If you’re a fan of Suze Orman or Dave Ramsey, this article will challenge you. My advice on how to achieve financial success is very different from what such financial “gurus” have to say, but I have good reasons for it as you’ll read below. While I don’t know of any way to get rich quickly without unacceptably high risk (e.g., playing the lottery or day trading), you can achieve long-term financial success. Good fortune (think great stock market returns or marrying somebody who’s already wealthy ;)) helps but isn’t up to you or me. In this two-part article I cover five things you can control in your professional and personal life that help achieve long-term success.

1. Choose Your (Financial) Battles Wisely

The financial experts’ view:

A while back, real estate millionaire Tim Gurner caused a stir by deriding millennials, saying they’d never be able to buy a house because they waste money on expensive avocado toasts. Similarly, any number of financial gurus tell you to bootstrap yourself out of your financial woes by brown-bagging lunch, forgoing a daily latte, and avoiding any other of a host of small daily or weekly treats. If so many financial experts tell you to stop wasting your money like that, surely they know what they’re talking about, right?

Well, sort of, but not really. Bring lunch from home every day, and make your own coffee in the morning, and you could save over $1000 a year. Invest this over a 40-year career, and you could end up with a tidy $200,000 (closer to $100,000 in today’s dollars after inflation). That’s a nice chunk of change, but (and there always seems to be a pesky “but” with these seemingly simple calculations, doesn’t there?), this only works if you’re an emotion-free automaton.

My view:

As a therapist, I’m sure you observe first hand every day just how emotional we humans are. If we weren’t, you’d be out of a job! Behavioral finance research demonstrates that we often make sub-optimal decisions, even when we know better. Limited willpower appears to be the culprit, along with “decision-making fatigue” when faced with too many choices.

Since we have a hard time making consistently good decisions, especially when confronted by the endless temptations designed to separate us from our hard-earned cash, how can we possibly win? How can we reach long-term financial success?

The answer is as simple as it is counter-intuitive. Instead of worrying if you’re frittering away money on lots of small purchases, don’t fritter away your willpower and decision-making abilities. Buying lunch and a latte every workday may cost you an extra $1000 a year, but avoiding it saves you only a few bucks per decision, and the decision-making fatigue and depleted will power, might have you making major financial blunders you’d otherwise avoid.

What you shouldn’t do:

• Don’t waste limited willpower and decision-making capacity on small purchases.

Do this instead:

• Save your willpower and good decision-making for major financial decisions:
  • Buy a reliable car and drive it into the ground rather than leasing or buying every 2–3 years; this one infrequent decision could save you $3000/year (keeping my Camry until it’s 10, I lose an average of $2500 a year instead of the $5500 I’d lose by replacing it every 3 years).
  • Live in a part of town where neighbors aren’t much richer than you; this single choice will save you hundreds of thousands of dollars in lower mortgage or rent; lower-cost gas, groceries, etc.; lower costs when hiring contractors; and avoiding expensive temptations (your neighbors and their teenage kids won’t be driving super-expensive cars, they won’t talk about vacations you can’t afford, and your kids won’t feel poorer than all their peers).
  • Find office space that considers cost but also aligns with your ideal clients’ expectation; if you want to serve affluent clients, go for Class A+ space in a good area; if you want to serve lower-income clients, choose cheaper space (e.g., an older Class C building in an industrial area) so you can afford to charge lower fees.

2. Buy Your Home, and if Practical, Your Office Space Too

The financial experts’ view:

Many “gurus” say that you should always buy your home, and that you should pay off your mortgage as fast as humanly possible by paying more than the required monthly payments. They argue that as long as you have a mortgage, you risk losing your home if you can’t make the monthly payments.

My view:

First, there are circumstances where you should rent rather than buy. If you plan to move in the next few years, don’t buy. If you can’t finance the purchase at a reasonable (and fixed!) interest rate, keep renting. If you can’t afford the down-payment and/or if you’re not making enough to reliably cover the monthly payments, don’t buy. If rents in your area are low while home prices are high, you’d probably be better off renting for now.

However, if none of the above is true, buying makes more sense. If a landlord makes a profit on the property she rents out, that profit comes out of your pocket. Buying and paying down the mortgage is a forced investment in real estate (remember “Pay yourself first”?). If you only use fixed-rate loans like we do, your mortgage payments never go up. If you rent, you’ll find that landlords can, and often do, raise rents frequently.

Even better, mortgages provide tax benefits, while over many years inflation eats away at the financial impact of your payments. My parents bought their last house in the 1950s. Their first payments took up a huge fraction of my dad’s salary. Fifteen years later, their last payment was barely higher than the cost of a dinner out for the family. Since dad’s salary had increased by a large factor over those same 15 years, they barely felt that payment.

Even at 3% annual inflation, the value of your 30-year fixed mortgage payment will drop by 60% over the life of the loan! All this while your income will likely more than double. Investing extra cash, instead of accelerating your mortgage payoff is the smarter thing to do. That way, if you lose your job, or become ill and can’t earn money for a while, that investment will allow you to keep paying your mortgage, hopefully until you get back on your financial feet. If you prepay mortgage principal, you won’t have that cushion and your risk of losing your home will be higher for many years.

What you shouldn’t do:

• Don’t keep renting if your situation makes buying more sensible.
• On the other hand, don’t buy unless the situation makes that sensible (see above).
• Don’t use variable-interest mortgages unless you know exactly what you’re doing and it makes sense for your specific situation (that’s never been the case for us).
• Unless inflation is negative (deflation) and is expected to stay that way for a long time, don’t pay off mortgages faster than required.

Do this instead:

• As soon as it makes sense, buy your home, and your office space too if practical.
• Unless there’s a compelling reason (fixed-rate-loan payments being too high isn’t one – that only means you should buy a cheaper property), use only fixed-rate mortgages charging reasonable interest (my preference is for 30-year fixed-rate loans for homes and 15-year fixed-rate loans for office space).
• Instead of accelerating payments on your mortgages, invest extra cash so you have a larger emergency fund if your income temporarily goes away.

In the second part of this article, I cover the huge impact that opening your own practice can have on your future success, as well as how systematizing and automating can make things easier and smoother. Finally, I’ll introduce a surprising fifth element to your plan for long-term success.