I recently read a book that I felt more aligned with than any other book… Set For Life by Scott Trench. And wow… he 100% speaks my language.
I highly recommend reading the entire book. But, if you’re not a reader, follow along as I will be sharing some of my favorite passages and learnings over the next few posts.
The main goal of Set For Life by Scott Trench is to help you achieve early financial freedom. This can mean different things to different people but to me, it means time and location freedom… to have a choice on how and where I spend my days.
Other books I’ve read on financial freedom immediately start with increasing income, investing in stocks, and other strategies that sound good but difficult to begin…
Set For Life by Scott Trench starts by giving the best and easiest advice to anyone interested in achieving financial freedom. Frugality. I’ve always been a fan of a frugal lifestyle so when Scott started his book with ‘frugality’ as the first step, I was all over it. Being frugal as a means to financial freedom just makes sense to me.
If you can’t control your spending, it doesn’t matter how much you increase your income. For example, a multimillionaire athlete that ends up broke.
How can you possibly be broke after earning $400 million??? It’s the same reason that over 50% of Americans are living paycheck to paycheck. Expensive lifestyle.
Solution: Practice frugality… and read Set For Life by Scott Trench.
The below passage is taken directly from the book… reach out with any questions, takeaways or ah-ha moments.
Why Wealth Creation Begins With Frugality (Set For Life by Scott Trench)
Reason No. 1: Controlling Spending Is Immediately Actionable
“There are four key “levers” that we can operate in the pursuit of early financial freedom.
1. Earn more
2. Spend less
3. Invest in assets
4. Create assets
We will operate all four of these levers throughout this book. Each lever is powerful on its own, but the true power is in understanding when and where each one should be applied, relative to your financial journey.
Many finance experts and motivational speakers say things like “Don’t limit yourself to a scarcity mindset,” and “Don’t sacrifice! Build your income!” They tell their audience things like “Expand your mind-money is unlimited.” In effect, they’ve convinced their followers that they need to focus on income and asset creation, not savings.
These big-shot experts aren’t wrong! Increasing income (and creating assets and chasing higher and higher investment returns) is a necessary path forward, and two-thirds of this book is dedicated to these topics. Those seeking early financial freedom should build more income streams, intending to scale them over time.
However, the big-shot expert is forgetting something that is obvious to the wage earner. The guru isn’t working a full-time salaried job at or near the median income level—in fact, they likely have a large pile of assets that they’ve stockpiled over many years.
How on God’s green earth are you going to build a business on the side when you have to be up at seven o’clock in the morning, out the door at eight, at work at nine, and don’t get home until six in the evening?
You’re going to build a business from 6:00 to 10:00 p.m., after a full day of work and any evening obligations? Yeah, right.
How could you possibly compete with all the people out there who are equally gifted but have all day to build a business? Unless you’re a superhero, it is a tall order to outcompete other entrepreneurs who can devote the best part of their energies toward building businesses.
How are you going to meaningfully increase your income (by 25 percent or more) in the next year while working a full-time job? By this point, you’ve probably already taken the highest paying job that matched your lifestyle needs, or you have only a limited amount that you can ask for in next year’s raise.
Working hard is great, but is it really going to increase your end-of-year bonus from 10 percent to 30 percent? Are you going to moonlight and work a second job in the evenings or on weekends? Generally, a middle-class salaried worker has little leverage over their income-generation potential, at least in the short term.
And how are you going to invest and amass meaningful wealth or supplemental income at this stage if you have very little in assets? Even an incredible return, like 20 percent gains in a single year, is relatively insignificant if the total amount of invested assets is small.
Today, you can begin tracking and analyzing your expenses.
Tomorrow, you can begin implementing lifestyle changes that can incrementally reduce your spending. Next week, you can plan out your meals.
Next month, you can cancel five subscriptions.
In three months, you can move to a cheaper place when your lease expires.
Spending is actionable and something you can control in the immediate future.” – (Set For Life by Scott Trench)
Reason No. 2: Frugality Is Noninvasive to One’s Lifestyle, Relative to Moonlighting or Building Businesses
“Here’s a common sentiment toward frugality through the eyes of many middle-class Americans:
“Yeah, I wish I could save, but I’ve got a family, and cutting back will prevent us from doing the things we love to do together. I need to focus on earning more money instead!”
This statement claims that both security and family/recreational time are priorities; yet it insinuates that being frugal will negatively impact their lifestyle more than attempting to earn more money. The problem here is that for the full-time median income earner with little to no assets, the levers of “earn more” and “create assets” are relatively inaccessible or high-effort, low probability areas of focus.
Imagine this scenario: Adam currently works forty to fifty hours per week at his job, and though it pays at or near the median U.S. income of about $50,000 per year, he spends almost everything he earns and lives paycheck to paycheck. Adam’s employer doesn’t permit him to work on outside businesses or freelance while he sits at his cubicle.
So Adam-and the millions of Americans like him-is forced to work on building outside income streams after hours. Adam might pursue a side business in the early morning, or he might decide to moonlight and work a second job after regular business hours. Theoretically, he could also cut back on the time he spends sleeping, and then work through the night. But, no matter how you slice it, pursuing additional income streams with no starting capital will involve a significant investment of time. Here are some ways that Adam might earn extra cash outside of work:
• Drive for Uber
• Take on after-work jobs like babysitting or tutoring
• Sell clothing or services to friends, family, and coworkers
• Run a business online
• Start a blog
The problem with these projects is that they are unlikely to produce rapid benefits and often pay near the minimum wage. Adam will lose many nights and weekends to efforts like these and may have little to show for it. He is competing with people who work long hours at a lower hourly rate than he earns at his job, or with folks who have a sufficient runway to make a very long-term play at starting a successful business. Not to mention that this time investment will likely come at the cost of spending time with his loved ones.
Adam will realize a far greater financial result with far less lifestyle impact by making some changes to the larger parts of his budget. For example, he can live in a cheaper place that’s close to his work. This will allow him to save money on rent, and eliminating his commute can also save him time and money. Adam can now spend more time with his family and will have drastically increased his savings rate. As we will discuss in Chapter 2, this simple decision can result in five- figure annual savings opportunities.
Think about how incredibly impactful this kind of thinking can be for most Americans. An hour per day of time regained due to a shorter commute and money back in their pockets. We’ll go into the math behind other specific strategies to reduce expenses and increase time in a bit, but just contrast the effort and total lifestyle impact of moving to a cheaper place closer to work with that of starting a business. Or driving Uber after work. Or taking a second job on weekends.
Lifestyle design (frugality) can have a large impact for many full- time employed individuals seeking early financial freedom. It can be painlessly implemented, increase free time, and result in larger monthly savings. And, while no one gets rich through savings alone, efficient lifestyle design also enables the saver to start those other businesses and side hustles—if that is how they choose to apply the savings and extra time they generate.” – (Set For Life by Scott Trench)
Reason No. 3: Amassing Financial Runway Enables You to Seek Better Opportunities
“If you are a regular full-time employee working a typical job, the following statement might be painfully obvious to you: You can’t seek greater income opportunity right now because if you lose your nine-to- five, you’re screwed. In fact, because you aren’t frugal, you can’t even take a job that pays slightly less than the one you have now. Think about that.
Liz earns $50,000 per year after tax. Assume someone offers her a job that pays 15 percent less than that-$42,500 per year-but gives her a 50 percent shot at earning $100,000-plus per year in two years.
This job has the potential to drastically increase her income, allowing her to accumulate income-producing assets in pursuit of early financial freedom far earlier than her current job. However, because of her spending constraints, Liz is unable to take that opportunity. She has bills to pay. She has a car payment, a hefty rent obligation, an internet bill, streaming subscriptions, bar tabs, and many other expenses she needs to cover with her salary. She can’t afford to risk earning less than $50,000 per year after tax.
Suppose instead that Liz was very frugal. Suppose that she spends only $2,000 per month and is able to save $2,000 per month. Suddenly, this job opportunity is something she can seriously consider. She probably has thousands or tens of thousands of dollars in the bank, and the new job’s base salary is still far higher than her spending. She can afford to take a chance on a new opportunity and pursue her dreams.
Most Americans can’t, or won’t, seize an opportunity like this. They have little money saved up, and they save a small fraction of their income every month. If that’s the case for you, you’re missing out on opportunities with every passing day. In fact, you can’t even see the opportunities you’re missing because it hasn’t even crossed your mind to look for lower-paying work that offers commissions, equity, or other scalable financial rewards.
If you can easily get by on significantly less income than you earn, you open yourself up to an entire world of possibilities or opportunities. Some people call this luck-and only the financially prepared are in a position to get lucky. Those possibilities absolutely include jobs and entrepreneurial pursuits that require short-term sacrifice for the opportunity to pursue huge long-term gains.” – (Set For Life by Scott Trench)
Reason No. 4: Spending Is the Key Mathematical Variable in Financial Freedom
“To recap, the financial independence equation can be simply articulated like this:
Assets x Return > Lifestyle Expenses
To become financially free, one must accumulate enough assets — and generate enough return on those assets—to comfortably cover their lifestyle expenses, plus an appropriate margin of safety.
Reducing long-term spending patterns has a multiplier effect in accelerating one toward financial freedom. First, it increases the amount saved each month. These extra savings can be added to the pile in one’s bank account or other investments. Second, and perhaps more importantly, reducing long-term spending reduces in turn the assets (and returns) needed to sustain financial freedom or extend financial runway.
Let’s go back to Liz, who earns $50,000 per year after tax. If Liz spends $45,000 per year, then she will save $5,000 (10 percent of her income) per year. She will need to save for nine years to accumulate one year of financial runway. To become financially free, she would need to amass a portfolio capable of generating $45,000 per year. Liz may never retire at this rate without government subsidies (such as social security), and it would be a long time from now.
Suppose instead that Liz implements the suggestions in the next chapter and lowers her annual spending to $25,000 per year. She now saves $25,000 (50 percent) per year. Every year, she accumulates one year of financial runway. She will also need to amass a much smaller portfolio, one capable of generating just $25,000 per year, to become financially free. It’s not just a little faster. It’s much faster. Exponentially faster.
In a strictly literal sense, Liz has accelerated her wealth building by five times ($25,000 per year in savings versus $5,000 per year). But the power of this example is more extreme than that. In Case 1, Liz accumulates one-ninth of a year of financial runway every year. In Case 2, Liz accumulates one year of financial runway every year. Before even considering the magic of compound interest, Liz is moving toward financial freedom at least nine times faster in the 50 percent savings scenario than in the 10 percent savings scenario.
The irony here is that if Liz is able to get on the other side of the financial freedom equation and live off less than the return generated by her assets, she will almost certainly grow wealthier over time as her assets grow faster than her spending. This means she can actually spend more money five years down the road than her Case 1 counterpart and still be financially free-if she focuses on spending as a key financial lever in the initial years of her journey to financial freedom.” (Set For Life by Scott Trench)
Reason No. 5: “Our Tax System Favors the Saver, Not the Earner” (Set For Life by Scott Trench)
“Surprise! Income is taxed in the United States of America (and many other countries). That’s income, not wealth.
Those in the demographic most likely to benefit from reading this book are probably paying a marginal tax of 30 to 35 percent on any income earned, including both state and federal taxes. And more earnings mean more taxes. A single person earning $50,000 per year who gets a 10 percent raise (a really large raise!) might think they are $5,000 richer per year. But they are wrong. This person is only making about $3,300 more after taxes take their bite out of the new income.
Instead, if this individual moved closer to work and into a slightly less expensive apartment, they might spend $5,000 less per year between the commute and the rent. That’s money they get to keep- they truly are $5,000 richer. Furthermore, the move does not preclude this person from earning a raise (obviously, it’s great to get a raise). Understand, however, the absurdity of attempting to move toward financial freedom by working fifty- to sixty-hour weeks for small increases in taxable income when thousands of dollars in after-tax wealth can be easily saved!
Another way of stating this concept is to say that it’s 33 percent more effective for someone in this tax bracket to save money than to attempt to earn it. A penny saved is 1.33 pennies earned!” (Set For Life by Scott Trench)
Summary: Frugality Equals Wealth (Set For Life by Scott Trench)
“The preservation of capital should be the primary starting focus for financially ambitious nine-to-five employees for five main reasons:
1. Controlling spending is immediately actionable.
2. Frugality is noninvasive to one’s lifestyle, relative to moonlighting or building businesses.
3. Amassing financial runway enables you to seek better opportunities.
4. Spending is the key mathematical variable in financial freedom.
5. Our tax system favors the saver, not the earner.
This is not to discredit the importance of scaling your income and increasing your investment returns. This is just to point out that it’s less effective to attempt to earn more money or invest efficiently when you can have far more impact by taking control of your spending. You don’t have to stop trying for that promotion at work! But your focus starting out should be on saving more of your income, wherever and whenever practical.
Finance is a game of multiplication and exponential synergies. Folks who spend less can earn more. Investments that produce more cash flow can appreciate faster.
You don’t have to spend less and earn less. Spend less to earn more instead.” – (Set For Life by Scott Trench)
I found Set For Life by Scott Trench at my local library but here is the Amazon link if you want to buy it: Set For Life by Scott Trench
