahead on the work that will be coming.
I am always pretty busy.
I rarely have time for things like TV.
However, I am not sure how truly valuable the things I spend my time on are.
I worry that if I were retired, I might waste a lot of my time and effort doing things that are no more valuable than the work I am currently doing, but without a paycheck.
In order to get emotionally prepared to retire, I need to have better plans for what I am retiring to.
Can you give us a timeline of your FI journey, from the beginning of your very first $ and until today?
I recently published an article on my blog with the details of my net worth journey.
Here is the outline:
1984 – Age 9. Net worth $0. I started mowing lawns for some of my neighbors.
1990 – Age 15. My savings account balance hit $1000 for the first time. This event was the spark that first kindled my FIRE. I was proud to have savings and wanted more.
1992 – Age 17. Net worth – $4000. This was a memorable point, because I invested my life savings in a business venture with my dad.
1993 – Age 18. Net worth $9000. My parents paid my tuition for my first semester in college, but then I was completely on my own.
1997 – Age 22. Net worth about $10k. I got married. I supported myself and my wife through college, mostly by mowing lawns.
1998 – Age 23. Net worth $500. We spent almost our entire life savings on a study abroad program. We had the time of our life even though we were almost broke.
2000 – Age 25. Net worth about $20k. We finished our educations. I had a starting salary of $66k and my wife was making $44k.
2001 – Age 26 – Net worth about $100k. I was laid off in April. My wife still had a salary of $45k. We had started building a house in January. We finished construction and started making payments in June.
2002 – Net worth about $100k. After an entire year out of work, I finally found a job in April. I was making $48k, and my wife was making $46k. Most of our net worth was in our home equity.
2004 – Our first child was born in July, and my wife decided not to go back to work.
2006 – Net worth around $440k. We paid off our home mortgage.
2013 – Age 38. Net worth $1m. I hadn’t been paying much attention, but I started tracking my net worth just in time to watch it pass $1m. This was also the year that my growth in net worth first exceeded my annual salary.
2018 – Age 43. Net worth $2M. It took 38 years, to get my first million, but only five years to get my second.
2019 – Age 44. Today my net worth stands at about $2.25M. My salary is $96k. My annual spending is around $40k.
Do you have other life goals than FIRE?
I am trying to help three kids become decent, responsible adults who know how to be happy and productive and who will enjoy life and the blessings of their own financial independence.
I want to spend several years traveling the world, spending several months in one place before moving on to the next.
I hope to make service an important component of these travel years.
I want to help others achieve and enjoy financial independence and the peace and satisfaction that it has brought into my life.
This is the purpose of my blog.
I have also considered a partial-retirement phase where I would teach personal finance at a certain university whose students are mainly from developing countries, and who tend to return home to become influencers within their communities.
I would offer my services in return for no more than staff housing and healthcare coverage.
Has taking control of your money and mastering your personal finances always been your mindset as an adult?
My attitudes about money were certainly influenced by my experiences as a child.
As I mentioned, my parents struggled financially most of the time.
When I was about 12, our home was repossessed.
I also grew up working and earning my own money.
I never wanted to feel like I was not in control of my money.
By getting ahead of my finances from an early age, I have never really had to deal with big financial concerns that I couldn’t easily resolve.
What are some of the most influential resources (books, blogs, podcast..) that have shaped your money mindset or financial situation?
I read “the Richest Man in Babylon” as a teenager and was impressed by the simplicity of the story and the idea that my money could work for me, that I should pay myself first, and that I should invest in what I understood.
I also love “Atlas Shrugged.” It may be a little over the top, but I think it empowers the individual act as an agent unto himself, even when it is popular to go with the flow.
It encouraged me to be industrious and provide value to society.
This is not a financial book per se, but it increased my confidence to succeed financially.
Still, experience has been the most influential resource.
For example, I grew up being taught that everything we have comes from God, and that we have an obligation to use the first portion of what we earn to help others.
I always gave a portion of my earnings to charity and have lived a great life on what was left.
That experience taught me the single most important principle of financial independence – spend less than you earn.
That is the simplest way to explain my financial success.
I spent less than I earned.
Is there an area or area(s) of your own personal finances that you’re still looking to better master and improve?
My wife and I are very well matched in our attitudes toward finances in general.
However, the details of how we spend money can be a point of friction at times.
I would really like to make finances something that brings us closer together.
We obviously have a great foundation to work with, but we’re not getting as much of the joy of partnership as we should, given our success in that area.
I might be a bit of a tight wad.
I am good at saving money, but not so good at spending money.
I have enjoyed building my wealth, and it will be an uncomfortable change to start drawing it down.
So, I’m working on that.
When did you first start blogging? Was there a specific launching off point or what influenced you to go down that path?
I just started my blog in March 2019.
I have always enjoyed discussing personal finance topics, but there’s only so far you can go in those discussion when everyone is being vague with the actual numbers and other details.
I have been able to help many neighbors and coworkers to get their finances in order, but you have to build a relationship to a certain point before people are comfortable talking openly about their finances.
In some ways, the anonymity of the internet makes it easier to have these discussions.
I liked the idea of writing a blog, because I thought I could help more people that way, so I spent about a year thinking about it and writing articles.
I discovered an unanticipated benefit – writing my thoughts helped me to clarify and organize my ideas in my own mind.
Eventually I had about 20 articles and a lot of additional ideas to work on.
It was clear that I had plenty to talk about, so I decided to start the blog.
Is there a mission statement or underlying purpose to what you intend to accomplish with Perpetual Money Machine?
My purpose is simply to help people see that personal finance isn’t difficult or scary, that they can achieve financial independence, and that doing so makes life so much more satisfying.
Are there specific short-term and long-term goals you’re working towards with Perpetual Money Machine?
I didn’t know anything about blogging when I got started.
I kind of assumed that people wouldn’t want to read my work.
I was surprised to learn how much time and effort it takes to get a few people just to notice that the blog exists.
So, I really didn’t start with any goals in mind.
Now I realize that my goal is to be able to write the blog and not have to hustle for almost every view.
I bought a three-year web hosting plan, so I’ve decided to give the effort three years.
If people enjoy my work and start coming back and telling their friends, then I’ll keep writing it.
If I am still spending far more time promoting the blog than writing it, I’ll look for a more efficient way to help people.
If you could recommend 3 of your blog posts for Route 2 FI’s readers to check out, what would those be?
Like you, I think that “My Completely Predictable Road to Financial Independence” is a good one, because it demonstrates that financial independence is possible and even the logical and expected result of spending less than you earn and investing the difference.
I like “My Top-Secret Investing Secret” because it shows how simple investing should be.
I talk about how anyone can achieve great returns without regard to market timing, without insider knowledge of a company, without the emotional roller coaster, and without racking up transaction fees.
Investing consistently in broad-market index funds for decades is a dead-ringer formula for success.
I also have a lot of articles that have some fun with finances, but because I can’t mention them all, I’ll recommend “In Support of the 4% Rule” because it is optimistic.
There was a ton of research behind the Trinity Study, which was the source of the 4% rule.
We can worry about all the things that could possibly go wrong during a long retirement, or we can accurately assess the risks, prepare effective contingencies, then embrace the carefree enjoyment that should characterize financial independence.
This article is heavy on all the reasons that a retirement plan based on the 4% rule is going to work out.
What is your net worth and what does it consist of?
My latest article provides the breakdown of my net worth and how I plan to access it in retirement without paying penalties.
Here’s how it breaks down:
-401k – $780k – 100% stock funds.
-House – $575 – original price was $295k
-Roth IRAs – $510k – Major holdings include NFLX, VTI, MIDD, NVDA, CGNX.
-ESPP shares – $250k – shares of the company I work for
-IRA’s $87k – AMZN, AAPL, COST, etc.
-Cash – $75k
-After-Tax Stock – $10k – VTI
One pretty cool thing about this net worth number is that it is greater than all the salaries my wife and I have ever earned.
For the last 6 years, my annual net worth increase has averaged more than double my annual salary.
I have not had any debt since I paid off my mortgage in 2006.
I do make almost all of my purchases and bill payments on credit cards, which are set to automatically pay in full each month, so I do have that rolling liability.
At what age did you start investing?
There was that investment in the business venture with my dad when I was 17, but my traditional investing started when I was 23.
My first stock purchase was $800 of WAVX, which proceeded to go bankrupt.
I lost most of that investment.
During those college years I had several thousand dollars that I thought I was investing, but looking at it now, I would have to admit that I was day-trading – gambling.
I started investing more responsibly when I finished school at age 25 and began automatic payroll deductions to fund my 401k.
What has been the average rate of return on your investments?
Sadly, I have not kept very good records of my investment returns.
I can’t say for sure what my returns have been.
What I can say is that I have compared the returns in my different account types over the years and have found that the accounts containing individual stocks underperformed my account holding only index funds most of the time.
I have one outlier stock (Netflix) that has in recent years brought my overall individual stocks performance to about even with that of the index funds.
What has been your average annual income up to this point? And what is your average savings rate? How much do you spend annually?
In the 17 years at my current job, I went from $48k to $100k on a fairly steady course.
I mostly had the standard annual wage increase with a few extra bumps spread throughout the years.
My average might be a little higher than $75k.
My annual expenses are about $40k, but that doesn’t include things like charitable donations and the medical care my employer pays for.
Do you think anyone can become a millionaire today?
I think that the vast majority of people living in a developed economy can become millionaires.
I recognize that there is a small percentage of people with handicaps that might limit their ability to earn more than they need to survive.
Many people may claim that they qualify for this exception.
For most of these, their handicap is probably more mental than actual.
In short, yes, anyone can become a millionaire.
In one of my favorite posts “Buy Stocks for Drama. Buy Index Funds to Get Rich.» you write about why index funds often is superior to indiviual stocks. Can you expand on why?
Intuitively, it makes sense that if I research a company, I can determine whether that company is good or not.
I may not always be right, but I should be right more often than if I do no research at all.
Oddly enough, this just isn’t true.
Mutual fund managers spend countless hours.
They have small armies of researchers and huge incentives to beat the market.
Still, only about 6% beat the market.
If you had a bunch of collections of stocks picked at random, you’d probably have more than 6% that beat the overall average.
I purchased index funds in my 401k and mostly individual stocks in my Roth IRAs.
My performance in both accounts over time has been about the same.
The biggest difference was that I paid way more transaction fees, subjected myself to way more stress, and spent way more time on the individual stocks.
And, you have to remember that a huge portion of my stock gains came from just one stock.
If I had made a different choice, or even if I had not decided to double up on that one, my results would have been much lower.
I understand the desire to make a big investment win, but that is only possible if you accept significantly more risk.
You may beat the market buying individual stocks, but you are more likely to lag the market.
It’s a gamble that’s not in your favor.
All you need to achieve financial independence is the 8% – 10% returns that are almost guaranteed over decades in the S&P 500.
Which 5 steps do you think is the most important to gain financial independence?
-Work hard and be productive.
-Spend less than you earn.
-Pay yourself first – at least 10 percent – more if you want to get there before you are old.
-Invest regularly in broad market index funds like VTI and hold for decades.
-Increase your savings as you increase your income, and resist lifestyle inflation.
Have questions, comments or suggestions? I would love to help you with your FI-journey.
I made this 16-pages FREE workbook with the steps I’ve taken on my path to Financial Independence.
Having a goal written down with a set date for accomplishment gives you something to plan and work for.
It’s 7 lessons and I hope you enjoy it!
After you’ve signed up, you will recieve the book right away.
Thanks for reading,
Route 2 FI