Sean Cooper is the author of the upcoming book Burn Your Mortgage. Sean recently sat down with us to give us tips on how to make smarter financial decisions, especially when it comes to buying (and paying for) your home.
Tell us a bit about your background. Why did you decide to become a personal finance expert and financial adviser?
I have a decade of experience in the financial industry, along with six years’ experience in pension consulting. I decided to become a personal finance expert to help people better manage their finances. The sad reality is about half of people are living paycheck to paycheck. Surveys have also shown that money is the top reason for divorce (after infidelity). It’s my goal to provide unbiased advice so families can reach their long-term goals like homeownership and stay happily married.
Did you really pay off your mortgage in three years? What types of sacrifices did you have to make to accomplish that goal?
Yes, I made news headlines internationally when I paid off my mortgage in three years by age 30. Although it wasn’t easy, it was well worth it. I made plenty of sacrifices along the way. For instance, I turned friends down for drinks countless times, cycled and took transit to work, and packed my own lunch. I also worked 70 to 80 hours a week to earn extra money to pay down my mortgage. I saw it as short-term pain for long-term gain. Now that I’m financially free, I can travel and enjoy life to its fullest.
If someone said to you, “I don’t see the need to become mortgage-free. I’ll just pay off my mortgage whenever I buy my next home,” how would you respond?
I would respectfully disagree. A mortgage is like a ball and chain that keeps you from realizing your true potential. You may stay at a job don’t enjoy just to earn a paycheck. Twenty-five or thirty years is a long time to be paying a mortgage.
Life also has a way of throwing you curveballs. You could be laid off from work or become sick or injured. By paying off your mortgage sooner, it can help you rest easier at night without all that debt hanging over your head.
What are some of the common financial challenges you’re hearing from your clients and the people you coach?
The most common challenge is how to save a large enough down payment to buy a home in high-priced real estate markets like Toronto and Vancouver. The easiest way to do that is by determining how much you want to spend on a home and work backwards from there. Figure out when you want to own a home (i.e. three years) and how much you have to save from each paycheck, and then “pay yourself first.” Have your income automatically go into your savings account before you’re tempted to spend it. Also, have a family budget and track spending, and then look for ways to cut back on spending (i.e. instead of buying coffee twice a day, cut back to once a day or carry your coffee in a Thermos to save even more).
What are some of the costs that new homeowners tend to overlook when buying their first home?
Closing costs are a big one, as well as the so-called transactional costs of real estate. When you buy a home, there are more expenses than just the purchase price. You may also have to pay for a home inspection, real estate lawyer fees, land transfer taxes, and the list goes on. Don’t be caught off guard; budget 1.5% to 4% of your home’s purchase price toward closing costs. Also, don’t forget to budget for maintenance and repairs. The roof and furnace will need to be replaced eventually.
Do you have any suggestions for people who are thinking about investing in the real estate market?
A common mistake people make is buying “too much” house. Just because the bank says you can spend $800K on a home doesn’t mean that you should. Instead of buying a home at the very top of your spending limit, spend a little less. Remember, a bigger home means spending more on utilities, home insurance, property taxes, and furnishings. By spending a little less, you’ll free up more of your cash flow to save for retirement – and most importantly, you can have fun.
Finish this sentence: “The biggest mistake that the majority of people make when saving for retirement is…”
Not thinking you should save for retirement. Believing that government benefits such as Social Security, Canada Pension Plan (CPP) and Old Age Security are enough. Government benefits provide some income, but it’s still important to save for your golden years. The best way to do that in Canada is with a Registered Retirement Savings Plan (RRSP). Many employers also offer company pension plans. By not taking advantage of that, you’re leaving free money on the table.
What types of questions should people ask a financial adviser before engaging his or her services?
Ask your financial adviser how he’s compensated. I recommend looking for a fee-only financial adviser like me. Unlike other financial advisers who are compensated for selling investments, fee-only planners are compensated based on time spend. As such, they’re able to provide unbiased advice.