Scott Trench – Set for Life

Scott Trench - Set for Life

On today’s episode of the Financial Independence Podcast, I’m joined by the president of and cohost of the BiggerPockets Money Show, Scott Trench!

Scott breaks down the journey to financial independence into three stages and explains what you need to focus on at each step (and why)!

Listen Now


  • The three stages of wealth creation on the path to financial freedom
  • Why it doesn’t make sense to worry about investing right away
  • How to create a “financial runway” and use it to your advantage
  • Why you should try to find a “scalable career”
  • How to turn your biggest expense into an income-producing asset
  • The one question to ask before buying your first house hack
  • The multiple benefits of adding side hustles along your journey

Show Links

Financial Independence Podcast Advice

I’ve been recording this podcast since 2012 and at the end of every interview, I always ask, “What’s one piece of advice you’d give to someone pursuing financial independence?”

I’ve received a lot of great answers over the years so I decided to compile all those answers into a PDF, which you can now download for free here!

Full Transcript

Mad Fientist: Hey! Welcome everyone to the Financial Independence Podcast, the podcast where I interview some of the best and brightest in personal finance to find out they achieved financial independence.

On today’s show, I’m excited to introduce Scott Trench from Scott is someone who came on my radar a few years ago because Mindy Jensen, aka Mrs. 1500, from mentioned quite a few times that I needed to get her colleague, Scott, on the podcast. She said he’s a 20-something who’s doing incredible things with real estate and investing and finances in general, so I needed to talk to him. And any time Mindy gives such a glowing recommendation for someone, I definitely check them out. So that’s what I did!

I downloaded an audio book version of his book, Set for Life, and I really enjoyed it. The thing I liked most about the book was that he broke the journey to financial independence down into three distinct stages, each with their own focus. And this is something that I really am looking forward to diving into today in the interview because I think it’s a really powerful way to make the journey to financial independence not as daunting. And I’m also looking forward to exploring some of the strategies that he used personally to get to the stage that he’s at today like house hacking and real estate investing.

So without further delay, Scott, thanks very much for being here. I really appreciate it.

Scott Trench: Well, thank you for having me, Brandon. I’m very excited to be here.

Mad Fientist: Yeah, this is a long time coming. I’m not sure how long you’ve known Mindy Jensen, but I think ever since she got introduced to you, she’s been like, “Brandon, you have to get him on the show. He’s this young guy that’s doing all these crazy things.” So you’re in your mid-twenties, right?

Scott Trench: Yeah, I’m 27. Two or three years ago, I actually [00:01:46] Bigger Pockets.

Mad Fientist: Mindy has been like, “You’ve got to get him on the podcast. He’s doing some amazing stuff,” which I’m really excited to talk to you about. So let’s dive in! What did Mindy see in you do you think? And what caused her to come to me and say, “Hey, you needed to talk to this guy”?

Scott Trench: Well, I think we both share a lot of interest in personal finance. We both have kind of a similar approach to money in general. I think it starts with a basis in frugality, but then there’s an aggressive investing component.

And both Mindy and I are a little bit more—how do I describe it? We try to be a little bit more creative and adventurous with our investment and money management than maybe just passively investing in index funds. I think that’s why we’re attracted to real estate. I have my eye on maybe branching out into some other types of investments. And I do she does a lot of private lending and other various kind of creative ways to invest and maybe get a diversified or different or higher returns than she can with just stocks.

So, I think that’s where our friendship kind of kicked off, a pretty similar mindset on life and finance and real estate in general.

Mad Fientist: Nice! And yeah, you’re 27 and you’ve done a ton of crazy, amazing stuff so far. You’re now president of Bigger Pockets which is huge. Congratulations to you!

Scott Trench: Yeah, I got promoted to president of Bigger Pockets maybe last Tuesday I think. I don’t remember. It’s been a whirlwind since then.

So, it’s kind of the opposite of FI at this point. I’m now working very long hours and trying to figure out how to grow the company and all that kind of stuff. But it’s very exciting, and it’s like the perfect world for me because I just love Bigger Pockets. I love helping spread the message of financial independence to as many places as I can.

Mad Fientist: And you could do it while you’re on the clock.

Scott Trench: And I do it while I’m on the clock.

Mad Fientist: …which is great. And your boss was on the show, Josh Durkin. He was episode #23.

Scott Trench: That’s right.

Mad Fientist: He seems like a good boss anyway. But that’s awesome. That’s great. Congratulations!

Scott Trench: Yeah, Josh has definitely kind of achieved the dream here. So he’s stepped aside. He has some family things that are going on. So we’re wishing him the best with those. But he’s definitely in a position where he’s able to step aside and step out of the day-to-day and have a young upstart like me kind of do some [00:04:01] for him.

Mad Fientist: That’s cool! So how did you get interested in real estate?

Scott Trench: So, I got interested in real estate as a byproduct of being interested in financial independence in the first place. I started out working at a Fortune 500 company. I wasn’t really interested in that line of work. I was interested in that line of work, but I didn’t want to be tied to it for 40 years.

So, as part of my effort actually to become a better financial analyst at my job, I started listening to and reading all these content on finance and kind of discovered the concept of personal finance at some point. And then, I actually stumbled upon your podcast, the very first episode, and Mr. Money Mustache. And once I heard that, everything clicked for me, and I was like, “This is it. This is what I need to be doing and how I need to be moving forward with my life and with my finances. This is why”—I was already fairly frugal—“This is why I’m saving. This is what I want to do with money. This is why I studied finance in general, in college and with the start of my career. This is it!”

So, thank you for that. Thanks to both of you and him.

Mad Fientist: Yeah, that’s absolutely crazy!

Scott Trench: But yeah, that interest in personal finance is kind of what spurred my ability to save and the accumulation of my first $20,000 to $25,000 for me. And I wanted to do a little bit more than maybe invest in index funds again which is kind of a standard 8% to 10% long-term average return. I wanted to try to see if I could do much better than that. And that is where I became interested in real estate and started listening to Bigger Pockets and becoming a fan of the company there.

Mad Fientist: That’s very cool! I published that episode way back in May of 2012. So, do you think you stumbled upon it shortly after it was published or was this something that happened a little bit later.

Scott Trench: No, in May of 2012, I was graduating from college and getting ready to—no, I graduated college in May of 2013. So I was still drinking way too much better and trying to have too much fun when you published that.

So, I spent all my money throughout the rest of my college, all the money I saved up working in summers and all that—all fun in college, and then a three-month backpacking trip when I graduated. So I started with basically zero—$3000 in savings when I started my career.

But within three months of starting my career, my introduction to the real world, I became very interested again in the concept of personal finance. And that’s when I found your show, some time in that timeframe. I want to say it was probably November or December of 2013 is when I actually listened to your show and got this all kicked off.

Mad Fientist: Wow! That’s very cool. So you mentioned your first $25,000. And this brings up a really cool thing that I liked in your book, which I haven’t even mentioned yet. But you wrote a great book called Set for Life. And you’re kind enough to send it to me. I actually enjoyed the audio version of it in the gym. So you were my gym companion for a good week or two.

Scott Trench: Oh, wow! I’m repaying the favor [00:06:47].

Mad Fientist: Yeah, exactly. So yeah, I really enjoyed it.

But one of the things I loved most about it was how you broke it down to three phases. And the first phase was getting that first $25,000. The next phase is getting that first $100,000. And then, finally, the next phase is getting from $100,000 to financial freedom. So I really like how you structured it.

So, would you mind talking a little bit about that first stage?

Scott Trench: Yeah, sure. So one of the problems that a lot of people have I think when it comes to finance is they’re unable to take any risk whatsoever. They’re unable to take advantage of opportunity. And the reason for that is because they have no cushion. They have nothing to fall back on.

Suppose that you’re making $50,000 a year, if you save $500 a month—which is actually a pretty good savings rate. It’s about a little over 10% of your savings—that means you spend around $4000 a month. So you’re not going to be able to even last one month without your job if you’re starting from scratch until eight months have passed and really six weeks timeframe by the end of the year. So you have no financial runway. If you lose your job, you’re screwed! You run out of money and you have to go and find similar paying work as your only option.

But if you’re able to start increasing that savings rate, you accumulate this cushion, this what I call “financial runway” and “set for life” which allows you to live without the need for wage-paying work on that.

And my book is written for a very specific audience. It’s written for a median income earner that is starting with little to no assets but wants financial freedom.

So, some people are starting from a position where they already have a good $25,000 saved up through whatever fortune, whatever they’ve done previous to this point. But if you’re starting from that point, you don’t really have the option of going out and starting a business because you’re working full time and starting a business is hard work and unlikely to be successful on a part-time effort in the short run. There’s plenty of exceptions to that, and I’m not discounting that. I just think it’s lower odds of success than maybe focusing on savings first.

You’re also not likely to get a big raise at your job at work within the next year. People doubling their income in a corporate type situation, it’s not heard of. It’s unlikely. Also, you have nothing to invest, so you can’t get a higher return on your invested dollars if you have nothing to invest.

So, you really have to start somewhere. And I think for that median income earner starting with zero, it’s with that savings position.

Now, once you achieve a high savings rate and accumulate maybe six months to a year or more of this financial runway, options begin to present themselves in your life, things like you can go and take a job that pays you $40,000 instead of $50,000, but offers you a chance at a big bonus at the end of the year, or you can go work for free for an entrepreneur that you really admire and go learn a valuable skill set, or you can just take that $25,000 and invest or house hack the way I did.

And that’s kind of where we start getting into part two there which is $25,000 to $100,000. But do have any other questions about the…

Mad Fientist: Yeah, yeah. That’s awesome. And yeah, the main focus in that first $25,000 is frugality, which as you talked about in the book, a dollar saved is better than a dollar earned because obviously you’ve already paid tax on that dollar that you’re saving, and it’s worth more to you than a dollar earned because you would pay a bunch of tax on it and have to do work to get it. So, I think that’s really important.

And I think focusing on frugality at that stage absolutely is going to be the biggest impact you can have on your finances.

Scott Trench: Yeah, and I think a dollar saved is better than a dollar earned because of that tax advantage. But also, a dollar saved, at least a dollar of lifestyle—you know, if you can reduce your average monthly spending by a thousand dollars, that’s better than increasing your average monthly income by a thousand dollars for a couple reasons.

One, you’re accumulating that all in savings which is 100% gain because it’s after tax savings that you’re accumulating. But two, you’re decreasing the amount of money that you need to produce financial runway.

So, you might need $25,000 in total cash, liquidity, to finance your $2000 a month lifestyle. But you’ll need about $48,000 to finance your $4000 a month lifestyle. So it gets harder to save, and you need way more the more your average monthly spending increases.

Mad Fientist: Wow! Yeah, that’s a great way to look at it.

So, you had mentioned when you hit that $25,000 stability level, you would mention you could get a job that pays less salary but has a bigger bonus potential, or you could go and work at a startup or things like that. And you mentioned in the book something called scalable careers, which that’s a great phrase that I don’t think I’ve really heard before. So can you talk a little bit about that?

Scott Trench: Yeah. So my first job was at a Fortune 500 company as a financial analyst 1. And I knew very clearly that around the 18-month mark, give or take a few months depending on my performance, I was going to get a promotion to financial analyst 2. And my salary when I started was $48,000. And I knew that my salary at financial analyst 2 would be about $56,000 to $58,000 (again depending on performance).

Well, my goal was financial freedom. And I wanted it as soon as possible. Earning an $8000 raise after a year is great. I know a lot of people that would be happy with a raise of that level. But that was not going to get me expediently towards my goal of a several hundred thousand to a million dollar net worth and several thousand dollars a month in passive cashflow. So that’s not scalable.

And that the step after financial analyst two of course is financial analyst 3, then senior financial analyst, then finance manager, senior finance manager, director of finance, senior director and so on, all the way up to CFO of a Fortune 500 company.

And that’s the best case scenario, is that you go through all of those rungs of the ladder in 20 years. That’s not fast enough. It’s in my opinion as a saver who was able to accumulate a year of financial runway within a year, that was a risky career because I knew that I was not going to have any chance to live up to what I deemed my potential to be.

But on the other hand, if I wasn’t saving, if I had no financial runway, it would be too risky to leave. And so what I’m trying to do with Set for Life and with some of the other things I’m doing is try to help people put themselves into a position where they’re saving enough, where leaving a career track like that where they have very limited upside becomes the bigger risk than taking a chance on something that they believe to be a good opportunity.

Mad Fientist: And that’s why I love these three distinct phases so much. When I started on the road to financial dependence, thankfully, I was already in stage three. I was just working towards that financial freedom. But I didn’t realize that passing those first two stages, my first $25,000 and my first $100,000 gave me so many more options and so much more power to make that journey quicker and more enjoyable.

And that’s why I really like how you laid out the book, is because it’s like, “Okay, you may not have that much money to invest and you may feel like it’s a long way out. But you get to this $25,000 or this one year of runway, and now you have a lot more options. You could drastically change your life for the better.

Scott Trench: Yeah, I think that’s exactly right. And once you have that financial runway, moving into step two here, we’re trying to get to about $100,000 in investable liquidity. And once you get to $100,000 in investible liquidity, now how you invest that money begins to become really important.

So, the goal is to go from a year of financial runway—which is a very modest goal that you can grind out over maybe a year to eighteen months depending on where you’re starting from, what your income is, and where your expenses are, to a goal that has a lot less certainty. There’s a lot more factors. More luck is involved in rapidly going from $25,000 to $100,000 than there is from going from zero to $25,000.

And so, it’s all about increasing your odds of success I guess at this point.

And so, I believe that two things are likely to help people increase their odds of success going rapidly from $25,000 net worth to $100,000. One, go find a new job. Go find a career or an opportunity that you believe offers you the potential to scale, but will not allow you to lose money on a monthly basis. And then, two, house hack.

Mad Fientist: Cool! Yeah, can you describe that again? I know I’ve had Chad Carson on the show, and we’ve talked about it in the 1500s. But for those who may not have heard that episode, could you just describe what house hacking is?

Scott Trench: Sure! So, house hacking as I define it is buying a piece of investment real estate that will make sense as a rental property, as a cash flowing rental property for you after you move out; or otherwise, using your housing to build wealth.

So, for example, a house hack the way I look at it through my lens was I bought a duplex for $240,000 here in Denver in about late 2014. I put down $12,000. And I got a $236,000 loan, something like that after the fees and all that.

And so, I put down 5% with an FHA loan. My mortgage payment was $1550. And my rents were $1150 from the other side and $550 for my side. So if you’re following that, I was collecting $1700 in rent on $1550 mortgage.

Mad Fientist: Nice.

Scott Trench: So, after the other expenses that went into maintaining the property and fixing some things up myself, I was probably breaking even or maybe paying a little bit out of pocket to live on a monthly basis. But that’s a huge improvement from paying hundreds or thousands of dollars in rent per month.

And so, that’s the biggest hack that I can think of, like the biggest trick that a median income earner can do on the side to drastically cut their expenses, and then automatically put yourself in a position to have a significant cash flowing asset after a year or two.

Mad Fientist: Yeah, you mentioned in the book, you’re like, “Turn your biggest expense into an income-producing asset,” and I think that’s really powerful to think of it that way. Yeah, this could be your biggest expense—especially if you’re renting or if you go out and buy your dream home right out of college like some people. that is a huge expense. But what you’re talking about is turning that into an income-producing asset instead. So, not only are you not spending money on that big, major expense, but you’re actually earning money from it which obviously is going to get you to that $100,000 a lot quicker than the normal person.

Scott Trench: Yeah, absolutely. I mean when you talk about average American household spending, 33% of that, the biggest chunk of the pie is going to be in housing, 17% is in transportation, 13% is in food. And then, one-third—that was two-thirds I just described there, housing, transportation and food—one third is everything else. Fun, entertainment, healthcare, insurance, all of that falls into that last third.

So, people always think that that’s where they need to focus on their finances in order to achieve a high savings rate and rapidly accelerate toward financial dependence, but that’s wrong. It’s just that the math doesn’t work like that. The math is telling us that the biggest parts of your spending are in housing and transportation. And if you can house hack—like me, I house hacked close to work, so I could bike to work—you’re able to eliminate basically 50%, lop off half of your expenses, in one single investment.

And again, yes, you’re buying in such a way that it will make a smart cashflowing asset for you once you move on and move out of that property.

Mad Fientist: Very cool! So was that your first property then, the duplex in Denver?

Scott Trench: Yeah, that was my first property. I bought it in northeast Denver, and things worked out. I moved out a couple of years later. And it currently rents for $1400. The mortgage is currently $1400 because I refinanced. I was able to reduce my monthly payments. And then, the rents are about $2600 a month.

Mad Fientist: Wow! That’s fantastic. Have you bought any other property since then?

Scott Trench: I live in another duplex doing the same thing. And I also have a quadplex now that I bought as a regular investment property.

So, I’m trying to buy one every 12 to 18 months and just sustain that system.

Mad Fientist: How is that going in Denver? I know it’s a really hot real estate market these days.

Scott Trench: It’s been going pretty well. I think that it’s increasingly difficult. At the time that we’re recording this, I’m finding it very difficult to find properties. I think it’s going to take me a good bit of time here. But as long as I can find a property that cash flows in a sense where I basically have a very, very good odds at having long-term $500 to $800 a month plus in cashflow on a $50,000 to $100,000—it may not be the best cash in cash return, but I do believe that I can see some solid appreciation over a 30-year holding period in Denver.

So, if I kind of maintain my system of dollar cost averaging through real estate, I believe that I’ll have a good result at the end.

Mad Fientist: Very cool. And how does the duplex compare to the quadplex?

Scott Trench: So the quadplex that I purchased, I bought it for $355,000. It wasn’t in the nicest area. The rents there are $800 per month on each of the units. And the mortgage is about $1700.

So, if you’re following, that’s $3200 in rent on a $1700 mortgage. And I have a couple of other expenses there as well. I believe I currently was able to get—I remodeled and got one of the units up to $925. And I believe that by the end of next year—so that’s the end of 2019—that I’ll be able to get approximately $925 to $1000 per unit, plus I can pass on the utility fees to the tenants.

So, it’ll take me a year or two to get to that point because I don’t want to kick any tenants out or anything or raise the rent too quickly on them. But once I’ve got that stabilized after a year or two, I think I’ll have a very, very nice cash flow on top of what is already a satisfactory cashflow.

Mad Fientist: Alright, good. If somebody is interested in getting started in house hacking, what would you recommend as far as getting duplexes? Are they easier to manage initially? Or do you think go straight for something like the quadplex if you have the capital to invest?

Scott Trench: One of the great things about house hacking is it’s a huge spectrum. So the only criteria that I have that I think that you should really kind of strictly enforce is: “Will this property make sense right now?”, the day you buy it as an investment property if you don’t live there. If you don’t have that option, then you are stuck. You have to live there until things appreciate or rents go up, or the property goes up and you either have to be able to sell it or live there happily.

But if your house hacking correctly, you have three options. And this is the real power of it in a non-financial sense. I could continue living in that property happily forever, I could sell it at a gain alongside all the other homeowners in the area, or I could rent it out.

And in a good market, that’s not so important. But in a bad market, it’s really important because in a bad market, you can’t sell. And so, if you can’t sell, then your only option as a homeowner or a house hacker that hasn’t bought a property that would make sense as a rental is to continue living on the property and paying it.

But if it can cashflow as a piece of investment real estate, then you can always decide to continue living there or keep it as a cashflowing rental. Who cares if it’s underwater in terms of you owe more than it’s worth as long as it’s cash flowing? It’s putting money in your pocket every month.

Mad Fientist: Yeah, absolutely. So, Bigger Pockets obviously has tons of amazing resources for people who want to get into stuff like this. Are there any links in particular you’d recommend? Or maybe you can just send them over, and I’ll put them in the show notes in case people want to know more? And

Scott Trench: Sure! I’d recommend people start from the source. So, the first time that I can figure out anybody actually using the term “house hacking” was by a guy that works here named Brandon Turner. And he wrote How to Hack Your Housing and Get Paid to Live For Free. He uses the example of a quadplex I believe in that post. But I’ll be sure to send you that link, so listeners can go ahead and click on that in the show notes.

Mad Fientist: Perfect! So, that was your first $100,000. The first $25,000 was focused on frugality and cutting expenses. The next $75,000, you’re looking at housing and income generation. So do you want to talk about that final step?

Scott Trench: Yeah, sure. So, the final step I think is it goes on forever basically. I think that the two things that come into play there are going to be entrepreneurship, asset creation, and then investing.

So, once you have a hundred thousand dollars in investable liquidity, if you’re spending less than $25,000 or $30,000 a year, by definition, that means you have years of financial runway, years of the ability to go and take advantage of opportunities, or just simply the cash to make a meaningful investment, at least relative to your spending.

So, I think there’s a couple schools of thought. First, there’s the traditional. And there’s nothing wrong with this plan of index fund investing. Throw all your additional cash into index funds, model it out using whatever percentage return you’re comfortable with. A lot of people will go with something in the 8% to 10% return range for index fund investing over the long term. But you model it out, and you just throw all of your excess cash into a big pile. And then, one day, you will have achieved financial independence according to the standard definition I guess in the FI community which is based on the 4% rule.

So, if you spend $40,000 per year, if that’s your target goal, and you have $1 million in index funds or wealth in general in your portfolio, you’re likely to sustain that in perpetuity.

So, that’s one plan. And there’s nothing wrong with that plan. I invest in index funds. I have a very sizable chunk of my money in index funds for that exact reason.

Another approach that I also use is real estate investing. So, alongside kind of dollar cost averaging with index funds, I try to dollar cost average—and by that, I mean consistently invest, so I’m not buying at the top or the bottom of the market—in real estate.

I just mention I have the three properties. I plan to buy a fourth by, if not by the end of this year, by the end of 2018, by at least kind of spring 2019 to just kind of continue my system. I bought my last property in June 2017.

So, those are two approaches for investing.

But there’s also this whole realm of entrepreneurship. And I encourage people to go out and think about adding side hustles one at a time as they’re going down this path. There’s so many different ways to make money that don’t cost anything but your time, and maybe a few hundred to a few thousand dollars to try out.

You could try starting a blog or a podcast. I mean, that obviously worked out for you, Brandon.

Mad Fientist: Right! Yeah, no, absolutely. I couldn’t agree more. This is like the most opportune time for low cost entry into any sort of business world you can imagine which is super exciting. And I couldn’t agree more that also should be a very important focus for you because if you just work so hard to financial independence, and then have nothing to work on after, nothing that gets you out of bed or gets you excited about starting your day once you reach that point, you’re going to probably be pretty miserable and may want to go back to work.

But having that thing that you’re working on as you’re trying to reach financial independence, then hopefully, by the time you reach it, you’ll have something there that you’re really passionate about and that you can spend a lot of time doing.

Scott Trench: Yeah, I think that’s huge. It’s kind of a funny phenomenon to me because when I was starting out on this journey, all I could think about was getting to a point where financial independence seemed like a realistic possibility. And now that I’m there, I guess I technically lean FI, but I have more work to do if I want to get to the point where I can support maybe an upper middle class lifestyle in a good school district and a family one day. I definitely still have some work to do to get to there.

Mad Fientist: Wait, let me interject. I was listening to your podcast (which we’ll obviously talk about here soon as well). And yeah, your last name is Trench, and you want how many trenchlings?

Scott Trench: Seven to ten trenchlings.

Mad Fientist: So yeah, that could take a nice chunk of change. So yeah, you better keep saving a little bit because 7 to 10 trenchlings, I’m sure, aren’t going to be too cheap.

Scott Trench: Yes. So, I definitely have some higher financial goals than kind of like lean FI for me and maybe like one significant other. And I’m plenty happy doing what I’m doing and kind of continuing along with things.

But it’s funny because I hear these people, they’re like, “Oh, I’m very well into FI. I’m easily a 2% or 3% safe withdrawal rate,” which is much more conservative than the 4% safe withdrawal rate, which means they have much more assets than they need to produce the level of income that they desire. And they’re just like, “I don’t know what I’m going to do after I retire.” The money is not the fear anymore. The leap and I guess the freedom is almost kind of the scary thing.

So, I think that you’re absolutely right to have a passion project, whether it’s personal finance-related stuff or a podcast or a blog or a project or a business in something else that you just want to work on with your free time.

Mad Fientist: Yeah, absolutely. So, it sounds like you haven’t made any sort of mistakes or you’ve been on such a very amazing path seemingly as soon as you got your career? Have you made any mistakes, or is there anything you would do differently if you’re starting from scratch now?

Scott Trench: Yeah, you know, I had the good privilege—and this is not like an intelligence thing. I had the good privilege to discover this personal finance movement and have it make sense to me very early on, and then just kind of dive in or read it. So I was able to basically—from a big picture perspective, I think that I’ve been able to at least avoid any major mistakes.

So, my major mistakes are going to be things like I bought a brand new Toyota Corolla in 2014, kind of before I really wrapped my head around the whole personal finance thing. And that’s a Corolla. It’s not like I bought an [00:29:20]. It cost me $1700. And I still have a little bit to go to completely pay it off. It’s like a 1% interest rate. But that wasn’t a huge mistake.

I picked stocks, and I tried to invest in stocks, and I lost money in 2013 and 2014 when everybody else was making money. All the index fund investors were seeing strong returns. I managed to lose money because I knew better than the market about this couple of Chinese stocks that had more cash than market cap… and I don’t know…

Mad Fientist: Oh, nice. So they’re not even recognizable by name, the companies?

Scott Trench: No, I was just finding these weird financial ratios.

No, here’s what I was thinking. I was like, “Oh, I’m a smarter guy than the market.” This company in China is a Chinese fruit juice company. And they’ve got a hundred million dollars in cash and no debts. And their market cap is $50 million. And they’re profitable.

I mean, if you think about that, how on earth is their market cap less than that? Well, the reason is because Chinese companies all the time—I don’t know about this one in particular—lie about their financials. And no one can go in and audit them and figure that out. And everybody knew this except for me. So that’s how I managed to lose money investing in stocks I guess.

Mad Fientist: Nice! It’s good to make those mistakes early. That’s another good thing. You don’t have to be a superstar investor when you don’t have much to risk luckily. And that’s hopefully when you make all your mistakes and learn all those lessons.

Scott Trench: Yeah. So, I think that from a big picture standpoint, I was able to think about it in a pretty rational way and have the odds in my favor for success. Some of it is obviously also luck. And I think that goes right along with what I just said before, it’s about increasing your odds of success, but understanding that some things are out of your control alongside that.

Here I am today after a string of I think good decisions and good fortune accompanying them, but I look back, and I’m like, “I’m not sure which one of those was a bad decision where I got lucky.” I think they were good decisions and I got lucky if that makes any sense.

Mad Fientist: Absolutely!

Scott Trench: And particularly in terms of appreciation and real estate and stock markets.

Mad Fientist: And I really think you make your own luck too to an extent as well. Obviously, some chance plays a part. But when you’re putting yourself into a position to take advantage of opportunities, and you do have options, and you do have that buffer (like that first $25,000 that we talked about), and you’re able to take advantage of things that other people can’t, and then yeah it may look lucky after the fact. But I think a lot goes into putting yourself into position to be lucky.

Scott Trench: Yeah, I rarely do this, but I just read a book that I’m raving about lately called Thinking in Bets by Annie Duke. And she’s a poker player.

Poker players, at least the ones that are really good, have this really good outlook on things where they’re like, “Hey, here’s the hand I’ve been dealt. My odds of success of winning this hand based on what I know are 70%. And I think I can read my opponents as well as I can to feel comfortable with those odds and set myself up. I’m going to bet on that and go with that.” And that’s the correct decision to make in that game. And they’re fine with that.

And if they lose, you’ve got to be able to not tie the result of losing that hand with “Hey! Oh, that was a bad decision to bet there.” No, it was a good decision. You made the right choice. It just didn’t work out. And if you continue along that line of thinking and apply it to your life, I think that’s how you have just really good odds of hitting success.

Now, of course, you can’t make any bets in the first place if you have no wealth and spend all that you earn. You have no ability to even attempt to put yourself to put some money on that or take the shot on that new career or whatever. So you have to have some baseline of stability, and then work as hard as you can to acquire excess so that you can then go on to take these chances in life that you believe, to the best of your ability, are great, and then obviously do whatever work you can to increase the odds as much as you can to your favor.

Mad Fientist: Very cool! I’m going to put that book in the show notes, a link to the book in the show notes. And I’m going to hopefully get it out of the library as soon as I can because that sounds really good. And yeah, back in my poker-watching days, I remember Annie Duke very well. So that would be cool to read that.

So, I mentioned your podcast briefly, but I definitely want you to talk about it because your co-host is one of the people that has been on my show probably more than anyone else. I interviewed her and her husband in episode #14. She and her husband interviewed me in #26. And then, they both were co-hosts on my show with me on episode #38.

Scott Trench: There were some rapping involved in that show.

Mad Fientist: There was! And that is my question. So, yeah, Bigger Pockets Money Podcast. That’s great. I’ve listened to probably half of the episodes so far. And I’m looking forward to checking out the rest. Your first guest was the same first guest that I had way back in 2012, Mr. Money Mustache (which was a great episode).

So, my question was, “Has she rapped yet?” because she is actually a really good rapper.

Scott Trench: You know, she hasn’t wrapped yet. I think I take all of the thunder for the weird or funny, whatever you want to call it, activities there by telling very lame, bad jokes on each episode, or asking the guests at least.

Mad Fientist: Yeah, yeah.

Scott Trench: But we’ll get her to rap on one of the future ones coming up.

Mad Fientist: Absolutely! She’s good. So yeah, the Bigger Pockets Money Podcast, how has it been going? Have you enjoyed it?

Scott Trench: Oh, I’ve love it! So, the Bigger Pockets Money Show started as kind of a spin-off, an alternative to the Bigger Pockets I guess real estate podcast. And one of my, and I think Mindy’s, big petpeeves with the real estate community is that a lot of people will go in and try to buy real estate and hope that buying that real estate will solve their financial problems. So they’re investing from a position of financial weakness and using some form of creative finance which is kind of, for a new investor, often a code word for “extremely risky leverage” and not investing from a position of financial strength.

So, the goal of this show is to say, “Hey, real estate is one part of a strong portfolio.” And I believe it makes sense for many people. But really, what we’re after here is a strong personal financial position with a good savings rate, a strong income, strong investment returns, and then the opportunity, if desired, to go take advantage of entrepreneurial pursuits.

So, we are interviewing people that have expertise in one of these areas or niches in these areas or stories that embody this kind of approach, so that people are not pigeonholed into one type of investing or one type of real estate.

So, for example, on a basic level, Mr. Money Mustache has an incredible intro because I believe—and Mindy agrees—that the basis of personal finance, the foundation, is always in that frugality and having the mindset of the end goal of happiness and using money as a tool to live out that ideal lifestyle I guess.

And then, we kind of move into more niche topics with future guests. For example, we had Erin Chase on there. And Erin Chase is an expert grocery shopper. And groceries are one of the things that a person that’s interested in personal finance can go out and make a change in immediately. You may not be able to change your lease, you may not be able to start biking to work tomorrow. But you can next week go to the grocery store, plan out your meals, and save a few hundred bucks on your eating bill—and eat healthier and bring that advantage into your life.

But then we go into house hacking. We go into just incredible personal stories. One of my favorites which will be coming out soon is with David Greene who’s a real estate investor. But we don’t talk about his real estate investing, we talk about his personal financial journey where he started as a waiter and found ways to make way more money than all the other waiters at the restaurant, how he saved all that money, how he was able to house hack, how he was able to parlay into his career as a police officer, how he was able to save and accumulate tremendous amounts of wealth while most of the people, most of his peers—and this is in San Francisco. This is in an expensive market—were not able to accumulate anything.

So, the goal of the show is to showcase these different perspectives on finance and enable people to think outside the box of “Oh, real estate is the only way to go about this” or even “Index funds is the only way to go about investing” or “frugality is the only path to financial freedom.”

No, all of these things work. And it’s about putting together a plan that makes the most sense to you based on the perspectives of smart people who have been there and that resonate with you.

Mad Fientist: Very cool! Yeah, I’ll put a link to the first episode in the show notes. And I definitely recommend everyone to check it out.

So, I always end all my interviews with one piece of advice you’d give to somebody who’s starting on the path of FI. So what would yours be?

Scott Trench: Get to a 50% savings rate. I think a 50% percent savings rate kind of—get to a median income, and then get to a 50% savings rate. I think that once you have a 50% savings rate on a median income or greater, that’s when all of this kind of really starts falling into place and the opportunities begin multiplying in so many different directions for you.

Mad Fientist: Excellent! Well, thank you so much for coming on the show. This has been awesome. And thanks to Mindy for putting this together. She was right! It was definitely worth talking to you—lots of great advice.

And if people want to find you, where’s best to find you online, just go to Bigger Pockets?

Scott Trench: Yes. I’m on a lot of social media, but I don’t ever check them. I find social media very overwhelming. So the best place to find me is actually on Bigger Pockets. Just search my name in the search bar, Scott Trench. If you message me there, I usually get back to everybody within a day or two.

Mad Fientist: Very cool! Well, thank you so much, Scott. I appreciate it. And hopefully, I’ll make it out to Denver one of these days and say hello. I’ve never been to Colorado, and I love mountains. So hopefully, it will happen.

Scott Trench: Well, thank you, Brandon. If I ever make it out to Scotland, I’ll have to come and check it out.

Mad Fientist: Absolutely! You’re welcome any time. Alright, man, thanks a lot. Congratulations again on the promotion and the book. And yeah, hopefully, I’ll speak to you soon.

Scott Trench: Thank you so much.

Mad Fientist: Alright, buddy, bye.

Scott Trench: Bye.

Mad Fientist: Hey, I hope you enjoyed that interview with Scott. Before I go, I just wanted to remind you that I went back through all of my previous episodes and collected the answers to my final question that I always ask: “What’s one piece of advice you’d give to somebody on the path to financial independence?” And I put all the answers into a free PDF that you can download.

So, if that’s something you’re interested in, head to That’s You can download a free copy there. And it contains all of the answers I’ve received since I started this podcast back in 2012. So there’s a ton of great stuff there.

Anyway, thanks a lot for listening. And I’ll see you next time.

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12 comments for “Scott Trench – Set for Life

  1. Grant @MillennialMoney
    June 20, 2018 at 10:37 am

    Great episode Brandon and Scott!. House hacking for life!!

  2. Jim
    June 20, 2018 at 10:39 am

    This is great, I have a friend in Denver doing similar, sadly in UK, increases/changes in Buy-to-let (BTL) taxes, are making this approach nonviable. Mad Fientist – do you agree, that in UK it’s harder to make this work?

  3. Daniel Crots
    June 20, 2018 at 11:57 am

    Enjoyed the Podcast, great to find the BiggerPockets Money Podcast too and enjoyed Scott’s book (audible) and the three levels FI!

  4. Caleb
    June 20, 2018 at 1:59 pm

    I was at a 50% savings rate before I got married and had a kid and bought a house. The corners that you can cut when you are single are way more than if you have other people you are caring for. For example, if I were single, I could rent out my spare bedroom in my house. This doesn’t work so well when I have a family. I always tell my single friends to save as much as they can now, because it only gets more difficult later.

    • Mark
      June 20, 2018 at 9:19 pm

      Was wondering when someone would come out and say this. Being a parent changes the game.
      There needs to be more FI conversation for those with children.

      • Adam
        June 21, 2018 at 9:23 pm

        Bigger Pockets Money podcast did a show about this recently. A family that reached financial independence while raising children. Probably worth a listen.

  5. Robin
    June 20, 2018 at 2:27 pm

    I’ve been doing the same in Denver (and CA & MI) for the last 20 years and it has allowed me to retire at 46 with sufficient income from the rentals. Now to strategize on which to sell and when to acquire my forever home.
    Thanks for the podcast!

  6. The Fiminator
    June 20, 2018 at 7:26 pm

    Enjoyed the podcast. Particularly liked the part about a scalable career and adding side hustles along the way. Side hustles are still a new thing in my part of the world (New Zealand/Australia) but growing in momentum.

    I am a massive fan of multiple streams of income, so have been pursuing side hustles for a while now. I started my investing adventure as a pimple-faced 22 year old when I bought my first house/investment with $22k and that has laid the foundation of my FIRE journey in my 40’s.

  7. Josh Jensen
    June 20, 2018 at 8:40 pm

    As a fellow beer lover, I highly recommend you get to Colorado for a visit! Denver, Boulder, Longmont (stop by and say hi to Pete), and Fort Collins are all full of excellent breweries.

  8. Eric
    June 21, 2018 at 3:11 pm

    Wow thanks for sharing. What Scott did was exactly what we did since 2010, except we did it differently (regular 2bd condos, not multi-dwelling places) and location (SF, bay area). We were fortunate enough to get the good advice from someone who actually did this since 70s and retired a multi-millionaire in 90s (in bay area, which is quite a feat), and perfect timing too (he told us to buy in 2010, when no one would touch real-estate since the 2008 crisis).

    I’d say for young people who start today, house hack is one of the best ways to get to FI, especially since young people can take in roommates (it’d be impossible for families w/ kids). However, like Scott said, it is absolutely critical to keep positive cash-flows (rents must cover mortgage payments + HOA + property tax, with backup plans, like moving in to the property yourself), we’ve seen people end up having to sell in down market when losing the job or can no longer subsidize the negative cash flow, therefore cannot reap the long term appreciation or refinance to lower rate, etc..

    The only caution we’d give is currently you can no longer have positive cashflow in bay area as a real-estate investors, maybe in other part of the country, but not northern cal.

  9. Accidental FIRE
    July 25, 2018 at 6:33 am

    I wish I had my act together as much as Scott does when I was his age. I would have been FI in my 30’s. I still did fine and made it in my 40’s but my maturity was late out of the gate.

  10. Mara
    September 25, 2019 at 3:28 pm

    Nice episode! I just found your podcast and I’m really enjoying it. It’s really reassuring to hear Scott’s story as it sounds so similar to my plans at the moment. I bought a house in Edinburgh and I’ll definitely be able to do house hack in the short feature with the prices in this city. Also getting some buy to lets in Glasgow, all with the funds from the limited company I run as a software consultant. I’m planning to invest in funds and a pension too, although most of the FI advice I found on Internet is US related so I’ve been spending a while translating everything to ISAs, SIPPs, etc.
    Thanks for the podcast!

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