PDF Summary:Set for Life, by Scott Trench

Retirement often seems like the distant finish line of a long career, but what if you could retire decades earlier than most people? In Set for Life, Scott Trench explains how to achieve financial freedom earlier by generating enough passive income to cover your lifestyle without needing to work a regular job. With his three-step approach of living frugally, increasing your income, and investing wisely, you can gain the freedom to pursue your passions, travel, or spend more time with family without financial constraints.

In this guide, we’ll examine Trench’s methods for cutting major expenses, making strategic housing choices, pursuing higher-paying opportunities, and investing for passive income. Drawing from the insights of other personal finance experts, we’ll also provide adaptations of Trench’s strategies for those with different life circumstances who want to accelerate their path to financial freedom.

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(Shortform note: Consider automating your finances to contribute to your savings more easily and consistently. In I Will Teach You to Be Rich, Sethi explains that it’s hard to manually manage our savings because we forget, get distracted, or simply lose motivation. By setting up a system of automatic transfers from your checking account to your savings account, investment account, credit card, and bills, you can ensure that your money is going where it needs to each month without having to think about it. This way, you can steadily build a year’s worth of savings without needing constant attention or willpower.)

Step 2: Boost Your Income

With a solid financial foundation in place from cutting expenses and building savings, the next step is to increase your income. In this section, we’ll discuss how you can use the financial cushion your savings provide to do two things: buy a house and live rent-free through “house hacking,” and pursue new opportunities to increase your earnings.

Live Rent-Free by House Hacking

Trench writes that you can transform housing from an expense into a source of income through house hacking: Instead of renting an apartment or buying a single family home to live in yourself, you buy a small multiunit property like a duplex. You’d then live in one of the units and rent out the other units.

(Shortform note: In The Book on Rental Property Investing, Brandon Turner says that multiunit properties usually cost more upfront and require more maintenance work since more units mean more things that can break down. If you’re looking for a lower-maintenance option, Turner suggests complex-based properties like condos or townhouses. These typically need less upkeep, but you’ll have to deal with homeowner association fees and restrictions that limit your control over the property.)

According to Trench, your tenants’ rent should cover most, if not all, of your mortgage payment and other housing costs, allowing you to essentially live for free. With time, your property appreciates in value and you gradually build equity as you pay down your mortgage. Trench argues that, in the long run, house hacking can boost your wealth far more substantially compared to traditional rental or homeownership.

(Shortform note: House hacking has become increasingly controversial on social media. Critics argue that house hacking takes advantage of renters who have few other options in an expensive housing market. Critics particularly object to landlords building equity (the portion of the home’s value they own) while tenants gain no ownership. However, some house hackers defend the practice, suggesting that it can benefit both parties if landlords focus on creating positive long-term relationships rather than maximizing short-term profits.)

How to Buy a Property to House Hack

Trench shares four key factors you should consider to secure a good house hack property:

1. Affordability: You should be able to afford the property with a standard mortgage while still having a few thousand dollars or more set aside for repairs, maintenance issues, and other problems that may arise.

(Shortform note: A mortgage is a loan that helps you buy a home by letting you pay for it over many years, typically 15 or 30. When you get a mortgage, you agree to make regular monthly payments that include both the money you borrowed (principal) and a fee for borrowing (interest). The bank uses your house as collateral, meaning they can take it if you stop paying. The most popular type is a fixed-rate mortgage, where your monthly payment stays the same for the entire loan period.)

2. Livability: The property should be a place you can happily call home. Consider work commutes, public transport or cycling routes, and the overall feel of the neighborhood. If your desired area is too expensive, Trench suggests exploring nearby neighborhoods that cater to your needs but are more affordable.

3. Cash flow: Trench recommends you analyze how money flows in a potential house hack. First, figure out how much money you’ll make with you living there, factoring in your living expenses and rental income from other units. Then, calculate how much money the property would make if it were entirely rented out, without you living there. A true house hack should make you more money than it costs in both scenarios. This ensures that the property remains financially viable even if your circumstances change and you need to move out.

4. Appreciation potential: Consider a property that needs some work, as you may be able to acquire it at a lower price and then boost its value through strategic upgrades. At the same time, Trench advises paying attention to neighborhood trends, such as new developments, improving infrastructure, or shifting demographics that could drive up property values over time—for instance, a new public transportation line or a growing job market.

Consider Neighborhood Categories to Find Suitable Properties

In The Book on Rental Property Investing, Turner explains how to evaluate areas based on their neighborhood classes, which can help you determine the livability, cash flow, and appreciation potential of potential properties. He breaks down neighborhoods into A, B, C, and D categories based on factors like income levels, employment rates, and property conditions:

A and B neighborhoods: These most desirable neighborhoods often have better infrastructure and attract higher-quality tenants, but they come with steeper purchase prices. If you find yourself priced out of these locations, Turner suggests you look at properties on the edges of these neighborhoods like Trench suggests.

C and D neighborhoods: Lower-rated neighborhoods might seem attractive due to lower prices and appreciation potential, but Turner warns about the challenges of finding stable, reliable tenants if the area suffers from neglect or crime. This is relevant when considering Trench’s cash flow requirements, as unreliable tenants can quickly turn a promising investment into a financial burden.

Increase Your Income

Beyond house hacking to eliminate housing expenses, Trench recommends pursuing new opportunities to boost your earnings. He points out that the average American spends the majority of their day working or commuting, so to really grow your earnings, focus on making more money during your workday instead of trying to build wealth in your free time.

(Shortform note: We didn’t always spend most of our days at work or commuting. In Your Money or Your Life, Vicki Robin and Joe Dominguez explain that for most of human history, we were hunter-gatherers, and modern-day hunter-gatherers (like the Ju/’hoansi in southern Africa) only work about 15 hours per week to meet basic survival needs. It was the Industrial Revolution that sped up the pace of work and reduced leisure time, with factory workers putting in 60-hour weeks. Although the workweek dropped to 35 hours at one point, the Great Depression made work more valuable, so we now view the 40-hour workweek as standard.)

Find a Performance-Based Job

To significantly increase your income, Trench suggests you find a job that rewards performance rather than pays a fixed salary. He argues that traditional salaried jobs often limit your earning potential with small pay raises and predetermined career paths. On the other hand, performance-based jobs offer limitless earning opportunities that directly correlate with your hard work and results. These jobs include sales representatives, freelance consultants, and commission-based financial advisers—to name a few.

(Shortform note: How do performance-based compensation structures work in practice? In sales roles, companies offer different commission structures: The most basic is straight commission, where you only earn based on sales. Base-plus-commission provides a steady salary with additional performance rewards. Tiered systems increase your commission percentage as you hit higher sales targets. Lastly, draw against commission models provide advance payments that get deducted when you get your commission.)

To get a performance-based job, you may need to make significant changes. You might switch to a different department within your current company, such as moving into sales, or transition to a new industry. Trench notes that these opportunities often have some initial trade-offs, like a lower base salary or reduced benefits. However, he argues that the potential for higher earnings outweighs these initial sacrifices.

(Shortform note: While performance-based jobs can lead to higher earnings, research shows this pay volatility may come at the cost of your health. In one study, workers who relied on fluctuating income like tips, commissions, or bonuses reported more physical health problems like poor sleep, headaches, stomach issues, and back pain. This was true across a wide range of jobs and income levels, from gig workers to higher-paid professionals in finance and sales.)

Whether you decide to stick with a traditional salaried job or pursue a performance-based role, Trench offers some advice for landing a higher-earning job:

1. Learn in-demand skills. Pick up a skill that commands a high salary in the marketplace, like coding or a skilled trade like an electrician or plumber. These skills can often be acquired through short-term training programs rather than expensive four-year degrees. Apart from formal training, build your expertise through self-directed learning to stay relevant—Trench advises reading a book on business or self-improvement every week. Podcasts, online courses, and insightful blogs are also good learning aids.

(Shortform note: Reports suggest that nearly half of all work tasks will be automated by 2027, but this change brings opportunities if you’re willing to adapt. By learning in-demand skills that robots can’t easily replace, you can stay valuable in the job market. Major companies and governments are investing heavily in worker training programs, which could add $6.5 trillion to the global economy by 2030. This economic growth can mean more high-paying jobs and career opportunities for workers who develop in-demand skills. The growing support for reskilling programs shows that focusing on technical skills is a smart way to future-proof your career.)

2. Surround yourself with high achievers. Put yourself in environments with people and resources that can help you reach your goals. Being around ambitious, successful people will push you to perform at a higher level and expose you to more opportunities.

(Shortform note: In The Success Principles, Jack Canfield suggests you form three types of high-achieving groups or partnerships: 1) A mastermind group of five or six people you meet with regularly to tackle challenges and achieve goals, 2) an accountability partner who works with you one-on-one to stay on track with deadlines and share motivation and resources, and 3) a support team of specialized professionals like coaches or mentors who provide guidance in specific areas of your life.)

Start a Business or Side Hustle

Trench writes that starting a business or a side hustle is another way to increase your income. If you’re interested in starting a business but have minimal funds, consider starting a service-based business, as these often require little upfront investment.

Trench suggests you focus on side projects and pursuits that build on your main job skills and experience, as you can grow them more easily into larger, more profitable ventures without needing to put in a lot more time or resources. For example, if you're an accountant, setting up a freelance bookkeeping service using your existing knowledge would be simpler and potentially more profitable than starting an unrelated business.

(Shortform note: While Trench recommends service-based businesses for their low startup costs, it’s important to understand the tradeoffs. Service businesses, where you trade your skills or time for money, are typically faster and cheaper to launch since you only need your expertise. However, your income is limited by the hours you can work. This means that service businesses may not have the same growth potential as product businesses that can sell the same item thousands of times.)

Step 3: Put Your Money to Work

Trench writes that once you’ve earned at least $100,000 by cutting expenses and finding higher-paying work, you’re ready for the final step to financial freedom: investing your money wisely. Your goal is to invest your savings to earn enough passive income to take care of all your living costs. In this section, we’ll cover Trench’s tips for making smart investments, including how to maximize investment returns, use your time and effort efficiently, manage risk, and invest in index funds and real estate.

(Shortform note: According to many financial experts, you don’t need a large amount of money to start investing. You can begin with as little as $3 through investment apps like Acorns or Stash, $500 through robo-advisors, or whatever you can contribute to your employer’s 401(k). However, they recommend that before jumping into any investment, you first pay off high-interest debt, then build an emergency fund covering six months of expenses, and finally consider your personal goals and risk tolerance when choosing investments.)

Boost Your Investment Profits

To get the most out of your investments over time, Trench suggests never spending the original amount of money you put into an investment. You should think of invested dollars as permanently dedicated to working for you and only spend the profit they bring. For example, if you invest $20,000 and it grows to $21,000, you can use the $1,000 gain, but leave the original $20,000 alone. This helps your investments keep growing and producing income indefinitely.

Trench advises against spending all of your investment profits, however. He suggests you spend only 25-30% and reinvest the rest to allow your wealth to compound faster. Continuing our previous example, out of your $1,000 return on a $20,000 investment, you can reinvest $800 to get greater returns in the future.

The Main Types of Investments

Trench provides advice for handling your investment money. Let’s explore where you can actually invest. In I Will Teach You to Be Rich, Sethi breaks down the main types of investments (asset classes) you can choose from:

Stocks: Stocks represent ownership in companies, and they offer the highest potential returns. When you buy stocks, you’re betting on a company’s future success. If the company does well, your investment grows, but if it struggles, your investment can shrink.

Bonds: When you buy a bond, you’re essentially becoming a lender. The borrower promises to pay you back your original investment plus interest over a set time period. Government bonds offer the highest safety but lowest returns, while corporate bonds pay more interest but carry more risk. You can also choose between short-term bonds that mature (pay you back) in under three years or long-term bonds that take 10 or more years to mature.

Cash: Cash investments are the most conservative option—you’re basically just parking your money in accounts that earn minimal interest. While cash investments keep your money accessible, Sethi warns that inflation will gradually reduce its value over time. That’s why most experts recommend only keeping enough cash for emergencies.

Use Your Time and Effort Wisely

Trench suggests you be thoughtful about how you use your time and effort when investing because working harder doesn’t always equal higher investment returns. He contends that putting more effort into an investment will only yield better results if you have control over the investment. For instance, spending a lot of time choosing individual stocks is often wasted effort because you have no control over the company’s performance.

(Shortform note: In The Millionaire Next Door, Thomas J. Stanley and William D. Danko say fewer than 10% of millionaires actively trade stocks. They don’t track the ups and downs of the markets daily or trade in response to current events. They also tend to hold onto their investments for over six years, focusing on a small number of companies in industries they understand well instead of constantly buying and selling stocks. This saves both time and money because active trading not only eats up hours but short-term gains are also taxed.)

Instead, Trench suggests you focus your efforts on investments you actively manage—like rental properties or small businesses. He notes that often, having more knowledge about your investment is more important than the amount of effort you put into it. For example, a restaurant owner who studies local food trends and customer preferences will likely make better business decisions than one who works long hours but never researches their competition or changing consumer tastes. The knowledgeable owner might introduce popular menu items that boost profits, while the uninformed owner might struggle despite their dedication.

(Shortform note: While Trench advocates for actively managed investments, you can invest in real estate without becoming a hands-on landlord. Real Estate Investment Trusts (REITs) are companies that own and manage real estate properties, and you can buy shares in them just like stocks. REITs have historically performed well, outpacing even the S&P 500. However, while REITs provide steady dividends and are easier to buy and sell than physical properties, you have less direct control compared to owning properties yourself.)

Trench also advises that you focus on the absolute dollar return an investment produces (the actual money the investment earns) instead of the percentage return (the profit expressed as a percentage of the initial investment). Focusing on a higher percentage of return can be a waste of time. For example, spending dozens of hours researching stocks to earn a 15% return makes little sense if you only have $1,000 to invest, since the $150 profit is meager for the effort.

(Shortform note: Chasing high percentage returns often requires taking on much more risk, and recovering from big losses is mathematically harder than it seems: If your investment drops by 50%, you’ll need a 100% gain just to break even—a much harder feat than maintaining steady, modest growth. Instead of trying to beat a certain return rate, other financial experts recommend you determine how much money you need for specific goals (like saving for college). This helps you measure progress in dollar amounts rather than percentages.)

To safeguard your time and effort while investing, Trench suggests you think about the opportunity cost, which is what you lose when you choose to invest your resources in one thing instead of another. Aim to get at least a 10% return on your investments each year—lower returns might mean you’re missing out on better opportunities.

(Shortform note: Opportunity cost analyses are commonly used by businesses to identify the best options when making important decisions, but you can apply the same process to making decisions about investments. To conduct an opportunity cost analysis, make a list of all the direct costs involved, and assign monetary values to quantify both the costs and benefits. Consider risks, uncertainties, and how the investment fits with your overall goals, and look at both short-term and long-term implications. Some choices may provide quick wins but lead to greater expenses down the road.)

Manage Risk

When you start investing, Trench advises you not to worry too much about diversification (spreading your money across different assets). If you have less than a few hundred thousand dollars to invest, focusing on one high-performing asset class, such as stocks or real estate, can help you accumulate wealth more quickly. Diversification only becomes more important as your wealth grows and preserving it becomes a higher priority.

(Shortform note: In I Will Teach You to Be Rich, Sethi differentiates between asset allocation and diversification. Asset allocation is how you spread your money across different types of investments, like stocks and bonds. Your asset allocation should match your risk tolerance—for instance, when you’re young, you can afford to invest more heavily in riskier assets like stocks that have the potential for higher returns. Diversification, on the other hand, means having a mix of investments within each asset class. So even if most of your money is in stocks, you’ll want to invest in different types and sizes of companies.)

Additionally, Trench argues that contrary to popular belief, stocks aren’t riskier than bonds. While the prices of stocks may change more compared to bonds in the short term, stocks are actually less risky than bonds for long-term investors because they’ve historically provided higher returns over extended periods than bonds.

(Shortform note: In Beating the Street, Peter Lynch explains two major risks that bonds face: inflation and interest rate changes. First, inflation can reduce the real value of fixed bond payments over time, so your $50 interest payment buys less and less as prices rise. Second, if interest rates go up, the value of your existing bonds goes down since newer bonds offer better rates. Unlike bonds, stocks let you own a piece of actual companies, giving you the chance to earn both regular dividend payments and increases in the stock price itself.)

However, Trench warns that you should avoid speculation, which means buying assets solely in the hopes that their price will go up. He explains that speculative activities like buying gold or cryptocurrency aren’t true investments because they don’t create real value or sustainable long-term wealth in the same way that investing in productive assets like businesses or real estate can.

(Shortform note: In The Intelligent Investor, Benjamin Graham more specifically explains the difference between investing and speculating. True investing is when you carefully analyze an asset to ensure both safety and adequate returns. Speculation is everything else. Speculators often trade based on short-term stock price movements, popular opinion, and emotional swings rather than a company’s fundamental value. Graham warns against common speculative traps disguised as investment strategies, like trading based on short-term earnings reports or chasing trendy formulas, as these approaches consistently fail to outperform the market over time.)

Invest in Index Funds

Trench writes that when investing in the stock market, you shouldn’t pick individual stocks. He writes that stock picking isn’t worth your time for two reasons: First, you’re competing against full-time professionals who have vast resources and manage huge sums of money, so it’s highly unlikely you’ll outperform them by picking stocks in your free time. Second, unless you have a large amount of money to invest, the potential additional returns don’t justify the time and energy spent. Countless hours of research might only result in a minor hourly profit, which isn’t a smart way to spend your time.

Trench says that instead of stock picking, you should invest in index funds. Index funds work by buying shares in every company within a particular market index, like the S&P 500. By investing in an index fund, you spread your investment across many different companies, reducing the risk of losing your entire investment if one company fails. These funds also have low fees compared to actively managed funds (where professional fund managers make decisions about which stocks to buy and sell) and typically outperform actively managed funds in the long run. Trench says it’s harder to identify a fund manager who will consistently beat the market than it is to pick winning stocks yourself.

(Shortform note: Warren Buffett proved this point in a famous $1 million bet against professional hedge fund managers. Buffett wagered that a simple, low-cost S&P 500 index fund would outperform a carefully selected portfolio of hedge funds over 10 years. Despite the hedge funds having teams of expert managers, vast resources, and sophisticated strategies, Buffett’s basic index fund won, earning a 125.8% return compared to the hedge funds’ returns which varied from 2.8% to 87.7%.)

Types of Index Funds

In Beating the Street, Peter Lynch breaks down the three types of index funds that can help you match your investment goals with your comfort level for risk:

1) Market Cap Index Funds: These funds group companies by their total market value (price per share multiplied by number of shares). If you want to play it safe, large-cap funds invest in big, established companies worth over $10 billion. If you’re willing to take more risk for potentially higher rewards, small-cap funds focus on younger companies worth between $250 million and $2 billion.

2) Sector Funds: These funds let you invest in specific industries like energy, health care, or technology. Lynch suggests using these funds to invest in sectors you think will grow faster than others, or you can use them to diversify. For example, if you’ve invested heavily in oil companies, you could also invest in renewable energy funds to protect against losses if oil prices drop.

3) Regional Funds: These funds invest in companies from specific parts of the world. According to Lynch, you can choose between developed markets like North America and Europe for more stable returns, or emerging markets like Southeast Asia for potentially higher growth but with more risk.

Invest in Real Estate

In addition to investing in index funds, Trench recommends investing in rental properties. Investing in rental properties helps you build wealth in several ways at once: First, you earn money each month from tenants paying rent. At the same time, your property may increase in value, especially if you buy in an up-and-coming area or make improvements to the property. Lastly, each time you make a mortgage payment using the rent money, you own a little more of the property, so you build equity in the property over time.

(Shortform note: How do you find rental properties to invest in? Brandon Turner describes several methods in The Book on Rental Property Investing: One option is to work with a real estate agent who can give you access to the Multiple Listing Service (MLS) database. You can also contact property owners who may be interested in selling or drive around neighborhoods to find vacant homes. Landlords in the process of evicting tenants can often be eager to offload their properties to avoid legal complications, so check public eviction records. Finally, online platforms like Craigslist allow you to connect with sellers or advertise your interest in buying investment properties.)

As we’ve discussed earlier, rental properties also give you more control compared to other investments like stocks. As a landlord, you can proactively find creative ways to cut costs, respond quickly to issues, and make improvements that boost your property’s value. Trench points out that many landlords are inexperienced, so if you treat your rentals like a serious business, you can outperform other landlords.

(Shortform note: While being a landlord gives you control over your investment, you don’t have to handle everything by yourself. Turner recommends building a team of professionals to help manage different aspects of your property. Think about recruiting property managers to handle day-to-day operations, contractors for maintenance and repairs, real estate agents to help find good deals, and financial experts to handle money matters. You’ll also want legal support from a real estate lawyer to handle contracts and potential tenant issues. Working with a team allows you to make strategic decisions while delegating specialized tasks to professionals, helping you outperform other landlords who try to do everything themselves.)

Trench says that real estate investing also allows you to use leverage, which is a technique of borrowing money to buy more valuable properties. For example, imagine you’ve saved up $50,000 to invest in real estate. Instead of buying a $50,000 property outright, you use it as a down payment on a $300,000 house, with the bank lending you the remaining $250,000. This way, you get to control a larger asset with less of your own money. Then, if the house’s value increases by 5% in a year, it’s now worth $315,000. Subtracting the $250,000 loan, your equity is now $65,000. You turned your $50,000 investment into $65,000—a bigger gain than if you’d bought a $50,000 property that increased to only $52,500.

Trench writes that eventually you can sell properties that have appreciated and use the proceeds to purchase larger, potentially more profitable properties. This allows you to continually grow your portfolio and increase your returns.

How to Use Leverage Successfully

While leverage can multiply your profits, it can also increase your risks if you’re not careful. According to recent data, about 13.5% of properties sold by investors actually lost money. Experts provide tips for using leverage successfully:

Create a business plan before investing: Make a detailed plan that outlines how you’ll add value to the property, maintain it, and keep it competitive in the market. This ensures your leveraged investment pays off instead of becoming a financial burden.

Use tax strategies. Work with CPAs (certified public accountants) and tax attorneys to take advantage of benefits like depreciation and 1031 exchanges, which let you defer capital gains taxes when selling one property to buy another.

Look for opportunity zones. These are economically distressed areas where special tax benefits apply. If you hold these investments for at least 10 years, you pay no taxes on capital gains. However, be sure to conduct careful research and meet all requirements.