Millionaires are optimists

Year after year, we’ve found that our clients overwhelmingly consider themselves to be optimists. That shouldn’t come as a huge surprise since studies have found that optimists tend to experience more financial success. So what should you do if you are more of a pessimist? You can’t change your personality overnight to become an optimist, but you can become more optimistic over time through habits like practicing gratitude.

Being an optimist doesn’t mean seeing everything with rose-tinted glasses, either. You can recognize problems in your life (or the world) while working towards change. An optimistic outlook means believing you can change your life (and finances) for the better. The biggest problem with pessimists isn’t that they see themselves and the world for how it truly is, but that they often have a fatalistic outlook and don’t believe their actions matter.

Private schools are optional

Only 9% of children in the US attend a private school, but Americans largely agree that private schools do a better job educating children than public schools. In fact, studies have found that private school students score higher on the SAT than public school students. Another study compared academic performance for private school and public school students and actually found no statistically significant correlation after adjusting for one key variable: family income. 

Private school students tend to perform better than public school students, but there is a glaring selection bias. Private school is generally very expensive, so if you can afford to send your children to private school, chances are they are already ahead of the curve. Indeed, the study referenced earlier found that once you adjust for income, there is no statistically significant difference in academic performance.

Our millionaire survey further reinforces the idea that private school is not a prerequisite for success. 77% of clients surveyed attended public school from K-12 and 69% attended public universities.

Credit card use okay, credit card debt no way

Why do millionaires use credit cards? Credit cards can be a powerful tool, as I wrote recently, and millionaires know how to use them effectively. It’s really simple, actually – just don’t use them to live above your means! Credit cards are superior to cash or debit cards in almost every way. They often offer enhanced fraud protection, points or rewards, and some offer extended warranties, price matching, and insurance. But all of these benefits are only worth it if you have the discipline to use it like cash or a debit card and not go into credit card debt.

Drive it until the wheels fall off

When you think “millionaire,” you probably don’t imagine someone driving an older, high-mileage car. But our millionaire survey found that most clients tend to drive cars for over seven years! Driving vehicles for as long as reasonably possible makes a great deal of sense. Cars are depreciating assets, but depreciate the most in the first 3-5 years. The longer you keep a car, the greater the “value” you are getting out of driving it.

20% down isn’t a must on your first home

Putting 20% down on your first home is a good idea. It gives you a buffer against price depreciation and will make your monthly mortgage payment a bit lower than putting down less. With median home prices over $400,000, though, putting 20% down on a first home can be really difficult. Our millionaire survey found that 78% of our clients did not put down 20% on their first home, and you don’t need to either, but you still need to follow some ground rules to make sure you aren’t buying more home than you can afford.

Follow our 3/5/25 rule (aim to put down at least 3% to 5% on your first home, and make sure your monthly mortgage payment does not exceed 25% of your gross income). You need to plan to live in the home for at least 5 to 7 years, especially if you are putting down less than 20%. And on subsequent houses, you should aim to put down at least 20%.

Invest 25% or more for retirement

It should come as no surprise that our millionaire clients are good at saving money. The majority of Abound Wealth clients either invest 25% or more for retirement or are already retired.

Investing a healthy amount for retirement is a no-brainer if you want to achieve financial success. It’s like brushing your teeth to avoid cavities or eating healthy and exercising to keep in good shape. We recently launched a compound interest calculator if you are curious to see how much your savings can grow.

We’ve found that the public perception of millionaires is often quite different from the reality. Millionaires are optimists, usually go to public schools, use credit cards (responsibly), drive cars for a long time, don’t put 20% down on their first home, and most importantly, invest a large percentage of their income for retirement. None of these habits and traits require an extremely high income to achieve. No matter whether you are already a millionaire or currently have a negative net worth, implementing these habits and traits in your own life can help jumpstart your financial success.

Despite the murky outlook for the future of car prices, and the fact that new and used car prices are still elevated compared to where they were before the pandemic, it is still possible to buy an affordable and reliable vehicle. Here’s how.

1. Look for “undervalued” cars

Certain car manufacturers have a reputation for producing really reliable vehicles and they can command a premium. From my own personal experience car shopping, it’s difficult to find a Toyota (or their luxury brand Lexus) or Honda (their luxury brand is Acura) at a relatively affordable price. When I was researching reliable car brands, I noticed something interesting. The usual suspects are near the top of every list; Consumer Reports has found the most reliable used car brands to be Lexus, Toyota, Mazda, Honda, and Acura, in that order. J.D. Power’s latest vehicle dependability study found Lexus, Buick, Mazda, Toyota, and Cadillac to be the most reliable brands.

There are some names on that list I wasn’t expecting. I didn’t know that Mazdas were rated so highly, and they don’t have the same “reliability premium” of Toyota or Honda manufactured cars. We went from a Toyota house to a Mazda house, saving a bunch of money in the process and, knock on wood, haven’t had a single issue with either of our (used) cars since we purchased them last year.

If you are getting sticker shock at the cost of some of your preferred cars, don’t be afraid to broaden your horizons and check out other makes and models. Read up on the most reliable used cars or new cars and determine which reliable vehicles you can expect to purchase for a fair price. If you can afford new or used Toyota and Honda prices and prefer those brands, there is nothing wrong with that. If you’re like me, though, and aren’t able to justify the costs of those renowned brands, there are some great cars out there that don’t have a large reputation premium.

2. Find a desperate dealer or manufacturer

Some manufacturers and dealers are sitting on significantly more inventory than they would like. It’s generally better to buy a car towards the end of the year if you can wait, but with the uncertainty of tariffs and the massive amounts of inventory some dealers are sitting on, this summer may not be a bad time to go car shopping. The usual suspects aren’t going to be having fire sales anytime soon: Toyota, Honda, Lexus, and Subaru all have less than 50 days of supply of new cars in the US. A couple brands that appear on many lists as more reliable, Buick and Mazda, have 82 days and 87 days of inventory in the US, respectively.

Some brands that are not as highly regarded have an even bigger supply of cars currently in the country, which would presumably make them even more desperate to make some deals.

3. Follow 20/3/8

It doesn’t take much for a car to appear affordable on paper. The average auto loan term for new cars is nearly six years, and the average monthly car payment is $745 for new cars and $521 for used. Car dealerships have an incentive to sell you on the monthly loan payment instead of the total price of the car, and by stretching the loan out over a longer period of time, they can make the car seem more affordable than it is. I visited a dealership to purchase a car (after having already picked out the exact car I wanted, which I advise you to do) and the salesman pushed better cars and optional add-ons by emphasizing how little it would change the monthly payment.

You can make almost any vehicle seem affordable if you push out the length of the loan far enough. So how much should you spend on a car and how long should it take you to pay it off? We believe in sticking with a loan term of 3 years or less, keeping all monthly car payments to 8% or less of your gross income, and putting 20% down when you buy your car. The cash down provides a buffer against being underwater on your vehicle right when you drive it off the lot.

Check out our nifty car affordability calculator to get an idea of how much you could spend on a car while following our 20/3/8 rule.

No matter which way you slice it, buying a car is a major purchase that should not be taken lightly. Much has changed in the car-buying market over the last few years, and we could be subject to more major changes in the near future if tariffs on cars and car parts go into effect. With all of this uncertainty, it is still possible to buy an affordable and reliable car. You may have to get creative and look at makes and models different from those you’ve driven in the past, or look at used cars instead of new cars. No matter which car you end up purchasing, make sure to follow 20/3/8 to prevent a car from derailing your finances.

Home-buying rules

Our Money Guy home-buying rules can be difficult to follow for those in high cost of living areas or first-time homebuyers. However, we have some flexibility built-in to the rules. First-time homebuyers can put down just 3% to 5% on their home, provided they are planning to be in the home at least 5-7 years and are keeping their monthly payment below 25% of their gross income. The rule for everyone else is to put down 20%, spend no more than 25% of your monthly gross income on housing, and plan to live in the home for at least 5-7 years.

These guidelines are meant to provide a framework for you to find an affordable home that gives you plenty of margin to pay for all of life’s other expenses and invest for retirement and the future. It does not mean that someone who spends 25% or less on housing is automatically doing great financially and someone who spends greater than 25% is in a bad spot. However, it can be said that your overall financial risk increases the more of your income you spend on a home.

If you do find yourself in a situation where you are faced with the potential of breaking our 25% rule, you will have to create margin or cutback in other areas to make up for the excess spent on housing. It is very possible for someone who lives in a high cost of living city to spend 30% on housing, invest 25% for retirement, and have enough leftover for all other expenses. But you may have to make some tough decisions. Maybe using public transportation instead of purchasing and maintaining a vehicle allows you to spend more on housing, or if you become a DIYer and constantly repair and fix things up around the house instead of hiring contractors, you can spend a little more on the mortgage. The bottom line is the housing rule can be bent, but may require sacrifices in other areas to do so. As a general guideline, if you are going to spend more than 25% on housing, you should also be investing 25% or more for retirement.

Car-buying rules

Our Money Guy 20/3/8 car-buying rule says you should put down 20% or more on any car you purchase, pay it off in 3 years or less, and ensure the combined monthly cost of all car payments is no more than 8% of your monthly gross income. While other financial influencers believe you should only ever purchase cars in cash, our car-buying rule gives flexibility for those struggling to buy reliable transportation in cash. This rule should not be used by everyone, and if you have the ability to pay for a car in cash, do so. Cars are quickly depreciating assets and car loans are liabilities that should be approached with caution.

We don’t believe in breaking the 20/3/8 rule to spend more on a car, but there are ways you can bend the 20/3/8 rule to buy more reliable transportation. If you put down more than 20% on the car you are planning to purchase, you are effectively able to buy a more expensive car. This should not be used as a loophole to buy a luxury car, but can be great for families looking to step up to a more reliable vehicle.

Student loan rules

When it comes to taking out student loans for college, you should keep your total student loans below your expected first year salary out of school. Student loans are especially dangerous because your dollars are so powerful when you are young – just check out our Wealth Multiplier Calculator if you don’t believe me. Those going into high-paying professions like doctors or lawyers have the flexibility to take out more in student loans, if required, but you should aim to take out as little student loans as possible.

Student loans may not feel like a big burden while you are in school and payments are deferred, but once you graduate, those monthly payments eat into how much you can save and invest for the future. You should always aim to keep your total student loans below your expected first year salary and take out as little in student loans as possible. There are many creative ways to pay for college and you don’t necessarily need to work full-time while in college to avoid a ton of student loan debt. In addition to scholarships and grants, many employers offer tuition reimbursement programs and schools offer work-study programs.

Investing rules

How much should you be investing for retirement? While that is a bit of a loaded question, as a general guideline, we believe you should strive to invest 25% of your gross income for retirement. If you started investing later in life, you may need to invest even more. Unlike some of our other rules, our retirement investing rule is a bit more flexible. In your 20s, it is phenomenal if you are able to invest 25% of your income for retirement, but not expected. Start investing whatever you can as soon as you can, even if it’s as little as $20 per month. Gradually increase your investing over time as your income grows and expenses change, aiming to invest 25% no later than 30.

There may also be years where you reduce your retirement investing from 25% to a much lower number. If you are in the messy middle in your 30s and happen to buy a home and have a child in one year, you may not be able to invest 25% for retirement that year – and that’s okay! While we would love for everyone to get the benefit of investing 25% every single year of their working lives, we realize that life happens and nobody’s path to financial success is a straight line. Your own financial success is not determined by whether or not your savings rate ever deviates, but by how quickly you are able to get back on-track and recover after unexpected financial events. Check out our resource “How Much Should You Save?” for a breakdown of what percentage of income your savings rate can replace in retirement. Our Know Your Number course can help you take it to the next level and determine what savings rate is appropriate for you based on your own goals, assumptions, and desired retirement age.

Our Money Guy rules are meant to be the financial guardrails that keep your life on-track. Rules don’t have tos feel restrictive and suffocating. We hope our rules give you the freedom and flexibility to make big financial purchases, like buying a home, car, or attending college, without feeling like your financial life is on a bad track.

If you have locked in a low-interest rate on a car, does it make sense to NOT pay it off in three years? Especially if you can currently earn more in a high-yield savings account, it might seem hard to pay it off as a Financial Mutant.

If you are young and just out of college starting a job with a high earning potential, you might feel the need to buy a fancy new care to impress your clients and peers. Is this something you should do and how should you think about it?

Want to know how to buy a dependable car that won’t break the bank? Check out our Car Buying Checklist.

If you haven’t been following our 20/3/8 rule for purchasing a car, should you pay your car off as quickly as possible or over the normal term of the loan (even if it’s longer than 3 years)?

Rather than driving a clunker off the lot and spending more in maintenance and repairs than a dependable car would cost, it may make sense to take out a car loan and follow our 20/3/8 Money Guy guideline.

What does the Money Guy consider to be a luxury car and when does a car become luxury? Want to know how to buy a dependable car that won’t break the bank? Check out our Car Buying Checklist. See also, our free Car Affordability Calculator which is based on Money Guy’s 20/3/8 rule of thumb.