Set for Life: An All-Out Approach to Early Financial Freedom

By Scott Trench

Retire early from your nine-to-five and reach financial freedom with the actionable advice in this personal finance best-seller—now completely revised with new content from the author!

Building wealth is always possible, even while working full-time, earning a median income, and paying off debt. By layering philosophy with practical knowledge, Set for Life gives people in their twenties and thirties an action plan to conquer their financial goals early in life. With more than 140,000 copies sold, this anniversary edition gets a refresh with new content, updated numbers, and even more valuable tips and tricks learned over the last five years.

Scott Trench—real estate investor, co-host of the BiggerPockets Money Podcast, and CEO of BiggerPockets—demonstrates how to accumulate a lifetime of wealth over a short period of time. Even starting with zero savings, you can go from a five-figure income to six figures, from an active job to passive income, then finally to the ultimate goal of financial independence. 

Set yourself up for life as early as possible, and enjoy life on your terms!

Inside this book, you’ll learn how to:

• Save more income (50+ percent of it) while still having fun
• Double or triple your income in 3–5 years
• Track your financial progress in order to achieve the greatest results
• Build frugal and efficient habits to make the most of your lifestyle
• Secure “real” assets and avoid ”false” ones that destroy wealth
• Use real estate and stock investing to generate passive income
• And much more!

• Language: English
• Publisher: BiggerPockets
• Release date: Jul 12, 2022
• ISBN: 9781947200814

Scott Trench

Scott Trench is CEO of BiggerPockets, co-host of the BiggerPockets Money Podcast, a real estate investor, real estate broker, and bestselling author. Through a solid understanding of money management, calculated risks, and a lot of hard work, he has created financial freedom for himself as well as a successful real estate business in just three years after graduating college. In his bestselling book, Set for Life, he shares the knowledge that he has acquired so others will have the tools they need to repeat his results in just 3–5 years, giving them the option to go anywhere they want in the world, work any job, start any business, or finish out the journey to financial independence and retire young. Scott currently lives in Denver, Colorado and enjoys skiing, rugby, craft beers, and terrible punny jokes.

Book preview

PREFACE TO

THE NEW EDITION

When I approached Josh Dorkin, founder of BiggerPockets, about my idea for Set for Life, I told him that I was qualified to write this book because I had just finished getting over the hump on my personal finance journey. After a few years of extreme grinding (keeping my expenses low, putting in long hours at my job, optimizing health and fitness, and aggressively pursuing side hustles and investments), I had piled up several hundred thousand dollars in net worth and several thousand dollars in passive income per month. In my mind, I had certainly met a minimum threshold for financial freedom, and it was clear that—barring any black swan event—by continuing my current trajectory, I would have an ever-increasing amount of wealth and passive income for the duration of my life. I told Josh that only a person who was pushing through—or just beyond—this inflection point could articulate what truly must be done to achieve financial freedom in a hurry.

I believed that. I still believe it. And, thankfully, Josh did too.

This book is unapologetic in its extreme approach to financial freedom; it is an all-out approach, or close to it. When I wrote this book, I was unapologetic and fully committed in my extreme approach to financial freedom. I applied all of my mindshare and determination to building a financial foundation that could last me a lifetime, and I optimized my day-to-day life around the journey. Financial freedom was and is a passion of mine—something that I could not stop reading about; writing about; talking about with friends, family, and countless individuals at meetups, conferences, and morning one-on-ones over coffee before work.

When I revised Set for Life—just a few years later and now in my early 30s—I cringed a bit at some parts. I was hard on many millions of Americans, and unfairly so! I couldn’t write this book again today if I were starting from scratch. I’ve had too many interactions with reasonable people who have families and circumstances that differ from the life of a single man in his early 20s. I’ve met people who can’t reasonably apply every waking moment of their day to the productive advancement of their mental, financial, or relational well-being. I’ve heard too many stories about money to think that the approach in this book is the only logical way forward.

I also find myself living seemingly at odds with many of the things I said in Set for Life five years ago. Here are a couple of examples of what some readers might find to be ironies in my personal life:

I live an upper-middle-class lifestyle in Denver, Colorado, with my wife and our cat, Fred.

When I was getting started on my journey, I spent very little. I often biked to work, packed my lunches, and lived with a roommate or in a house hack. This allowed me to accumulate wealth; steadily increase my earned income, passive income, and portfolio income; and ultimately create a large and growing asset base.

Now, I am married to a wonderful woman. I can spend a lot—and comfortably. I rent a nice apartment, eat out often, and am growing a little soft compared to the earlier version of myself who authored this book. I have a Peloton and some fancy electronics. I travel for leisure as frequently as the state of the pandemic allows me to. And while I do still drive my Corolla, I will probably buy a Tesla in a few years (maybe sooner) when/if the Corolla fails.

Financial freedom to me is not about living extremely cheaply forever. It is about getting to the other side of the rat race and staying there for a lifetime, so that life gets better and better, on your terms, throughout. I expect to spend more as the years pass—and I look forward to it. But I will never spend to the degree that I will risk having to force a lifestyle reduction or be once again dependent on a paycheck to maintain my way of life. The income generated from my asset base allows me to spend at a much higher rate than I do currently. Knowing this, I feel comfortable steadily increasing my lifestyle expenses, provided I can permanently sustain a position where maintaining my lifestyle is not contingent on wage income.

I’ve worked essentially the same job at the same company for eight years straight, and I see no end in sight.

You are about to read a book that suggests that you reduce your spending to $25,000 per year or less so that you can come out smiling on the other side, giving you the option to binge TV until 3:00 a.m. on a Monday, travel the world and live like a local, or spend a summer weekday afternoon at the park. My reason for starting the journey toward early financial freedom was to escape from a thirty- or forty-year career climbing the corporate ladder at a company I didn’t want to work for.

Today, I approach my eighth work anniversary at BiggerPockets. It’s conceivable that I will spend another ten or twenty years here—who knows? I am a company man through and through. I show up around the same time every day; I work until around the same time every day; I do a variation of my daily logs nearly every day.

And I love it. I’m continually forced to improve and bring my best, taxing my abilities to their utmost. My life as a CEO is ever-changing—it relies on me taking things to their logical extremes, networking, thinking in bets, controlling expenses, driving revenue, making hundreds of investments, allocating capital, and relentlessly self-educating. I have good days and bad days, good months and bad months, good years and bad years. But through it all, we are changing society and making a real impact on people’s lives, one investor at a time. I couldn’t be prouder to dedicate my career to this work.

Looking at myself five years after writing Set for Life, I can see the ironies. And I can see that I could not write the same book today, in 2022.

However, I also see what is still a logical, aggressive approach to financial freedom with a high probability of success. The approach that I followed and which worked for me. It gave me options to the point where I can choose to live anywhere in the world—and I choose to live here in Denver. I can choose to do almost anything I want with my day—and I choose to lead BiggerPockets. I can build a life that I am proud of and happy with. I have the choice.

Since its first release in 2017, Set for Life has sold over 130,000 copies. I’ve witnessed many individuals read this book and achieve financial freedom far faster than I did. I’ve seen others surpass me in wealth by following its principles. I’m proud of this book; I know that only my former self—or someone just as passionate—could have written it, with all the force and zeal of an individual willing to do whatever it takes to shape their own reality and create their own freedom.

As I go on to state in the introduction of this book, and perhaps fifty additional times throughout the remaining pages of the book:

This book is designed for someone with a specific set of circumstances. It is designed for the full-time median (around $50,000 per year) wage earner who has little to no initial savings but wants early financial freedom.

I’ll add to this something that I can see today but couldn’t five years ago; this book is written primarily for the young person—in their 20s or 30s—and it likely only fully applies to those without children.

If you are close to the Average Joe starting position in your personal finance journey, and if you really want early financial freedom, then I continue to believe that this is the best book of its kind available to you. You will find perspective-changing arguments and a clear path to the rapid accumulation of wealth in this book.

In this revised edition, I keep the core of Set for Life intact. The all-out obsession with achieving financial freedom and building a career, lifestyle, and investment approach that lead to financial freedom is unchanged. The basis of this strategy is the same.

But there are some alterations. Some of the tweaks you’ll find in this edition include:

Adjusting the numbers cited in examples for inflation in the past five years, especially with respect to housing prices.

Making it clear that this book, while hopefully containing nuggets of value for all readers, is written specifically for the young person or couple willing to make drastic alterations to their lifestyle—changes which will be at odds with what is considered normal.

Adding in more tips and tricks that I’ve picked up during my study of personal finance over the last five years.

Removing or revising language that, in my current opinion, immaturely ridicules the decisions of millions of Americans.

The most important change I make in this edition is the update in tone, particularly when articulating the contrast between the lifestyle approach of the seeker of early financial freedom and the ordinary middle-class American. There’s no need to bash the choices of millions of who are trying their best.

I’ve had the privilege of interviewing nearly 300 people on the Bigger-Pockets Money Podcast, unpacking their personal finance journeys in detail over the years. I’ve absorbed the perspective of hundreds more in one-on-one meetings, forum discussions on BiggerPockets, or conversations in Facebook groups. And I’ve seen that there isn’t one right way to achieve financial freedom or even simply make and sustain meaningful investments. The approach in this book is not for everyone.

However, for those starting with a median income and little to no assets who badly want financial freedom, I think the approach you’ll find here in Set for Life is likely to propel you toward your goals. This book encapsulates what I did to build wealth in my 20s, and I’m proud to say that if given the chance, I’d do it all again. It wasn’t easy, but it was worth it.

INTRODUCTION TO FINANCIAL FREEDOM

Let’s talk about the American Dream. Traditionally, for most of us—at least for those of us in the middle class—it means consistency. It means buying a nice home, in a nice neighborhood, and having a nice life. It means that after a thirty- or forty-year career, we plan to retire using a formula that historically hinges on having saved 10 to 15 percent of our income and having invested in a 401(k) or other retirement vehicle.

The problem with this formula is that the working person following it will be forced to work for wage income for the better part of their day, during the best part of their week, throughout the best years of their life. At best, they will retire with a modest amount of wealth, late in life, and be forced to hope it’s enough to last.

How about a different formula for the American Dream? How about something capable of producing a retirement level of wealth in less than ten years? How about less than five? How about retiring in your 20s from wage-paying work? 

Those who accomplish this financial result can laugh off would-be employers who ask them to be at work before 9:00 a.m. She can spend a sunny summer Tuesday at the park instead of crunching spreadsheets in a dusty cubicle. He can stay up until 3:00 a.m. binge-watching Yellowstone on Sunday night and head to the gym at noon on Monday. She can rent out her house and travel the world, living like a local. He can start a business funded by passive income, volunteer in his community, or focus on raising his small children. She can serve others without corporate red tape or the interference of a boss with objectives different from hers.

Early financial freedom enables this. Those who achieve early financial freedom build wealth and acquire assets that produce passive income in excess of what they need to live, and they continue to generate that level of income for the duration of their lives. Regardless of whether you currently enjoy your work or not, early financial freedom is a worthwhile goal. Industries change, companies change, and coworkers change. Even if you love your job, wouldn’t it be great to have the option to leave wage-paying work? Wouldn’t it be great to know that you show up because you love to be there, and not because you have to be there?

This book will teach you how to make wage income irrelevant to your financial picture in just a few years. You will learn how to redesign your lifestyle, restart your career, and rebuild your financial position. Using the tools presented in the following pages, you will save your money, earn more money, and use the cash you accumulate to purchase freedom and the ability to design your day-to-day life without the need for wage-paying work. This book is designed for someone with a specific set of circumstances. It is designed for the full-time median (around $50,000 per year) wage earner in their 20s or 30s who has little to no initial savings but wants early financial freedom.

WHO ARE THE FINANCIALLY FREE?

Let me introduce you to three people who are set for life:

Melinda is 38 years old. She and her husband, Camden, have bought and sold five family homes in the past ten years. Each home needed extensive repairs, and the couple tackled those projects do-it-yourself style. Between their jobs and the profit from selling these homes, Melinda and Camden have accumulated well over $1 million, which they invest in index funds. The two of them now live off the dividend income from their funds. Melinda never misses her daughter’s Girl Scout meetings, school plays, or sporting events. She laughs at people who ask her to be somewhere before 8:00 a.m. Melinda works every now and then as a real estate agent, which nets her a part-time six-figure income, and continues to fix up a new home every couple of years.

Brady is 33 years old. He used to work at a bank but hated his job. Brady bought a cheap home at the age of 21 and fixed it up. He then rented out the extra bedrooms to his friends while he slept in the attic so that he could live for free. Ten years later, Brady finds himself a millionaire with dozens of rental properties. Brady spends his days starting a variety of businesses; writing books; playing video games; and traveling around the U.S., to the Caribbean, and to foreign countries.

Jonathan is 40 years old. He built an online business that he started in his basement. It took him ten years to grow the business to a point where it could reliably provide for his family. Jonathan poured countless hours into the business and suffered large personal costs in the process. But today, Jonathan’s business produces millions of dollars per year in income and helps millions of people improve their lives. Jonathan does what he wants and hangs out with other multimillionaires, major political figures, and other leaders in the community. His business is so profitable he has a staff of over sixty people to run it for him. He stops by once or twice a week with donuts for his team and spends his weekdays skiing with his daughters.

Each of these individuals earned income and converted it into wealth or built a business asset that produces reliable income. Each of them put in years of frugality, hard work, sweat, and likely some tears, yet each of them now finds themselves in the privileged situation of having their financial needs met without the need for anything close to full-time work. Each of them has achieved financial freedom.

WHAT IS FINANCIAL FREEDOM?

Financial freedom is a state in which one has enough income from return on assets that they no longer need wage-paying work to sustain their life-style. There are an infinite number of ways to achieve financial freedom, but the principle always remains the same.

The Financial Freedom Equation

The goal of this book is to build a financial position that satisfies this equation:

Assets × Return > Lifestyle

Where:

Assets × Return is equal to the usable cash flow (in dollars per month) generated by your assets

and

Lifestyle is equal to your cost of living per month.

Once assets generate returns in excess of the spending needed to fund your lifestyle with a healthy margin of safety, then the financial freedom equation is satisfied.

Why Pursue Financial Freedom?

Financial freedom delivers exactly what it implies—freedom. Those who attain financial freedom are beholden to no job, boss, or company. They are free to choose how they direct their day in its entirety, without the need to generate income. They are free to live life as it was meant to be lived.

The goal is to replace wage income with passive income. Wealth and passive income are not to be pursued simply for the luxuries that they afford. No, in this book’s philosophy, wealth is respected first and foremost for its ability to buy choice. The folks in the previous examples have already achieved financial freedom and have near total discretion to live their lives without the need for work.

Total freedom is the ultimate goal. But freedom is a continuum. It will take many years for most readers to achieve true financial freedom. However, it takes considerably less time to achieve the freedoms that come with completion of Part I (accumulating the first $25,000) and Part II (going from $25,000 to $100,000 in net worth) of this book. The benefits to accumulating wealth in those initial stages should be obvious, and the opportunities available to an individual will exponentially multiply as wealth is accumulated. While early financial freedom is the goal, financial progress continuously delivers more and more freedom as progress is made. One doesn’t have to live like a hermit, spending little to nothing while steadfastly pursuing financial freedom. Instead, producing cash flow, accumulating large liquid reserves, cutting back on expenses, and increasing income can produce incredible benefits immediately.

Focus first on rapid financial progress, and you will notice gradual but incredible changes in the number of opportunities and freedoms that become available to you. The benefits of saving the first $25,000 are made clear in Part I. The first $100,000 in net worth and four to five years in financial runway discussed in Part II will produce correspondingly greater benefits.

The best way to demonstrate the impact of financial progress might be through a discussion of the four levels of finance. These four levels of finance range from the truly broke to the independently wealthy. At each progressive level, witness the drastic change in the amount of choice available to the individual. Those on the lower levels have substantially less freedom and ability to direct what they do with their time than those who have climbed to higher levels. While it is safe to say that money isn’t necessarily a source of happiness, those who build wealth and attain financial freedom generally have more choices in life and more opportunities to seek that happiness than those who do not.

The Four Levels of Finance

Level No. 1: Cash Flow–Negative

Level of Freedom: Lowest

A cash flow–negative life is one in which an individual or family spends more than they earn. The vast majority of folks who are cash flow –negative have a net worth very close to zero. In some cases, people leading cash flow–negative lives can accumulate substantially negative net worth, but creditors learn quickly, and future access to borrowing becomes nearly impossible.

Those living cash flow–negative have a bleak outlook. Long term, the consequence of a cash flow–negative life is severe; in most cases, the cash flow–negative individual will lose much of their control over how they spend their time. Many young people are also cash flow–negative and would not be able to sustain their lifestyles without financial support from their parents or other loved ones. Think of college students and adult children who live at home or have their rent subsidized.

Ashley is a 27-year-old schoolteacher with expensive tastes. With her low income and high spending, Ashley is unable to pay rent on her own, so she lives with her mom and dad. While her loving parents have and will likely continue to support her financially, this subsidy comes at a cost. Ashley isn’t allowed to sleep over at her boyfriend’s house. She gets questions when she is out too late. She never hosts friends. In fact, the only time Ashley’s friends visited her house was when her parents had a yard sale! These constraints on Ashley’s freedom are direct results of a cash flow–negative life.

In cash flow–negative situations that do not involve these types of subsidies, there is the simple misery of constant and seemingly unending financial pressure. Debt payments, upcoming expenses (anticipated and unexpected), and the inability to build wealth or pursue opportunities make it exceedingly difficult to escape this negative feedback loop.

Cash flow–negative individuals must make a concerted effort to get cash flow–neutral before they can begin pursuing early financial freedom. The good news is that many folks at this level can see a dramatic improvement in their lives, including measurable progress, with just a few months of concentrated effort. After that, they are often in for an eighteen- to twenty-four-month grind to pay off debt and move from negative to zero net worth.

Level No. 2: Cash Flow–Neutral

Level of Freedom: Modest

Long term, a cash flow–neutral life is one that’s reliant on either a paycheck or, in the case of the self-employed, a small set of customers. Large life decisions are heavily dependent on the whims of a boss or the changes and limited opportunities in one’s chosen field.

Today, many in the middle class are in this position and will be for most of their lives. A cash flow–neutral life may be one that’s increasing in net worth, but that accumulation is the result of some default settings accepted as normal in American life. Mortgage payments and the resulting increase in home equity, automated 401(k) contributions, and perhaps a handful of depreciating assets (like a couple of cars) are the only significant contributors to net worth. All, or materially all, other dollars that enter the individual’s life are spent accumulating luxuries of no lasting value.

The cash flow–neutral category includes most individuals who routinely save less than 15 percent of their total take-home pay. Mortgage payments and home equity do not generally contribute to economic freedom, nor do retirement account contributions, since these assets are not usable in the short term and do not generate usable cash flow. Imperceptible positive cash flow, or savings that are not accessible in the short term, have no or tiny impact on financial decision-making power.*

*Note: Retirement accounts are discussed in the appendix, but please note for now that the reason that retirement accounts have so little impact on your financial position is in your perception of their usefulness. If you do not intend to harness that money until you’re 65, and are not near traditional retirement age, then it has no impact on your present ability to make decisions and thus doesn’t count as usable wealth in pursuit of early financial freedom.

The cash flow–neutral individual will typically work long hours over a career lasting the better part of a lifetime, perhaps on the order of forty-plus years. Cash flow–neutral folks are often uneasy about their family’s financial security and are thus uncomfortable thinking about or talking about money. They may also be uncomfortable with risks because anything that could potentially result in the loss of a job, major client, or career could result in a loss of cash flow, rendering them immediately cash flow–negative.

Most often, folks with cash flow–neutral lives believe they are doing the right things with their money. They see themselves as on track with their peers at work or neighbors down the block. It can be hard to convince these people that they need to rethink their financial position.

Asking a cash flow–neutral person to repeat the following phrase tends to be an effective means of lighting a fire in their belly: The best possible outcome for improving my day-to-day life, should I continue with my current career and savings rate, is that I end up in my VP’s office over there (or one very much like it) doing his job, and doing it all day long every day of the week.

If you are cash flow–neutral and happy or enthusiastic about that phrase, then no further action is necessary, and you may find yourself unenthusiastic about the strategies in this book. Often, however, after just one repetition, it becomes relatively easy to encourage folks to begin taking simple steps toward moving up to a higher finance level. If you are cash flow–neutral and want to change that, then start with Part I of this book.

Level No. 3: Cash Flow–Positive

Level of Freedom: High

Cash flow–positive folks live well below their means and accumulate assets at a high rate relative to their earned income. These folks can work jobs of their choosing and are able to make major life decisions with thought given to their overall well-being first. They also have sufficient leeway in their lives to take risks with their careers and passions, should opportunity come a-knocking.

The difference between a cash flow–neutral person and a cash flow–positive person can be hard to spot. The cash flow–positive individual might work the same job, wear the same clothes, and do the same things for fun, but there will be subtle differences. A cash flow–positive person might not be seen with fancy new cars, eating out for lunch every day, or living in a lavish apartment. Over time, however, these folks will be starting businesses, acquiring property, making connections, or will otherwise be presented with career, investing, and lifestyle opportunities that cash flow–neutral folks are never exposed to.

Cash flow–positive lives result in ever-decreasing dependence on others and a gradually lower tolerance for boring/ineffective work. They desire and seek out rewarding and engaging challenges in life.

Assisting these folks is fun and engaging—they actively want to improve their own lives and often seek the counsel of others. The best way to assist them in improving their financial positions is to point them toward education, resources, and opportunities that will allow them to deploy their hard-earned savings for a good investment return. This will help them expand on the virtuous cycle that is earn, save, and invest, and continue to increase the freedom in their lives.

The four chapters in Part II of this book should put you deep into cash flow–positive territory.

Level No. 4: Financially Free

Level of Freedom: Highest

Financial freedom is achieved when cash flow that requires no work (or minimal active work) safely and consistently surpasses total lifestyle expenses. It seems like a lot of folks fantasize that financially free individuals lead a life of leisure. They envision a nice beach, frequent traveling, massages, and other luxuries. While some folks do treat themselves to these types of retirement lifestyles, as a practical matter, financially free folks are often some of the hardest workers and most frugal people around, and often work on fascinating projects or start and operate large businesses.

The reason these people work so hard is because they no longer need to work for money. They work to solve a problem they are passionate about, master a hobby they enjoy, or build a business empire that will last for multiple generations. Because they have total control over how they spend their time, they only participate in projects that are truly interesting and engaging to them. This third part of the book will move you toward early financial freedom.

Wrapping Up the Four Levels of Finance

Which level do you want to be at? How much freedom do you want in your day? Would you like to be able to…

Choose exactly where you live, what you eat, and how you transport yourself?

Choose what job to work, not for the salary but based on the work itself?

Choose whether to work at all, or to work on a schedule that better fits your moods?

Build your own business one day?

Be able to tell others to buzz off when they want you to wake up at a certain time, wear certain clothing, or perform uncomfortable or boring work?

If so, then you need to figure out a plan to get there. This book