Sean Cooper is a weird guy who did something weird.
While normal folks like us buy a house, we make a smaller down payment and take years to pay off our mortgage. For some people they will drag it out to 25-30 years for as long as possible.
For Sean, who lives in Canada, he bought a $425,000 house and took on a mortgage debt of $255,000.
He set himself a target to pay off the mortgage as soon as possible.
All it took him was 3 years to do that.
However, this involves a fair bit of sacrifice:
- He works as a $75,000/yr full time analyst in a pension firm
- Concurrently, he works on weekends and evenings as a free lance financial writer
- Concurrently, he works as a $13/hr clerk in a meat department in a grocery store (note that he is a vegetarian)
- His home consist of 3 bed room and a basement. So he decides to stay in his basement and rent out his 3 bed rooms
- In total his income is $100,000/yr
- He bikes to work
- He brown bag lunch to work
- He made dinner at home
- Before all this, he saves the $170,000 down payment on his own
- While living with his mom, he used to pay her $600/mth for rent
Not surprisingly, when his article first came out, a lot of people was rather ANGRY about his situation.
- They pointed out how big his down payment was indicating he must have gotten the money from somewhere
- They say he has a cushy job that pays well
- They say he took three jobs, while other people are struggling to get one job
- They say he is not going to find a girlfriend with his frugal lifestyle
- They say that he isn’t satisfying the “other aspects of his life” and he does not have the time for it
I thought its ridiculous to not support him. Here is why.
1. He has established where his Poverty Baseline is
What is the poverty baseline? It is the level of lifestyle that he requires to ensure he has enough to keep life going, not suffer a mental break down because life is too terrible and how much he spent in doing that.
By finding out that baseline, Sean knows that next time if he has a crisis, or that he needs to take increase risk with his lifestyle, where can he go back to so that he cuts away a lot of the things to focus on what he most values in.
Note that this is not just money, but the lifestyle that he does not go insane. A person would likely not last over 3 weeks if the quality of life is so bad that he goes crazy.
2. He has a vastly unencumbered life now
If you look at why people needs to have a job, why people are stress about not losing their job, why people are stress about earning more, it is to pay off all sorts of debt.
One of the biggest is the mortgage on your home.
Another stress in life is not having a roof over your head and always needing to shift around.
He manage to settle this in 3 years.
This means that if he loses his job, together with knowing his poverty baseline, he is in a much less stressful position then a person who still has a big mortgage to service, and failure which, would get his home repossessed.
3. He spent only 3 years out of a normal 40 year working life doing this!
This is also a concept that many failed to grasp.
One of the biggest push backs to not trying a certain change in nutrition to improve a person’s wellness is that they cannot get over that they can’t eat certain food for the rest of their life.
In the first place, they do not even know if things will work in the first place without trying!
For a lot of things, this “life experiment” is just for a short duration and if you see life as various short controlled experiments, the cost of failure or change is very low.
If we look at it another way, if you could spend 3-5 years out of 40 years correcting a problem and never be bother by it again, would you do it?
For Sean, after a 3 year effort, he still has possibly 37 to 57 years to do all the things the people criticize him about.
4. Would a man with a fully paid house, lets you stay at home and have 3 different ways to earn money be appealing to woman?
One of the arguments was that Sean wasn’t socializing enough to satisfy the traditional role of a normal guy. Woman will also be put off by his lifestyle.
That may not be a factor now that he has paid off his mortgage.
Most woman with a sense of materialism would have see it as a big factor that, they do not have to o-fund a mortgage, which will mean money for other stuff.
It would also be easier to bridge the idea as a stay at home mom to Sean given this unique situation, since Sean will not have much excuses!
The fact that he made some rather sound decision to have a much unencumbered life also makes him able to channel the cash flow from income that was originally meant for mortgage to paying for more expensive dinners and holidays (even though I wonder if that would attract the right kind of lady for himself)
5. In the worst case, you can always scale back
When you were asked whether you can do this, most of the time you fear that you have to do this for a long time and eventually you end up like a failure.
The reality is that, most often, you learn about what you value the most and what you value the least.
You also in the end realize you cannot be THAT frugal but you can still be just as frugal and pay off the mortgage earlier but not as early as Sean.
You don’t finish the race at record time, but you still finish the race pretty fast and you learn something about yourself.
6. Have a blast for the next 2 years spending the “mortgage payment”
With a 25 year mortgage at 2.1% (this is hypothetical), paying off early would mean Sean saves on a monthly payment of $1070/mth in cash flow from his working income.
Given the kind of tight frugal life he lives, he has the license to spend within controlled parameters in a lavish manner.
By that it could be taking $500/mth out of every month for 2 years and go crazy with it.
This ensures that this lifestyle is not forever, and further asks the questions does spending lavishly on experience value adds to him as a person.
In fact Sean has stated he would like to do a fair bit of travelling.
7. Saving $70,000 in interest
Hypothetically, when you pay off your mortgage fast, and you do not grow your wealth, the interest saving is a form of “interest earned”.
Compared to the folks that drag out their mortgage, the potential savings is a large chunk of $70,000 in interest.
Over time this cash flow can be better deployed to wealth building for his financial independence
8 He learns that he is likely Financially Secure
With the mortgage paid off, it means that if he is retrenched, he is not encumbered with a large mortgage debt that requires a cash flow.
With his rental cash flow from the 3 bed rooms and frugal lifestyle, he is likely financially secured, that is the cash flow from his wealth machines are able to meet his subsistence living expenses.
And that is a very powerful realization, when it comes to how you could potentially live the rest of your life.
Could you attempt something like what Sean did?
I think there is a fear whenever we are put in this position where someone asks us to change how we do things, especially when it is different from the herd.
People take these things too seriously. They see this as a matter of life and death.
Sometimes it is not so extreme.
Where you eventually end up is probably in between.
We should all attempt more controlled life experiments.
We might find out more about ourselves through these means instead of doing what is comfortable to us.
I firmly believe if you attempt to find your poverty baseline, you may eventually shift how you live your life.