A lot of people consider “Freedom 55” a stretch goal, but for me “Freedom 31” will soon be a reality. In 14 short months, I’ll be able be call myself financial independent. Financial independence or “findependence,” a term coined by veteran personal finance columnist Jonathan Chevreau, means I’ll have the financial freedom to pursue my true passions in life.
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Here’s my three-step approach to achieving financial independence at the ripe, old age of 31:
Achieving Mortgage Freedom
On August 1, 2012, my lifelong dream of becoming a homeowner finally became a reality. Not only did I become a first-time homebuyer, but I took on the added responsibility of being a first-time landlord. I bought a beautifully-renovated three bedroom bungalow in Toronto east. Even with a sizable down payment of $170K, I was left with a mortgage of $255K – that’s a lot of debt for one person to handle!
Less than two and half years later, I only have $75K remaining on my mortgage. With mortgage freedom within striking distance, my goal is to be mortgage-free by the finish of 2015 (just in time for Star Wars Episode VII). When I first moved into my home, I never planned to pay down my mortgage so quickly, but with each lump sum payment, I realized how quickly I could rid myself of my mortgage.
Every year I’ve managed to max out the prepayment privileges on my mortgage. I’m fortunate to have a lender who allows me to double up my payments, make lump sum payments up to 15 per cent of my mortgage, and increase my mortgage payment by 15 per cent each year. I started with an amortization period of 30 years and I’ll have my mortgage paid off in less than four years – before my mortgage comes up for renewal!
While I could be out enjoying life, travelling the world and exploring the dating scene, I’ve decided to put those plans on hold and focus on paying off my mortgage. I have three separate careers: by day I’m a pension analyst, and by night I’m a financial journalist and landlord.
Being single, my biggest risk is losing my ability to earn income – that’s why I believe in diversifying my risk through streams of income. While it’s nice to have a full-time job, if you get laid off, poof, 100% of your income is gone! However, if you have streams of income like me, you’ll have something to fall back on.
Outside my full-time job, I’m a financial journalist, writing for newspapers and website, including the Toronto Star, the Globe and Mail, RateSupermarket.ca, and Tangerine Bank. This helps curtail my risk – if I lose one writing gig, I’m only out 20% of my income instead of 100%. This allows me to keep paying my mortgage without worrying about the bank foreclosing on my property.
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I’m also a landlord. I sleep like a baby at night knowing if I ever lost my job, my rental income would more than cover my mortgage and household expenses. Instead of living upstairs (which would be silly for a single guy!), I was inspired by Scott McGillivray of HGTV’s Income Property to live in the basement and rent out the upstairs. This allows me to earn $1,500 a month in rent – a lot better than the $800 I would earn if I rented out the basement.
For most families, transportation and groceries are the two most costly expenses behind putting a roof over your half. I’ve been able to cut both in half through smart and frugal lifestyle choices.
Instead of driving a car around town and paying all the expenses that come along with it (gas, car insurance, maintenance and repairs), I cycle nine months a year and take transit during the winter. Not only does this keep me in good shape, I save a bundle. I estimate I save at least $9K a year.
A lot of people are shocked to learn I only spend $100 a month on groceries. While that may not be realistic for a family, $100 a month is plenty for one person to live on. Even though I work an 80-hour workweek, I still find time to cook at home, preparing meals in batches on the weekend. I shop at discount supermarkets and purchase everything in bulk and on sale.
While most people consider a cellphone a must-have, I’ve done without; I don’t have cable TV either. Instead I connect my TV set to my computer via HDMI cable and stream my favourite shows off the Internet. I also use Magic Jack as my home phone, which only costs me $60 a year (as much as some people pay per month in cellphone charges!).
Attaining Financial Independence
While the road to financial independence hasn’t been easy, it will be well worth it. Being financially independent at age 31 means I’ll be able to enjoy the rest of my life ahead. I can do the things I’ve always wanted to like write a book on personal finance and cycle across Europe.
Although everyone’s life circumstances may not allow them to achieve financial independence as early as me, through goal setting and financial sacrifice, you too can achieve financial freedom a lot sooner than the default age of 65 and enjoy life while you’re still young.
Sean Cooper is a financial journalist. He is a first-time homebuyer and landlord who aspires to be mortgage-free by age 31. He was inspired by Income Property’s Scott McGillivray to live in the basement and rent out the upstairs of his house. He is on Twitter @SeanCooperWrite and blogs on his personal website.