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I completed a road trip from Dallas to Salt Lake City at the beginning of June. Road trips are fun but they can also feel long and slow at times. To pass the time, I decided to bring along my new copy of Scott Trench’s Set For Life: Dominate Life, Money and the American Dream, and boy am I glad I did.
If you’re looking for a get rich quick guide, this isn’t the book for you. If you’re looking for secrets about investing in the stock market and how to win big, this isn’t the book for you. If you’re looking for a book with an easy-to-follow, step-by-step process to digging out from the average American’s mediocre financial situation and working your way towards a fulfilled life of financial freedom – this IS the book for you.
I’ve been a follower of Scott Trench through his time at BiggerPockets and have enjoyed his videos, articles and comments throughout the forums. Beyond that I’m a big fan of the environment that’s created on the site – one that’s open, honest and full of experiences from people just like me – working a full-time job and trying to get ahead. It’s because of this that I chose to pick up a copy of his book Set For Life.
Scott wrote this book with an intended audience in mind, as he even points out – average Joe – who makes $50,000 a year. While the techniques described throughout this book are certainly beneficial for those that fit into this mold, this book is first-and-foremost about creating a mindset that if you don’t choose to live differently than other people today, you’ll be stuck working the rest of your life and potentially miss out on some of the amazing things that can happen as a result of being financial independent.
Anyone can benefit from the techniques described in this book.Having a high income doesn’t mean you have a high net worth or you’re good at personal finances. I wish I would have read this book as I was graduating college….damn you Scott for not publishing this before 2017!
Financial Freedom & Simplicity
The book focuses on attaining a level of freedom that removes the shackles of your 9-5 job. Scott describes the steps to develop a “financial runway” through creating and building wealth so you no longer must rely on a conventional job.
Scott lays out the steps to go from a negative net worth to growing assets in a way that’s straightforward and easy to apply.
His strategy focuses on a 3-phase process:
- Moving from a negative net worth to $25,000 in assets
- Growing your assets to $100,000
- Compounding those assets to financial freedom
Phase 1 – “$25,000 Through Frugality”
This entire process starts out by establishing the need to live on the smallest amount of expenses possible. He recommends living on $2,000 or less per month. Two examples of how to limit those extra expenses low is through a do it yourself approach and by purchasing things that are “quite good” as opposed to “the best.” Doing it yourself means not allowing marketing to convince you into believing you can’t do simple tasks like paint your home or fix a leaky sink. Furthermore, the difference in quality between “quite good” and “the best” isn’t enough to justify the higher price.
One of my favorite concepts in this book is that of living an “efficient lifestyle.” This means focusing on your largest spending habits, not getting rid of your trip to Starbucks (I’m writing this post at Starbucks as we speak so I clearly agree…). Think about that – should you focus on reducing or eliminating your largest spending buckets or should you can worry about the $4 trip for coffee? If I spend $4 at Starbucks every day of the year I will have spent $1,460. If I get a roommate, move closer to work and get rid of my car I would save $10,000 a year! It’s clear to me where I should place my focus.
He suggests focusing on housing, transportation and food to start since these are the biggest expenses for the average American. Given that Scott is a VP at BiggerPockets, it comes to no surprise that housing is a topic that’s discussed at length. In Phase 1 of the path to financial freedom, Scott outlines one example of how to trim expenditures through housing. By renting an apartment and thus splitting your monthly costs, you can drastically reduce your housing bill. Additionally, by renting with a roommate somewhere close to work, you can scale down the cost of your commute. While getting rid of your car and only having a bike might seem ridiculous to some, it’s another option that is available to some people. Scott provides a variety of other methods for reducing expenses for food, insurance, healthcare, entertainment, etc.
Phase 2 – Going From $25,000 to $100,000
Scott introduces two important components for reaching $100,000 – real estate & generating more income. Scott provides a variety of examples on how to do this.
For housing, Scott outlines the impact of renting vs. owning a primary home vs. house-hacking. A house-hack is purchasing a single family or multifamily home, living in one room/unit and renting out the other rooms/units. Essentially the income from renting the other rooms/units will cover a part if not all the mortgage, utilities and other expenses associated with owning a home. You can save, pay for debt or invest the money you were otherwise paying towards housing. I’m personally a huge fan of doing this. I’ve been following this method and it’s done wonders for my ability to sock away cash for other purposes.
For generating income, Scott first suggests opting for a sales or commission based job that pays you for your output and efficiency, not simply a salary for being at the office.
He says one’s ability to shift careers to one with a smaller base salary but with potential for doubling or tripling your income can only be done if you lower your cost of living and have the $25,000 cash reserves discussed in phase 1. He recommends that unless you’re making six figures or on the path to make 6 figures in the next year or so, that you should consider a higher paying job.
These two components combined with your “efficient lifestyle” will help you to reach the $100,000 in net worth within a few years.
Part 3 – Realizing Financial Freedom
The third and last phase of Set For Life goes into further detail on generating passive income to supplement your salaried (or sales) income and accomplish financial freedom.
“Wealth is respected first and foremost for its ability to buy choice.”
Scott outlines 4 phases of cash flow – 1) cash flow negative (most Americans), 2) cash flow neutral (those people who are in phase 1), 3) cash flow positive (those people who have completed phases 1 & 2) and 4) financial freedom (those whose assets generate enough income that the person can CHOOSE to no longer work).
For someone to get to financial freedom, they must aggressively invest the difference between their income and expenses, hence the reason that gap must be as large as possible.
Scott doesn’t pretend he’s a stock market expert, but he provides some valuable perspectives on investing for financial freedom. He outlines investing in both real estate and the stock market to generate returns significant enough to supplement your income.
From a real estate perspective, Scott expounds on the importance of reducing your housing expenses through house-hacking. Furthermore, he outlines the long-term potential of using rental properties as an investment. From the ability to house-hack while working full-time, to drastically increasing saving/investment, leveraging debt and creating a snowball effect into buying larger and larger properties that continually generate more income.
Scott’s perspective on investing is much like Bill Schultheis the author of The Coffee House Investors. Don’t worry about the workings of Wall Street – invest and get on with your life. Forget about it and let your money get to work.
Don’t pretend you’re an expert in picking stocks. Instead, invest in a low-cost index fund and leave it alone.
One point I found interesting is Scott’s suggestion that diversification isn’t important for those who have little net worth. This point seemed to hit home for me –
“[diversification] prevents the investor from benefitting fully from the performance of stronger asset classes.”
My entire adult life, when talking about investing, the first thing everyone always says is diversify to reduce risk. When you graduate college, you have 10, 20 30, 40 or more years until you stop working. The rewards may outweigh the risk, so why diversify? Risk is simply the perception that an asset class can lose its value when your investing timeline is short…. but for millennials it’s not. Looking at a variety of high risk asset classes, they generally continue to increase over the years, even if they do plummet from time to time.
Eventually you will have enough net worth and investments that the need to protect them in case of a crash will become more important. The more money you have invested the more important this becomes.
Net Worth. Spending. Income. Time. Those are the constraints financial freedom.
Know how much you earn, limit your expenses and aggressively invest the difference.
Set For Life is an excellent book for anyone looking for a practical guide to straightening up your personal finance situation. Scott successfully outlines the path to go from negative net worth to a life of financial freedom. He distills lessons of frugality, making calculated choices with your life, controlling your own destiny and living a new type of normal life that doesn’t involve expensive cars and huge mortgages. Scotts book isn’t about getting rich quick, it isn’t about building a small amount of wealth, it’s about developing a lasting income stream that takes you away from your day-to-day job and into financial freedom.
Regardless of where you are in life – turning 16, in college, a recent college graduate, middle-aged or older – this book sets you down the path towards financial freedom. With persistence you too can attain a life free of traditional work and full of time to invest in yourself.
For other books, check out my favorite personal finance books!
Have you read Set For Life Yet? What did you think and would you recommend others read it?
-My Strategic Dollar