Deciding whether to pay off a mortgage early—or how long to keep one—is ultimately a personal choice. In this post, I’ll share my perspective by drawing on both real-life experience and some numbers to frame the decision.

In 2022, my wife and I finally paid off the mortgage on our Lake Tahoe vacation property. That single move boosted our monthly cash flow by more than $2,500. We had originally taken out a 30-year fixed mortgage in 2007, so we ended up holding it for 15 years. There was no way we were going to take the full 30 years to pay it off.

On paper, paying off a mortgage with a negative real interest rate isn’t the most optimal financial decision. But with only $50,000 of principal left, the trade-off made sense. The 30-year fixed loan carried a 4.25% rate—higher than the 2.375% mortgage on another rental property we own, but still below today’s prevailing rates.

At the start of 2022, stocks also looked expensive. That made paying off debt more appealing: a guaranteed 4.25% annual return compared to uncertain equity returns.

We had previously paid off another rental property mortgage in 2015, but this time the difference felt much bigger. The extra cash flow stood out in a way it hadn’t before.

The Importance of Cash Flow in a Bear Market

2022 was a tough year for the stock market (-20%). When your investments are bleeding, your focus naturally shifts toward cash flow. After all, it’s cash flow, not net worth, that sustains your lifestyle. It’s what pays the bills, covers tuition, and keeps food on the table. It’s what’s real.

The stronger your cash flow, the better your odds of riding out a downturn. In fact, if your cash flow is strong enough, you might not have to adjust your lifestyle at all.

When we paid off the mortgage on our Lake Tahoe vacation property, our monthly cash flow instantly jumped by $2,500—or about $30,000 a year. That’s a meaningful cushion, and we also felt a sense of relief from having one less account to manage.

But the real boost was even bigger. I had forgotten my wife had been automatically paying an extra $1,000 in principal each month since 2020. So in total, we freed up $3,500 a month, or $42,000 a year.

That’s a significant amount of money. It can cover our family’s healthcare premiums plus more.

The Difference Between Paying Off an Old Mortgage and a New Mortgage

If you look at a mortgage amortization schedule, you’ll notice how the payment breakdown shifts over time. Early on, most of your monthly payment goes toward interest. As the years pass, a larger share goes toward principal. It’s the same with a car loan.

Here’s a good visual: in a standard 30-year loan, it takes roughly 21 years before the bulk of each payment finally goes toward paying down principal instead of interest.

That’s why paying down extra principal on a newer mortgage (under 15 years) feels so rewarding—it accelerates the shift toward principal payoff, making every subsequent regular payment more effective.

On the flip side, paying extra toward an older mortgage (15+ years) doesn’t move the needle as much, because most of your payment is already going toward principal and the remaining balance is smaller. In tough economic times, it may actually be wiser to preserve liquidity rather than prepay principal.

It’s also worth remembering: no matter how much extra you throw at your loan, your required monthly payment doesn’t change until the mortgage is completely gone. What changes is simply the ratio of interest to principal within that payment.

Only when you fully pay off your mortgage do you unlock the full cash flow benefit—and that’s when you really feel the difference.

When You’ll Really Want to Pay Off Your Mortgage

With only a $50,000 balance left and a $2,500 monthly payment, I was eager to pay off our Lake Tahoe vacation property mortgage as soon as possible. At that point, about $2,300 of each payment was going toward principal and just $200 toward interest. Instead of dragging it out for another 21.8 months, we decided to wipe out the balance in six months.

The monkey on our back was getting increasingly annoying. Eliminating it felt like lifting a weight.

The Ratio Between Mortgage Balance and Annual Payments

One helpful way to think about whether to pay off your mortgage is by looking at the ratio between your outstanding balance and your annual mortgage payments.

The higher the ratio, the more “value” you’re getting for the cash you’re putting in each year. The lower the ratio, the more sense it makes to pay the loan off.

In my case, the ratio was:

$50,000 mortgage balance ÷ $30,000 annual payments = 1.7

With such a low ratio, it felt good to pay it off and instantly free up $30,000 a year in cash flow, forever.

Now, let’s flip the example. If the balance had been $500,000 with the same $30,000 annual payment, the ratio would be 16.7. That’s strong value where I get to control a large asset for a relatively lower price. Therefore, I wouldn’t be in a hurry to prepay.

From my experience, the key “motivation points” for paying off a mortgage tend to show up when the ratio drops to 10, 5, and 3. Below those levels, the temptation to get rid of the loan grows fast to simplify your financial accounts.

Mortgage Payment Split Between Principal and Interest

Another psychological trigger comes when the percentage of your mortgage payment going to principal finally surpasses 50%.

Crossing that line feels like getting over a hump. You’re now coasting downhill, and it gets easier to pedal faster. Some of us like to coast. While some of us like to pedal even faster. I prefer the latter to gain maximum momentum.

How quickly you reach that point depends on your loan:

• With no extra payments, you usually don’t cross the 50% mark until around year 15 or later.
• With steady extra principal payments, you can get there sooner.
• If you lock in a low rate, you may see the 50% crossover point within the first three years.

The Double Benefit of a Low Mortgage Rate

Take, for example, a $572,000 loan at 5%. The monthly payment is $3,071, and in the beginning, only $687 (22.3%) goes toward principal. According to the amortization schedule, you wouldn’t reach the 50% mark until year 15.

But with a lower rate, the math changes. More of your payment goes toward principal from the start, and you benefit from both cheaper debt and faster equity buildup.

Below is an example of the same $572,000 mortgage, but this time with a 2.25% rate amortized over 30 years. Right away, the difference is clear: the monthly payment drops to $2,186 versus $3,071 at 5%. Even better, $1,114, or 51% of the payment, immediately goes toward principal.

At first glance, this setup might tempt you to throw even more money at principal. But in practice, you probably wouldn’t—and shouldn’t. With such a low rate, there’s little urgency. When your mortgage rate is below inflation or even the 10-year Treasury yield, you’re essentially holding a free loan in real terms—a negative real interest rate mortgage.

The Ideal Time to Pay Off Your Mortgage

In most cases, the urge to pay down your mortgage doesn’t really kick in until two things happen:

1. More than 50% of your monthly payment is finally going toward principal.
2. You’ve already spent 10 years or more chipping away at the balance.

From my experience, once you cross the 10-year mark and see most of your payment tackling principal, motivation tends to accelerate. By then, you may also be earning more income, which makes it easier to pay down extra.

Just keep in mind: once your mortgage is gone, your drive to hustle may decline. That’s why another natural inflection point comes when you’re ready to retire.

If you plan on stopping work, it often makes sense to enter retirement debt-free. Estimate when you’d like to retire, then back into how much extra principal you’d need to pay each year to fully pay off the mortgage by that date.

Be Careful With Your Greater Cash Flow Post Mortgage Pay Off

One underrated benefit of carrying a mortgage is the discipline it forces. Each payment reduces debt and builds equity. You can’t easily blow that money on something frivolous. In that way, a mortgage acts as a kind of forced savings plan for less disciplined spenders.

Once it’s gone, you’re left with something powerful: a valuable asset that either generates rental income or permanently saves you from rising rents. If you can’t find the ideal tenants, you could easily leave the rental property empty for an extended period of time without worrying. You’ll also suddenly have more cash flow each month to direct however you want—and that freedom can be both a blessing and a temptation.

For us, freeing up $2,500 a month has been liberating. We plan to use it for experiences, higher-quality items that improve our lives, investing for our children’s futures, and more giving to charity. The extra free cash flow also provides greater peace of mind during the next inevitable downturn.

A mortgage lets you live in a nicer home than if you’d only paid cash. But at some point, the appeal of being completely debt-free outweighs the financial arbitrage of investing elsewhere. Even if you could squeeze out higher returns in the markets, the peace of mind from having no mortgage often wins.

Final Recap

The decision to pay off a mortgage is both financial and emotional. Ratios, interest rates, and amortization schedules provide useful guideposts, but ultimately it comes down to how much you value peace of mind versus potential returns elsewhere.

If you’re unsure what to do, start by running these three numbers:

1. Your mortgage balance ÷ annual payments ratio: When this ratio gets low (think: 10, 5, 3), paying off the mortgage becomes increasingly compelling.
2. Your target retirement date: Work backward to see how much extra principal you’d need each year to be debt-free by the time you stop working.
3. The principal-share crossover: Check when more than 50% of each mortgage payment goes to principal. Crossing that mark is a psychological inflection point: you’ll see faster equity build and often feel more motivated to finish the job.
4. Compare your mortgage rate to the risk-free rate: Once the 10-year Treasury yield falls below your mortgage rate, it may be time to get more aggressive about paying down your loan.

Run those four quick checks and you’ll have a much clearer, practical picture of whether you’re chasing returns or peace of mind.

Readers, how long do you think is the ideal time to hold a mortgage? What other factors would you weigh when deciding whether to accelerate principal payments and pay it off completely? For example, does job stability, kids’ college timing, investment opportunities, or tax considerations influence your decision?

Invest In Real Estate Passively Without A Mortgage

If you’re interested in investing in real estate without taking on a mortgage, consider checking out Fundrise. The platform manages over $3 billion in assets, with a focus on residential and commercial real estate in the Sunbelt. With interest rates gradually declining and limited new construction since 2022, I anticipate upward pressure on rents in the coming years—an environment that could support stronger passive income.

I’ve personally invested over $500,000 in Fundrise funds, and they’ve been a long-time sponsor of Financial Samurai as our investment philosophies are aligned.

For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter and posts via e-mail. My goal is to help you achieve financial freedom sooner.

In Spring 2025, I sold one of my properties and successfully excluded $500,000 in capital gains, tax-free, thanks to the IRS Section 121 Exclusion. For those unfamiliar, this powerful rule allows homeowners to exclude up to $250,000 in capital gains if single, or $500,000 if married filing jointly, from the sale of a primary residence—as long as they meet the ownership and use tests.

Now it’s August 2025, and I’ve just been notified by my tenant that they’re vacating one of my rental properties at the end of their lease next month.

Given the San Francisco real estate market remains relatively strong, I’m now faced with a choice: Do I sell the property and take advantage of favorable pricing? Or do I hold onto it, boost my semi-passive income, knowing that if I wait until 2027, I could potentially exclude another $500,000 in capital gains—tax-free?

Let’s walk through how the exclusion works, how often you can use it, and why understanding this rule could save you six figures in taxes.

What Is the Section 121 Exclusion?

Under Section 121 of the IRS code, you can exclude up to $250,000 in capital gains ($500,000 if married filing jointly) from the sale of your primary residence, as long as:

1. You’ve owned the property for at least two out of the last five years, and
2. You’ve lived in the property as your primary residence for at least two out of the last five years.

You can only use this exclusion once every two years. If you sell another home within two years of your last excluded gain, you cannot claim the exclusion again.

This rule doesn’t just apply to homes you’ve always lived in. It can also be used on properties that were previously rented out, if you meet the timing requirements.

Why This Matters: My February 2025 Sale

In February 2025, I sold a home I had lived in from 2020 to late 2023. I moved out and rented it for 12 months before prepping and selling. Because I had lived in it for at least two of the past five years before the sale, I qualified for the full $500,000 exclusion.

Let’s say I bought the home for $1,000,000 and sold it for $1,800,000.

• Total capital gain: $800,000
• Section 121 exclusion: $500,000
• Depreciation recapture: $10,000 (taxed at 25%)
• Remaining long-term capital gain: $300,000

The $10,000 of depreciation recapture is not covered by the exclusion and will be taxed at up to 25%, or $2,500. The remaining $300,000 in capital gains will be taxed at long-term capital gains rates (typically 15%–20%, plus state taxes and possibly the 3.8% NIIT). We’re talking up to 33.8% in capital gains tax here in California!

Assuming I did zero remodeling, my total taxable gain is $315,000, split between depreciation recapture and regular LTCG. That’s a painful ~$104,000 in long-term capital gains taxes.

Still, I saved $150,000+ in taxes by taking advantage of the exclusion. To be specific: $500,000 X 33.8% = $169,000 in taxes I would have to pay if there was no exclusion!

The New Opportunity: Rental Property Tenant Gave Notice

Fast forward to today. A tenant in one of my other rental properties just gave notice. They’ve been there since January 2020, and I haven’t lived in the property since. Let’s say I bought the house in 2012 for $700,000 and is now worth $1.5 million.

If I sell it now, my capital gains would look something like this:

• Sale price: $1,500,000
• Original cost basis: $700,000
• Improvements over the years: $50,000
• Adjusted cost basis: $750,000
• Depreciation taken over rental period (5 years): $100,000
• Adjusted basis after depreciation: $650,000 ($750,000 cost basis minus depreciation)
• Capital gain: $1,500,000 – $650,000 = $850,000
• Depreciation recapture (taxed at 25%): $100,000 = $25,000
• Selling commission and transfer taxes: $80,000
• Remaining gain: $670,000 (taxed at long-term cap gains rate)

Because I haven’t lived in the property for two of the past five years, I cannot take the Section 121 exclusion—at least not yet.

But what if I leave my current ideal home for raising a family and move back in to this rental, which I called home from 2014-2019?

Moving Back In: The Two-Out-of-Five-Year Rule

To qualify for the exclusion again, I need to:

• Wait at least two years from my last use of the exclusion (February 2025 → February 2027), and
• Live in the property as my primary residence for at least two years within the five-year window before selling.

So, here’s a possible game plan:

1. September 2025: Tenant leaves. I move back in and make it my primary residence.
2. February 2027: I become eligible to use the exclusion again, two years after the February 2025 sale of another home.
3. September 2027: After two full years of living there, I meet the two-out-of-five-year use requirement again.
4. Fall 2027: I sell and exclude $500,000 in gains—tax-free.

Let’s look at the revised tax math.

Selling in 2027 (Two Years Later) With Exclusion

• Sale price: $1,550,000 (assuming modest $50,000 appreciation)
• Adjusted basis: $650,000 ($750,000 cost basis minus $100,000 depreciation)
• Capital gain: $900,000
• Section 121 Exclusion: $500,000
• Remaining gain: $400,000
• Depreciation recapture (unchanged): $100,000 taxed at 25% = $25,000
• Selling commission and transfer taxes: $80,000
• Remaining capital gains subject to LTCG tax: $220,000

That’s $500,000 in gains excluded, potentially saving up to $169,000 in federal and state taxes depending on my tax bracket. In this case, moving back in to unlock the tax free benefit before relocating to Honolulu feels like a financially prudent decision.

Another option is doing a 1031 exchange to defer all taxes by reinvesting the proceeds into a rental property in Honolulu. But the idea of taking on another rental and all the responsibilities that come with it feels less appealing these days.

Prorated Exclusion If I Sell Early

What if I decide to sell before September 2027—before hitting the full two-year residency again?

There’s a little-known rule that allows for a partial exclusion if you sell early due to an unforeseen circumstance, job change, health issue, or other qualified reason. But it’s tricky, and the IRS is strict about qualifying.

Partial Exclusion = (Months of ownership and use / 24) × $250,000 (or $500,000)

The safest move is to wait the full 24 months before selling.

Just know that you may also have to prorate the tax-free exclusion amount, depending on how long you rented the property after 2009 that aren’t qualifying years.

Example Of Pro-Rating The Tax-Free Exclusion

Let’s say:

• You bought a home in 2015.
• You lived in it as your primary residence for 6 years (2015-2021).
• Then you rented it out for 2 years (2021-2023).
• You sold it in 2023 with a $600,000 gain.
• You’re married filing jointly, so normally you’d qualify for the $500K exclusion.

But here’s the catch:

Because 2 of the 8 years of ownership (2019–2022) were non-qualified use, you must prorate the exclusion:

Non-qualified use ratio = 2 years / 8 years = 25%

So, 25% of the $600,000 gain = $150,000

This portion does NOT qualify for the exclusion.

That means only 80% of the gain ($480,000) is eligible for exclusion.

So your exclusion is limited to $480,000, not the full $500,000.

The remaining $20,000 will be taxable as long-term capital gain. Still, not bad!

Important note:

• Non-qualified use before the property was ever a primary residence does not count against you (e.g., if you rented it first, then lived in it, you’re OK).
• This rule only affects time after 2009.

Downsides and Considerations To Moving Back Into The Rental

Of course, there are tradeoffs to saving money on capital gains tax.

• I’ll have to live in the rental again, which is not ideal since it is smaller than my current residence with only one en suite bathroom
• The property won’t generate rental income during those two years.
• If the market weakens, I might give up gains or deal with less favorable selling conditions.
• Depreciation recapture never goes away, it will always be taxed.
• I’d have to rent out my existing house, keep it empty, or sell it, which would create the same problem. You can’t have two primary residences according to the IRS.
• Every time there is a property sale, there is economic waste in terms of fees, taxes, and commissions

As you can see, moving back into a rental to try and save on capital gains taxes isn’t always a straightforward decision. But even with these downsides, the $500,000 exclusion can more than make up for the short-term discomfort.

Strategy Summary Using The Tax-Free Home Sale Exclusion Rule

Here’s the big picture:

Action	Timing	Tax Benefit
Sold property A in Feb 2025	Met 2 of 5 rule	$500K gain excluded
Move into property B in Sept 2025	Start clock	Living requirement begins
Become eligible again in Feb 2027	2 years since last exclusion	Can exclude again
Sell property B in Sept 2027	Full 2 years of primary residence met	Exclude another $500K gain

By leapfrogging primary residences and planning around the two-year exclusion rule, it’s possible to exclude millions in gains over your lifetime.

Minimize Capital Gains Taxes Where You Can

The $500,000 tax free home sale exclusion is one of the most powerful tools in the tax code for building and preserving wealth. No other asset class offers this kind of benefit except for Qualified Small Business Stock, which comes with its own challenges. But like most good things, the exclusion requires patience, planning, and sometimes a little sacrifice.

If you have a rental with significant appreciation and flexibility in your living situation, it could be worth the effort to move back in for two years to reset the clock on the exclusion.

After all, saving $100,000 to $169,000 in taxes every two years is like earning an extra $50,000 to $84,500 a year completely tax free. Earning $500,000 in tax-free real estate gains is also like earning ~$750,000 in the stock market and paying no taxes. Not a bad strategy for those who like to optimize their finances.

Even Easier For Non-Rental Property Owners

Alternatively, if you are climbing the property ladder toward nicer homes, you can keep using the $250,000 or $500,000 capital gains exclusion with each sale. Sell four homes in your lifetime and you and your spouse could legally avoid taxes on up to two million dollars in capital gains. That equates to about $500,000 in tax savings. There’s no need to prorate the tax-free exclusion amount either since you did not rent out your homes.

Then when you finally find your forever home, your heirs benefit from a stepped up cost basis when you pass so they may avoid capital gains taxes as well. Pretty awesome tax benefits if you ask me.

Homeownership remains one of the most accessible ways for most people to build lasting wealth. Between forced savings through mortgage payments, inflation pushing up rents and home values, and the power of leverage, the average homeowner is far wealthier than the average renter. Yes, renters can invest the difference and potentially make more money, but statistically most do not consistently over time.

So if the government offers generous tax breaks to encourage homeownership, we might as well take full advantage. It is one of the few legal ways left to build wealth tax efficiently and potentially pass it on tax free.

Readers, anybody ever move back to a rental property and live in it for two years to take advantage of the tax-free home sale exclusion rule?

Diversify Into Passive Private Real Estate 

If you are tired of being a landlord, consider diversifying into private real estate instead. Fundrise is a platform that lets you invest 100 percent passively in residential and industrial properties across the country. With nearly $3 billion in real estate assets under management, Fundrise focuses on the Sunbelt region, where valuations are generally lower and yields tend to be higher.

No more dealing with tenants, maintenance issues, or turnover. Instead, you can gain exposure to a diversified portfolio of private real estate without the day to day hassle.

I have personally invested over $150,000 with Fundrise real estate. For new investors, you can get a $100 bonus if you invest over $10,000 and a $500 bonus if you invest over $25,000. They have been a trusted partner and long time sponsor of Financial Samurai. With just a $10 minimum investment, adding real estate to your portfolio has never been easier.

If you are a parent, your mission is clear: develop into a rich Bank of Mom & Dad to save your children. Without your financial support, they might never launch. If you don’t have wealthy parents yourself, then unfortunately, life might stay on hard mode forever. It’s up to you to break the cycle for your next generation, if they need your help.

Ever since I started working on Wall Street in 1999, I’ve seen wealthy parents buy their children everything—from condos to cars to groceries. I saw this firsthand with my peers at Goldman Sachs.

While I was sharing a studio apartment with a high school friend and later a co-worker, some of my peers were getting $500,000–$750,000 condos from their parents. Instead of wearing ill-fitting suits from Century 21 like I did, they had tailor-made Armani. I was impressed… and a little jealous.

But more than anything, I was motivated. Working in Manhattan opened my eyes to what generational wealth can do. And now, as a parent myself, I see even more clearly how important it is to become wealthy enough—not just for my own peace of mind, but for my children’s future opportunities.

Rich Banks of Mom & Dad Are Thriving

In my post, Income And Net Worth Required To Purchase A $10 Million House, one reader commented:

“The Bank of Mom and Dad phenomenon is so frustrating for those of us who have mostly earned everything… The few I know who ended up in a $10 million house in this situation still work pretty regular jobs… and they’ve traded up over the years. So I guess they get a little credit for making the best of their very nice birthright.”

It can feel annoying when your friends or peers are wealthier simply because of who their parents are. Even more irksome is how shameless many adult children seem about accepting help. There’s rarely any embarrassment. Nobody hides the fact they live in a $3-$10 million home bought by mom and dad, instead they throw parties and flaunt it on social media.

Only Three Ways to Stop Parents From Paying for Their Adult Children

One way to end the rich Bank of Mom and Dad phenomenon is for adult children to start refusing help and insist on making it on their own. But let’s be honest—that’s not going to happen. If free money is available, most people will take it. As a result, the trend will likely continue—and even accelerate—as more wealth is passed down.

Another way is for parents to start saying “no” to financial requests or stop offering help altogether. But when you have more money than you can spend in a lifetime thanks to investing for decades in the greatest bull market, that’s unlikely too. Love, guilt, and the desire to leave a legacy often outweigh ideals about financial independence.

The final—and most unrealistic—way to stop the trend is for sellers to reject money from parents. Imagine requiring every buyer to swear under oath that they earned the money themselves—like checking ID before selling alcohol. Sounds absurd, right?

Because let’s face it: if you own a BMW dealership and a 28-year-old’s parents want to drop $100,000 on a luxury SUV, are you really going to say no? Of course not. Money is money. And trying to screen buyers based on where their funds come from could open the door to legal trouble.

I Sold My Home to the Bank of Mom & Dad—And Liked It

As a home seller, my goal was simple: get the highest price and ensure the smoothest transaction possible. I didn’t care if the money came from the Bank of Mom & Dad, as long as it was legitimate. If the parents offered $50,000 more than another offer without parental help—everything else being equal—I was going with the higher offer.

Taking less would have been irrational. That $50,000 matters to me as a parent working to become a rich Bank of Mom & Dad myself. Every dollar helps secure my own children’s future, if they need our help. I hope my kids will grow up to be independent adults, however, I also appreciate having career insurance just in case they get rejected everywhere.

My buyers were a couple in their early 30s and worked in big tech, likely making $500,000 to $800,000 total a year. But what sealed the deal was their 100% down payment—courtesy of one of their dads, who was willing to pay all-cash. He sent a letter from his bank verifying he had at least X million in funds.

As part of their preemptive offer, the buyers waived all contingencies (financing, inspection, insurance, etc.) and agreed to a 10-day close. In the end, the transaction took 13 days because the escrow company needed extra time to verify the cash source. Still, it was the easiest real estate deal I’ve ever done.

So thank you, rich mom and dad! You crushed it—saving and building wealth to support your son, daughter-in-law, and grandchild. And in the process, you helped me and my family simplify life and get liquid again. Respect.

And as one commenter smartly pointed out, the adult children always have the option of paying back their parents. For honor’s sake, it’s a good idea since the children earn a top 1% income.

How to Compete in a World Fueled by the Bank of Mom & Dad

Imagine not making $500,000+ working in tech. How are you going to afford a $1.8 million median home in the San Francisco Bay Area without help? You’re not.

The reality is, you’re not just competing against dual-income households making half a million dollars or more a year. You’re also up against their parents—wealthy, generous, and ready to help with down payments or all-cash offers.

And if that’s not enough, you’re also competing against international money. In global cities like San Francisco and New York, real estate also faces an international demand curve. My buyer’s dad wired money from Asia to close the deal.

If you didn’t grow up with wealth, you’ll have to play the game differently. Yes, the rules may seem unfair, but that doesn’t mean you can’t compete and win. Here’s how:

1. Accept the Game, Don’t Hate the Players

It’s easy to feel resentful when others get a massive head start. But resentment is wasted energy. Use it as fuel to work smarter, save more aggressively, and build wealth on your own terms. Use my psychological trick and tell yourself, “Everybody is richer than me, why not me too?”

Life isn’t fair and the sooner you accept this reality, the better. I could have spent my time complaining about how much harder life can be as a minority navigating a country filled with implicit biases. Instead, I chose to work as hard as possible to achieve financial independence sooner, so I could live life on my own terms.

2. Invest In Yourself Relentlessly

Education, skills, and social capital are your tools. Beware of competing with the person who continuously self-educates. Subscribe to the free Financial Samurai weekly newsletter. Purchase a copy of my USA TODAY bestseller, Millionaire Milestones. The amount of inexpensive educational resources out there are endless. Please take advantage.

The wealthy may have capital, but you can close the gap with hustle, adaptability, and strategic thinking. Many children from wealthy families squander their advantages because they take their good fortune for granted. View these lapses in judgment as your opportunity to get ahead. Network, negotiate, and never stop learning.

3. Use Other People’s Money Smartly

If you didn’t inherit money, learn to use leverage wisely. Real estate is one of the few asset classes where everyday people can build wealth using other people’s money—namely, the bank’s. It’s my favorite wealth-building vehicle for the average person because of its forced savings component, relative stability, income potential, tax advantages, and long-term capital appreciation.

At the same time, stay consistent with investing whatever you can into the S&P 500 with each paycheck or financial windfall. Over the long run, it’s tough to beat the simplicity and returns of the overall stock market. Just make sure you don’t get shaken out by market volatility. Instead, build the discipline to buy the dips and stay the course.

Investing aggressively over the long run is one of the best ways to build generational wealth.

4. Avoid Lifestyle Creep

Your peers may drive nicer cars or live in nicer homes thanks to their parents, but don’t fall into the trap of trying to keep up. You don’t have wealthy parents, so you cannot afford to act like them. Stay in your lane!

Save and invest the difference. Compound interest will be your ally while their spending habits become liabilities. Take satisfaction knowing you are living according to your values and within your means. Nothing can take away the honor of earning what you deserve.

5. Improve Communication With Your Parents

Whether you realize it or not, most parents would do anything to see their children happy. Sadly, many adult children drift away, and over time, the strong bonds built in childhood begin to fade—making it harder to ask for support out of the blue.

Now imagine seeing your parents once a month and checking in weekly by call or text. Even though you’ve moved out, your relationship deepens as an adult. It’s a new type of relationship formed through mutual respect. They feel appreciated, proud of who you’ve become, and connected to your life.

In this kind of relationship, asking for financial help doesn’t feel awkward, it feels natural. And your parents will likely be even more willing to help because they remain an active, valued part of your life.

6. Start Building Your Own Bank Of Mom & Dad Today

Whether you have kids now or plan to, think long-term. Build a portfolio of assets that generate passive income. Open custodial accounts and Roth IRAs for them. Teach your kids about money and how to work hard for it. Help them graduate debt-free and buy their first homes.

Break free from the cycle of only thinking about your own financial well-being. Start thinking in terms of generational wealth. The goal is to be in a position to help your family if and when they need it.

Ironically, if you can make your kids millionaires by their 20s, you may not need to help them much at all. When they are set for life, observe how your anxiety fades away.

Banks of Mom & Dad Are Only Going to Grow Bigger

You may not be able to stop the Bank of Mom & Dad from growing, but you can become a great bank for your own children. And once you do, you’ll realize that helping your kids doesn’t mean spoiling them. It means giving them a fair shot on an increasingly uneven playing field.

Accept that:

• Parents will never stop loving and wanting to help their children.

• Adult children will rationally swallow their pride and accept financial help from their parents.

• Asset owners will always sell to the highest, most reliable bidder.

The Bank of Mom & Dad isn’t going away, it’s only getting richer and more ubiquitous. Instead of resisting it, it’s time to accept its rise and adapt. Whether you’re a parent or a child, understanding this powerful financial shift could shape your family’s future for generations to come.

Readers, how have you seen the Bank of Mom and Dad affect you and your children? Do you think there’s any way parents will stop financially helping their adult children, or that adult children will stop accepting money from their parents? Can we blame our parents for not saving and investing consistently during the greatest bull market of our lifetimes? What are you doing to ensure your children get a fair chance to compete?

Invest in AI for Your Family’s Future

One of my biggest concerns is that AI might eliminate millions of jobs—including the ones my kids and your kids may one day pursue. To hedge against this risk, I’m actively investing in AI-focused companies, both public and private.

That’s why I like Fundrise Venture—an open-ended venture capital product with exposure to leading AI companies such as OpenAI, Anthropic, Anduril, Canva, and more. Around 75% of the fund is allocated to artificial intelligence, and you can start investing with just $10.

Most VC funds require $100,000+ and an introduction to join. Fundrise Venture gives you access to the future—without the gatekeeping.

Fundrise is a sponsor of Financial Samurai, and I’m an investor in Fundrise. Check it out and position yourself—and your kids—for what’s ahead.

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