I want to pivot because it ties into kind of what we just did with the housing. What did they do? What are the behavioral things that have created seven-figure success for our clients? Let’s jump right in. How did they understand, or when did they start focusing on the value of time and investing?
One of the very first things that they did is they started early, and they understood that time was likely their most valuable resource. So, the way that we framed the question on the surveys was, “Hey, when did personal finance become a priority for you? When was it something that moved to the top of your list, something I’m going to place time and attention on?” It’s wild that 33 percent of our respondents said it happened between 18 to 24, in those years, the college years, to the early working years. It clicked, and they started taking it seriously. But then, for another 38 percent, they said, “Hey, I didn’t figure it out quite that early, but between 25 and 34, between the start of my career and the middle of the messy middle, I figured out that finances were important.” So, if you add those two numbers up, that’s well over 60 percent, over 70 percent—I don’t do public math—71. That said, before age 35, they started taking it seriously and realized that if they can start making good decisions early on, it’s likely going to pay off well later.
But look, I don’t like to—it’s back to being that optimist—I think even if you’re catching a late start, if you’re a person who found our content, you’re in your late 30s, you’re in your 40s, you still have an opportunity. Let’s just go, probably take a look at the path to becoming a millionaire. It’s probably going to take 20 years, and that’s the part you just have to get very disciplined, you have to put a lot of effort. But you can do it. I don’t want you to think that it’s too late. The best time to start taking your finances seriously was yesterday, which makes today the second-best time, for sure.
But let’s talk about the four-letter word that everybody’s scared to talk about—debt. Debt is one of those things. I talk about the dangers of credit cards. We’re going to talk about car loans and other things like that. It’s scary how much debt can be a trap if you fall prey to the consumer society we live in. What did we learn from our research? Our clients, our millionaires, actually had a good relationship with debt. So, we asked this first question: “Okay, how many of you use credit cards? Are you a credit card user?” It was wild, 99 percent of our respondents said, “Hey, I was able to build millionaire status using credit cards.” So, then we asked them the question: “Okay, you’re a credit card user. How do you actually use them?” We were super excited to see, but also had one little question. 97 percent of our responses said, “Hey, I pay them off monthly. I pay them. I use my credit cards, but I pay them off in full every single month.” If you’re using credit cards that way, we would argue that you are a responsible credit card user. However, if you fall into the camp where you use credit cards because maybe you want the rewards, or maybe you want the benefits, or maybe you want the travel or the points, but you’re carrying that balance over month after month, you should not be using credit cards.
Our millionaires have proven that they can use credit cards responsibly. They consider credit cards as a tool in their wealth-building process. I was shocked to see that only three percent of our population is not paying off their credit card debt. We encourage everyone to focus on the key rule that credit card use is okay, but credit card debt is not. I would love to see that three percent turn around and drop to 99 percent of people paying off their credit card balances monthly. That’s the only way credit cards should be used. Otherwise, you’re just not a credit card type of person.
Now let’s talk about a more challenging topic: student loans. Many people argue that student loans were not a choice but rather something forced upon them, something out of their control. We asked our millionaires if they took out student loans when they went to college and how much they took out.
I want to qualify this because we know that the cost of education has significantly increased over the past 20 years. It’s a very scary time, especially for younger people. A recent survey showed that for the first time, over 50 percent of people believe that college may not be a good value or necessary. As educators, we love education, but we also recognize that it’s on you to make the best decisions regarding your education.
We recommend measuring twice and cutting once when it comes to choosing your major and the amount of student loan debt you take on. Don’t use student loan money for non-essential things like beer or fancy apartments. It’s important to understand that the cost of education has exceeded inflation rates for decades. However, you have to make the best out of a system that has gone sideways. Make sure the cost of your education does not exceed your first-year salary after graduation. Avoid carrying student loan debt for decades of your working career.
Lastly, I want to address the cost of college. Some schools charge as much as $80,000 per year. It’s crucial to consider the return on investment and be honest with yourself about whether the cost is worth it. If you can’t afford a particular institution, be realistic and consider other options. Remember that two-thirds of our population attended public universities. Don’t get caught up in the moment and make choices that you can’t afford. It’s important to make good decisions for yourself and your loved ones.
Moving on, let’s talk about another significant purchase: cars. We asked our millionaires how they pay for their cars and how long they keep them. Sixty-four percent of our millionaires say they buy vehicles and pay for them in cash, while 36 percent take out a loan. This difference is likely due to the stage of life they are in. It’s easier to pay cash for a car later in life when you have a more solid financial foundation. However, there’s nothing wrong with taking out an auto loan early on, as long as you follow the Money Guy rule of 20/3/8.
When it comes to how long they keep their cars, 87 percent of our respondents keep their cars for more than seven years. This is true regardless of age. They understand that cars depreciate in value, so they drive them long enough to get the most out of their investment. Turning over cars every two years is not a wise financial move, as depreciation eats away at their value.
Our millionaires follow the financial order of operations (the FOO) when making financial decisions. They understand the right order to prioritize their finances. For example, 88 percent of our millionaires have emergency reserves of four or more months. They recognize the importance of having a safety net for unexpected expenses.
Furthermore, 83 percent of our millionaires save and invest more than 20 percent of their income. They understand the significance of saving for the future, especially considering the uncertainty around social security and pensions. Taking responsibility for your financial future is key to achieving long-term success.
In conclusion, our millionaires provide valuable insights into personal finance practices that can help everyone improve their financial well-being. By following these guidelines and making informed decisions about credit card use, student loans, car purchases, and savings, you can take control of your financial future and work towards building wealth.