The Veterinary Money Episode featuring Scott Trench

You're about to get some serious insight from a rockstar in the financial independence and real estate world. I am so grateful that I was able to interview Scott Trench for this week's episode. Scott very generously let me throw some tough topics at him. He was able to frame our student debt issues in a really interesting way and also shares some very valuable thoughts on wealth development and basic financial structures. You also get to hear some of Scott's famous "dad jokes" at the end of the episode...not to be missed! Thanks again to Scott and Bigger Pockets!
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About Scott!

Scott Trench is the CEO and President of BiggerPockets.com. Scott has dedicated his career to helping ordinary Americans build wealth, in part through real estate investing. Since joining BiggerPockets in 2014, Scott has authored the wealth building book Set for Life and joined Mindy Jenson as a host of the BiggerPockets Money Podcast . He stays active in the BiggerPockets forums and has contributed hundreds of articles, market analyses, and files to BiggerPockets. He has also contributed to other personal finance blogs, along with traditional news outlets including Time, CNBC, and NBC.
An active real estate investor in the Denver market, Scott currently manages a private portfolio with about $1.5M in real estate assets under management and holds his real estate license as a CO broker. Scott graduated from Vanderbilt University with degrees in Economics and History, Corporate Strategy, and Finance.

scott@biggerpockets.com
@scott_trench

About Bigger Pockets!

BiggerPockets offers content, tools, and a community of over 1,800,000 members to help people avoid mistakes; learn valuable tips; find partners, deals, and financing and make the best real estate investing decisions possible. BiggerPockets works hard to bring together real estate experts, newbies and everyone in between to gain the knowledge needed to reach their full potential.

www.biggerpockets.com
Bigger Pockets Money Podcast
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Resources referenced in this episode:
-FIRE = Financial Independence, Retire Early
-The 5 Financial Decisions that Make or Break Middle Class Americans written by Scott
-Article on getting started in real estate investing written by Scott
-Mr. Money Mustache Blog
-Set for Life by Scott Trench
-Your Money or Your Life by Vicki Robin

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Ways to connect with The Whole Veterinarian!
Instagram: @thewholeveterinarian
Facebook: https://www.facebook.com/thewholeveterinarian/
Email: thewholeveterinarian@gmail.com
www.thew

Transcript

Stacey Cordivano: 0:07

Hey guys, welcome to The Whole Veterinarian. My name is Dr. Stacey Cordivano and you know we've got some stuff going on in this profession of ours. On this podcast I will speak with outside of the box thinkers to hear new ideas on ways to improve our day to day life. I want veterinarians to learn to be happier, healthier, wealthier, and more grateful for the life that we've created. Now, let's get started. You guys, I'm so excited about today's episode, I had the pleasure of speaking with Mr. Scott Trench, which was a very big deal for me. If you don't know, Scott is the CEO and president of BiggerPockets.com. He has dedicated his career to helping ordinary Americans build wealth in part through real estate investing. Since joining Bigger Pockets in 2014, Scott has authored the wealth building book Set For Life and has joined Mindy Jensen as a co-host of the BiggerPockets Money Podcast. He's an active real estate investor in the Denver market and currently manages a private portfolio with about $1.5 million in real estate assets and holds his license as a real estate broker in Colorado. Scott graduated from Vanderbilt University with degrees in economics, history, Corporate Strategy and Finance. For those of you who don't know about Bigger Pockets, that is a real estate company that offers tools, content, and a community of over 1.8 million members. The platform helps people to avoid mistakes, learn valuable tips, and facilitates finding partners, deals and financing. Bigger Pockets works hard to bring together real estate experts, newbies and everyone in between to gain the knowledge they need to reach their full potential. I can personally attest to the quality of the content, so if you have any interest in real estate investing, go check them out. Scott very generously sat down with me and allowed me to throw him some really tough scenarios without much prep. For example, student debt load! He was able to provide a unique perspective and while the ideas in this episode will probably not work for everyone, I do hope it will be an eye opener and give you something to think about a little bit differently moving forward. Without further ado, let's get into our conversation. Hi, Scott Trench. Thank you so much for joining me on the podcast today.

Scott Trench: 2:23

Well, thank you for having me, Stacey, I'm excited to be here.

Stacey Cordivano: 2:26

Great. All right, let's get started. Student debt is a huge part of the wellness issue that veterinarians face on a day to day basis. And currently, I believe that most students coming out of school are being told to go on income driven repayment plans, which means they pay a percentage based on what they're making and in 20 years, it will theoretically, per of the government, be forgiven, but they need to be prepared to pay taxes on that as if they made that much money that year.

Scott Trench: 2:56

So can I just restate that for my understanding, so you're saying Hey, I got I take out 200,000 or$400,000, in loan debt, whatever it is, right? And I make$100,000 a year or $50,000 a year, right?

Stacey Cordivano: 3:08

75-80 is a good starting for a small animal vet.

Scott Trench: 3:11

Great, I make 80,000. And somebody somewhere that runs a loan program says the amount that's appropriate of your salary to pay towards these loans is 800 a month, I'm making that up, continue to make this up, right. That is not even enough to cover the interest payment that I'm accruing on that student loan debt. So my overall debt balance is increasing each year, even as I'm making these payments. At the end of 20 years, the government will forgive all of that debt, including the 400 grand original debt, and then, you know, all the interest accrues, that I'm not paying over that over that period of time, it might be 6, 7, 8 hundred, a million dollars by that time. And then they will be forgiven, that forgiveness will be treated like ordinary income at that time. And so while it's forgiven, I'm gonna, I may have to assume if I'm not prepared a smaller but still very substantial debt to pay the income taxes on the gift of paying down the debt. Is that a good way of phrasing that?

Stacey Cordivano: 4:08

Correct?

Scott Trench: 4:08

Yeah. Okay.

Stacey Cordivano: 4:09

That's exactly what happens there. Just hoping everybody saves enough for that and doesn't have to use this for something else.

Scott Trench: 4:15

All right. So the question that you're struggling with, as a veterinarian is like, what do I do with this? Do I take that and just let this pile up, And know that's going to happen? Have a huge weight on me for the next 20 years and then figure out what they're gonna do with that tax situation? Or do I like buckle up and pay it? Even if that's gonna result a huge grind for my life? I'd have to work like crazy hours have to sacrifice in the lifestyle for a very long period of time because of the amount of debt I've assumed relative to my income. And how do I reconcile that situation? That is a that is a million dollar problem.

Stacey Cordivano: 4:48

Yeah, literally, it's like, a million dollar question. And so currently, the recommendations are I think that if your debt to income ratio is two to one or greater, that you should be doing this income driven repayment, because if you threw all of your money at debt, the lack of investing with the loss of compound interest is a greater disservice to yourself, then the removal of this debt. But I think that that completely disregards the psychological burden that the growing debt has on someone.

Scott Trench: 5:22

It could you fill me in with like real numbers like what's like a real number that a maybe a higher end, but not extreme, that's unreasonable example of the situation might be,

Stacey Cordivano: 5:31

I can tell you what I had. It's old, but I graduated with 220,000 in debt. And my starting salary as an intern was 25,000. And then I got 48,000 after that. and I would say it differs depending on the species, an average starting salary for an equine vet is probably around 60. And then the average starting salary for a small animal that is probably more like 80 to 90, depending on you know, the area if you're in a city, and I would say the average listed debt is like 160. But that's not realistic, because that averages out people with zero. So I think most people graduating are around the 200 to 250,000. And then of course, if you choose to go to an offshore school, they're private, for profit schools, and they are coming out with between three and 400,000.

Scott Trench: 6:22

Okay. All right. Thank you. This is a math challenge for me. So I'm interested in just kind of collecting the facts and how to think about this,

Stacey Cordivano: 6:28

It's like don't be a vet. The problem is, you can't tell people who want to go to vet school, not go to vet school, because we're gonna go anyway,

Scott Trench: 6:37

That's right, I get that. The question is not like how to avoid it or get into it or whatever. It's what do we do? You're not listening to the show if you're considering the ramifications, most likely, you're already in this situation, you're wondering what to do. Okay, so you've got$200,000 in debt. And I bet the interest rate is six to 8%. For most of these folks, right?

Stacey Cordivano: 6:59

Yeah. When I graduated, it was a little bit better. But yeah, right now it's 6-8.

Scott Trench: 7:03

All right. So 10% interest would be 20 grand a year 5% would be 10 grand. So you're probably looking at 15,000 or so in a year in just interest alone. Alright. So the question then is, do I really cut down to a bare bones existence, and aggressively pay off the debt? Which will take me at least four or five, six years at an really accelerated clip. Or do I pay the minimum and let the balance accrue by eight grand, and eight and a half to nine and 10, and so on... eesh...

Stacey Cordivano: 7:36

I think what happens right now is that most everyone is recommended to go on income driven repayment. And then there's a few people who really feel strongly that they want to pay it off early, because maybe they've heard of FIRE or something like that. And I guess my goal with this episode is just to spread some knowledge about money basics, and potentially alternatives for people to pay back their debt a little earlier than just the 20 years and going for forgiveness. I feel like a lot of us hide from money, we're scared of it. We ignore the giant pile of debt that we took out. We just don't want to think about it. And so I'm hoping that, you know, this could spark a discussion for someone potentially.

Scott Trench: 8:27

That's why. It's not because there's a lack of intelligence or mathematics. It's just there's no way it's, it's just because that is such a ridiculous problem to start your career out facing and confronting. It's an it's such a momentous one, like, of course, you're going to ignore money and not think about it for a while. Right? If we zoom back out on that, you have a pretty heady question to ask, I think, in the first couple of years that you have to make in this situation about whether you're going to commit. Every year you delay, it puts the math more in favor of just waiting it out, right? Because it's piling up interest in accumulation. So really, your decision point is probably in your first three, four or five years.

Stacey Cordivano: 9:05

Do I want to pay this off? Do I want to be rid of this burden? Or am I just going to ignore the loan balance and deal with it later?

Scott Trench: 9:13

Yeah, I mean, I think your decision has to be made in his early years, and you're probably only interested in continuing to listen to this show if you feel like we can present a reasonable path forward to paying that off in advance. If you're still listening, you're probably interested in hearing that and not really going to be just letting it pile up.

Stacey Cordivano: 9:31

So I know that currently, one of your main missions is to spread the idea of financial independence between your work at bigger pockets and in the podcast. And as you said, This podcast is definitely geared towards people who are interested in the FIRE movement or would at least like to learn about the idea of financial freedom. So I was hoping you could define what you consider to be financial independence.

Scott Trench: 9:59

Yeah okay, this is great. I'm very glad we started off with that kind of clear articulation of the problem, because that's really helpful to me. I think that sets the stage for a good discussion here. All right, so we've got financial freedom. So financial freedom is the concept, if you're listening, of having more passive income than your lifestyle expenses. So if you spend, you know, 2000 a month on rent, 400 bucks in the car, and transportation, you know, another 800 to 1000 on, I don't know, adding it all up, and you spend four 4000 a month on your lifestyle, that's $48,000 a year. If you have four rental properties, each producing$1,000 in cash flow, you're theoretically able to cover all of your lifestyle expenses with just that income, and no longer need to work anymore. And so this was the primary motivating factor in my life when I started out my career because I hated the idea of having a boss for 30 years working in a cubicle, kind of having to do the same thing I wanted control of my day to day. And so the way I attacked financial freedom was not having this burden of debt. I basically just spent as little as I possibly could, I lived in a cheap apartment for the first year and tried to scrounge up about 20 grand between, you know, my job, which paid $48,000 a year, I Ubered, I started a punny t shirt business, which lost a little bit of money, I tutored, I did a number of odd jobs trying to figure out something that might work to help me make little extra. And then I probably spent about 2000 a month on my lifestyle as a basically college grad, living like a college student still in a sharing an apartment. And I think my biggest expense was natural light for the first year. So after that first year, I took that 20,000, I put$12,000, down on a duplex lived in half rinse out the other half. And that was a really powerful moment for me, because when I did that, I was able to rent out the other unit and rent out half of my unit. And between those two rents, 550 from my roommate and 1150 from the other side, I was able to get 1700 dollars a month in rent on a 1550 mortgage, which allowed me to live for free. So I'm not making lots of money, but it's a lot better than paying 650 for rent, it reduces my living expenses by 650 bucks a month. Now my saving rate jumps by that much more and continues to accelerate it make it a little bit more money. And then I also happen to join a startup called Bigger Pockets, of which I'm now the CEO, so that that income generation over the last five years has increased as a as a business has boomed and you get lucky sometimes. That was really kind of a key lever for me and being able to accumulate just more cash, pile it up, buy the next rental property, invest more and more in stocks over the last couple years between income living in a dinky little duplex for most of that period of time. investing in stocks, buying a few more rental properties. And those types of things generate a position where I bring in much more income from sources other than my main job than my lifestyle costs in passive income. And so I never have to work again, theoretically, but I work harder than ever, ironically.

Stacey Cordivano: 12:58

Because you want to.

Scott Trench: 12:59

Yeah, I imagine you are in the same situation, Stacey, is that right?

Stacey Cordivano: 13:04

Yeah, and I've heard you say that your story isn't exactly repeatable. And it's hard for me to totally think that mine is as well. I have a spouse that also has a high income, we were able to put my entire salary towards paying off my debt quickly. And with a lot of help from Bigger Pockets, we learned a lot about real estate investing, and have added several properties on as additional income streams. So yes, between the debt payoff and other income streams, theoretically, I don't have to work. And that has allowed me to slow down quite a bit. And that's actually how this whole podcast project came up is because I finally had some space to breathe and think about a way to give back to a community of mine that's struggling.

Scott Trench: 13:55

I love that. And like, by the way, I want to point out that this is the power of the idea of financial independence. Like you embody it because you go out and achieve financial independence. And what you do with your free time is you're like, hey, there's this big problem where veterinarians have a really an economical situation going on, when they begin their careers that is really crushing, gonna hurt supply, drive up prices be bad for animals and society in general. And you're like, No, I'm gonna spend my free time trying to correct that problem figuring out new ways to do that. I believe that's your mission right now. Right? Correct.

Stacey Cordivano: 14:30

Yep. I want veterinarians to be happier and just realize there's other ways to do it than grinding it out and not being able to retire.

Scott Trench: 14:38

Yeah. So aside from the fact that you can, you know, selfishly slow down, or, in my opinion, my case, I really wanted to play video games and drink a lot of beer on the beach when I first started doing this. You find that you're able to make a huge contribution to society, which is even a more powerful motivator to achieve financial freedom. Okay, so that's setting the stage for that. So now, the question is, how does a 60 to $120,000 a year veterinarian with $200,000 in debt, who's listening to this podcast and saying I want that, but I need to figure out the trade offs there. How does that person think about this problem? Okay? So if I'm in that situation, and I am just out of college, and and I'm single, I think it's like, okay, am I willing to have a low enough cost lifestyle, that I can actually accumulate that 30, 40,$50,000 a year in cash and begin to pay down the debt aggressively? Or am I willing to do that, and instead of paying down the debt, aggressively invest that alternatively, into an asset, like a real estate investment. So let's think about this. If I could earn $80,000 in the first year after this$200,000 in debt and make the minimum payments. What I would do if I was trying to move toward financial freedom is I'd really consider the house hacking approach outlined earlier. the math is super compelling for that. Go ahead.

Stacey Cordivano: 16:00

Yeah, sorry. I just wanted to interrupt and define the term house hacking for people that don't know, the situation that you described earlier with the duplex, that would be house hacking.

Scott Trench: 16:10

That's right, yeah, I would consider, can I while I'm doing this, buy a property with extra bedrooms, or a duplex or a triplex or quad Plex. There's really good advantages to this, even if you live in a high cost of living area, if you buy a home, you can actually put down 5% on the property or three and a half percent, right. And look, you might say, Oh, that's risky to put down such a small down payment, but you've got to pay rent, or you've got to buy a home, right, if you're going to live somewhere, unless you can move in with the parents that that will help you increase your savings rate. But you know, if you're not going to do that, then you have to buy or rent. And I would argue that putting 5% down on a $300,000 property, it's 15 grand, that is less risky, a move than renting or buying a home that you don't have tenants in, because you've got that extra income coming from those folks. in those areas, the ROI is ridiculous. Like if you put down 5% on a$300,000 property, and that property appreciates 3% next year, it's gone up in price from 300,000 to $309,000. And you put down 15,000. That's like a 60% ROI in the first year, you're also probably getting most of your mortgage expense paid for by tenants, if not all of it, depending on how you buy. And you're amortizing the loan debt with the mortgage payments. So your ROI can be really silly numbers. Now there's closing costs, you could buy the property and pay a couple thousand dollars to close the mortgage. And when you sell it, you're going to incur closing costs. But if you hold it for a reasonable period of years, that can be a really powerful way so that I think I would certainly consider as a first move for this person, because the spread between that ROI 60% 80% 120%, over a period of years could be much, much higher than the interest rate on your student loan debt of six to 8%. And a really easy thing there, I would certainly consider that like, and again, I'm biased because I come from a real estate website, you know, and all that. And but I think that that would be a powerful tool. If you're not willing to do that, then I think it comes down to a much harder choice. Go ahead,

Stacey Cordivano: 18:10

I do I want to address one thing, because I lived it. You graduate from four years of vet school with a doctorate. And you kind of feel like you deserve to live nicely. Whether that's true or not. I had to make a big mindset shift in the years that we decided to start working towards financial independence. I wrote down a quote from your book, because I was gonna ask you what you thought about that sentiment, but I feel like this quote kind of sums it up. You said, "You don't deserve the best. You deserve power over your day." Can you elaborate a little bit on the mindset that you have to have in order to pay off something like this?

Scott Trench: 18:52

In general, setting aside vets, versus a college grad, going into like a business, you know, if you spend everything that you earn, and do not accumulate in emergency reserve, build up net worth, then you are completely at the mercy of your day job, and your boss or your business depending on how you set that up. And you are going to work every day. And events like COVID are going to terrify you because you have no runway to lean on in terms of cash or spending for that. And so there's a general curation of power over yourself and your family's life. That happens as you build up reserve as you build up a month of runway, six months of runway a year of runway, or 10 years of runway or financial freedom, retirement level of wealth. Right. And so, for me moving along that spectrum has always been absolutely critical to my well being and mental sanity. I don't think everyone is wired that way.

Stacey Cordivano: 19:53

No, I agree.

Scott Trench: 19:54

I would much rather, if I was in that situation, just continue to live way, way below my means as long as it took to get that much power. That's just my how I'm wired. I don't think everyone's like that. I think it's a great point there. Does that answer your question?

Stacey Cordivano: 20:11

Yes, I think it's just something to be noted. Because, like I said, I've lived it. It's, it's a feeling and right or wrong. I mean, it is what it is. And granted, when I went to school, I mean, we got like a 20 minute lecture about buying too much pizza, because it would cost a lot more later due to interest. And that was about the financial education that we got in that school. So I just came out, assuming then I would have these loans for 30 years. And that was just the way it was, especially because back then the interest rates were slightly lower. But then once we made this family decision, I mean, my husband I have to credit, prompted this sort of shift. And once I had paid them off, I did not realize how much of a burden they were. So I guess I, I just wanted to make the point that they're more of a burden than we might think, even if we're used to paying them and the thought of the negative accrual of, of this income driven payment, the thought of them growing is like, it's mind boggling to me.

Scott Trench: 21:06

Yeah, I'm not in your shoes, I can't, because I can't be there. But like, I just seems like I would personally do anything, do anything to get out of those and begin building a level of wealth. But I wouldn't necessarily do that by paying down the loans. First, I would look for things, if possible that I can arbitrage significantly higher returns on than the interest rate of that debt. So for example, so you have $200,000 in debt, and the interest alone is 15,007, half percent, your minimum payment has you paying 7500 throughout the course of the year. So your balance at the end of year goes from 200,000 to 207,500. Right? If I could house hack, for example, and put $15,000 down into the house hack, cut my rent from a 600 or 1000 to zero or close to zero, that's going to make me on that 15,000, that's going to make me a lot more money than even the increased accrual from that interest rate. Right.

Stacey Cordivano: 22:05

Got it.

Scott Trench: 22:05

And so that is not always achievable. Earning a significantly higher return on invested assets than six to 8% is tough. Like when I think about debt prepayment, I think like car loan at one or 2%, that's not that I'm going to pay down early just for me, right? I just I think it's too low interest is not worth it. You know, once you start getting into the 5% range, you know, I don't pay off my mortgage early right at 3-4 percent, once its gets five to like 8%, let's call it, that's the range where I start thinking, this is a gray zone. If you get passed eight, 9, 10 percent plus in this day and age in 2020, I think that's emergency level of debt. Like credit card debt, it's very hard to get a guaranteed return in excess of eight, 9, 10 percent in the world today. Right? It's very hard to get that. So in that 5,6,7, 8% range, you have a trickier situation where I think that's where you go, can I get something significantly different? Is there something unique to my situation like I wouldn't invest in the stock market in an index fund, for example, for the long term, trying to get eight to 10%? Well, my interest rate is six to 7%. That spread is too small and the volatility of the market can be so huge unknowns that I just don't think it's a big enough spread between that investing decision in your interest rate. But I do think that a house hack or you know, maybe like if you're an equine vet, maybe there's something related to a good horse investment, if that's a thing, you know, where like,

Stacey Cordivano: 23:30

probably not!

Scott Trench: 23:31

okay, maybe there's some sort of deal that comes up. And maybe it's not even related to your profession, maybe it's something that's just you happen to know your spouse happens to know, whatever, if you can build up a cash position of 20, $30,000, with the intent to look for opportunities that might be very creative in your situation, that might be more advantageous to paying down the debt. But once maybe I'm house hacking and out of those ideas, then I'm just grinding for three, four or five years paying down the debt as aggressively as I possibly can. I don't really see another solution to it unless you do.

Stacey Cordivano: 24:04

Well, let's talk about even how you get that cash cushion. Right. Like, I mean, I think we need a little bit talk about some fundamentals on how someone is going to develop a cash reserve period to invest in a house hack or invest in a side business or something.

Scott Trench: 24:21

Yes, so you're not gonna like this answer. The answer is you're gonna have to cut back on your lifestyle, or increase your income, and then grind away over a period of months in order to accumulate that position. And you know, it's going to be boring, it's going to suck, it's gonna feel like a grind. And that's what you do. If your income is like me, let's call it 50,000. When I started out 48,000, and you're saving 2000 a month, right? That means my spending rate is about 20-25,000 a year. I'm accumulating one year of expenses in cash each year, right. It's a 50% savings rate. If you're saving at a 10% rate, you earn $80,000 and you're saving $700 a month, then you're accumulate one year of financial runway every 10 years, right? So the name of the game is how do you get your savings rate as percentage of your income as high as you possibly can, knowing that every dollar less that you spend is both another dollar that you can save after tax and it lowers the amount of runway. If your spending is$2,000 a month, you only need$25,000 to have this incredible freedom and power over your life and a significant liquidity position. Right? If your spending is $40,000 a year, it's going to be that much harder to build up even 20,000. But you're going to need to build 40,000 to have the same level of comfort over your financial position as the person who spends half as much.

Stacey Cordivano: 25:37

Yeah, I think the savings rate idea is really important. I don't think we probably talk about it enough in in our industry, in what I've read anyway. For my personal situation, when we really focused on increasing our savings rate, that's when we made a big jump in progress. And so in relation to that, I was hoping you could detail some ways in which people could significantly change their savings rate. I'm referencing an article that you wrote, I'll definitely link to that in the show notes. It's called The Five Financial Decisions that Make or Break Middle Class Americans.

Scott Trench: 26:19

Yeah, when you when you look at your spending for the average American, right, most people think oh, spending that means I gotta pack lunch every day. Well, yeah, I pack lunch, I did pack lunch today, actually. You got to pack lunch. Sure, sure. But that's, that's we call variable costs, whether you buy lunch, or packet. And those can make a difference. But when you plot out your spending, it's going to be if you're like, at all like the ordinary American, at least a third of it is going to be on housing alone. Another probably 17 to 20% is going to be on transportation alone, that's flights and your car, right? Then you know, you're going to have another 15% on food, then you're going to have health insurance, you're the government calls pensions and expense. I'm not sure if everyone agree with that. And then you've got this like tiny bucket that's like 20% of your spending, which is entertainment. And it's like, Okay, great, how am I going to build up my emergency reserve and attack my $200,000 in student loan debt? I'm going to stop going to the movies and pack lunch every day, for the next 12 years. That's a ridiculous approach, that's going to be completely unsustainable for you. Instead, I think you have to make the hard choice to cut back on the fixed expense, which is your housing and your transportation. And that's what I did, right. I was like great my expenses, my housing, if I can eliminate that, I can spend twice as much on natural light, and still come out ahead on my financial journey for all this stuff. If I can cut out my car payment by paying off my car and driving a beater as long as I possibly can, biking where I can. That's great. How do I handle flights, there's this concept called travel hacking that you should google, if you're listening to this. Travel hacking is this idea of you sign up for a credit card, you don't max out the credit card or spending responsibly on the credit card, but you sign up for the credit card and it gives you 50,000 Southwest points is what I did, right, I got 50,000 Southwest points, then I still got another credit card, and I got 60,000 Southwest points, I didn't abuse them, I spent the minimums necessary to get those points paid off each month in full. But between those two cards, I got 110,000 Southwest points, that does two things. One, it gives me a bunch of flights. But secondarily, it gives me the companion pass on Southwest. So that means that I can bring my fiance, I'm actually getting married in November, I can bring her on every flight that I take. So I get four flights, and I get buy one get one for the next two years. And so that's a powerful way to really, really hack your travel. And you don't have to do that with Southwest, you could do that with a number of cards. There's a whole cottage industry now of bloggers, who talk about how to manufacture credit card points. And like I'm not one of these crazy guys who's getting 20 cards and you know, playing the game. Ultimately, although some people do that and get a big kick out of it. I think I get a tremendous amount of benefits. And then of course, you know, for business, I'm traveling a little bit. So that's also giving me a tailwind and being honest on a couple of those. But that Southwest alone is like three weddings to go to, you know, round trips. And every time I go on a trip from there, I'm getting one. So that's your housing and transportation. And I think those would be like, hard decision on the car, hard decision on the housing, little bit of travel hacking, housing, transportation, or 50% of the average Americans household spending, you've just gotten to your 50% savings rate. If house hack, pay off your car, you can maintain it and put gas in it. Of course, it's very easy to get to a 50% savings rate, if you can largely eliminate those two categories. And you're willing to take the lifestyle modification hits that will come with that. So it is possible but I don't think it's you're going to make some changes to your lifestyle if you're going to pay off $200,000 in debt in 5, 6, 7 years.

Stacey Cordivano: 29:48

You know, I think for me, the bigger picture was what helped me make the mindset shift and I know on your podcast you hear from a lot of people who have paid off large amounts of debt Would you agree that you have to find something that you're working towards in order to find that motivation to live frugally and you know, move to a smaller house or XYZ?

Scott Trench: 30:11

One hundred percent, you need the motivation. So what's happened for me, I spent seven years in rinky dink duplexes, fixing them up and living for free. And now I rent a nice place downtown. You know, it's not crazy nice, but it's nice. And I have a parking spot, you know, and all that kind of good stuff. And

Stacey Cordivano: 30:28

I find it so funny that you rent,

Scott Trench: 30:31

I rent now. Yeah, because because I am not kidding myself thatt this is like an investment in a house. This is my luxury, and I'm paying for it with my passive income that I've generated, so that I can feel good about it. And I feel very comfortable with all the decisions I've made to get to that point. But like, like me, and my fiance lived in like a fixer upper duplexes in parts of town that weren't super, always convenient, and all that kind of stuff in order to get to that position. And so like, that's the why the rest of my life, I should theoretically be able to fund a pretty solid lifestyle without dependence on wage income, and be able to direct my career and do what I want without that as a primary concern, which I think is a powerful luxury, which you have developed for you. And so it's that wide that's driving you for that period of years to get there.

Stacey Cordivano: 31:20

Got it? Yeah, no, I think that's great. I wanted to see if you could sort of differentiate for listeners, the difference between a high income earner and someone who's generating wealth and like, what actual assets are wealth generating assets?

Scott Trench: 31:38

Okay, yeah. So income is how much you bring home. Wealth is how much you have, right. So I like to have a much stricter definition of wealth than an accountant will tell you, right? Like, I do not consider a primary home wealth. Wealth, to me, is something that I'd be willing to spend, or that can generate income that I'd be willing to spend to finance my lifestyle independent of wage income. So things that count as well, for me are rental properties. Because I'm not sitting on the rental property with the intention of living in it for a long term, as my house right are paying it down, I'm gonna own that rental property until I don't think it's going to produce a good return for me, and then I'm going to sell it and put that money into another income generating asset, either another rental property or stock, right. And so that is a it's a very logical, it's not emotional decision for me, you know, and same thing with a stock investment, you know, any type of royalty or business, small business investment, there's a ton of different things. There's like hundreds and hundreds of different types of alternative investments out there, in addition to stocks, bonds, real estate, and small businesses that you can think of we talked about horses as one, you know, example of that, right?

Stacey Cordivano: 32:43

I'm gonna say they're not a wealth generating asset.

Scott Trench: 32:47

Yeah. It might be for fun. Yeah. For some people.

Stacey Cordivano: 32:49

I think that's what you do with your passive income when you have too much of it.

Scott Trench: 32:53

Ah, fair enough. Yeah. So look, that's wealth. To me my wealth, as I calculated my true net worth, my Real Net Worth is my real estate portfolio plus my stock portfolio plus my interest in private businesses or syndications, plus any debts or loans that I'm lending on where I'm the bank, right? Things that don't count toward my wealth are my car, if I had a home, my private residence, right? You know, it's just not wealth to me, unless I'm willing to sell it. I'm not going to sell my car. It's a Corolla. It's very efficient. You know, that's my, my view on wealth, wealth, in a strict definition, a little definition, just all of your assets, including your home equity, all the things I just described, any of your collectibles, whatever.

Stacey Cordivano: 33:32

Yeah, but I think that's important to distinguish, because I think that's the general thought. But I think that your definition is a much safer, realistic definition to work towards.

Scott Trench: 33:43

It's also brutal for some folks, because you'll get a middle class family, and they're saying, Hey, here's my wealth, it's 400 grand, that's 200 grand on my home, my home equity, and other 200 grand in my retirement. Well, okay, and you got 7000 in the bank and 5000 in your credit card statement, right. And so, that is not an empowered financial position, that person cannot leave their job, because they've still got to pay the mortgage. They've got to pay the credit card debt. They have one month before they run out of money, if that. And so that is not a wealthy position and compare that to the person who doesn't have it doesn't have a home, doesn't have a 401k even, you know, and has a rental property, 200,000 in the stock market after tax, and 40,000 50,000 in cash in the bank, same net worth 400 grand, very different amount of power in their immediate term decision making. Right? For the next 20 years, that person is gonna be able to do what they want move where they want live, where they want work with they want the next 20 years. The person A that I described, is gonna be working that job at the same spot because they're already maxed out in the income front.

Stacey Cordivano: 34:47

Right? Yeah. Okay, so let me try to summarize some of the ideas that you've come up with here in our discussion. First of all, we're talking about a population of people, veterinarians, who are extremely hard workers intelligent. Probably, if they're listening to this have some level of student debt. And we're going to say that one option is for them to choose an option that allows them in the first couple of years to develop a large cash cushion to then put to use in a new sort of creative, high interest earning way. Is that, am I on track there?

Scott Trench: 35:29

Yeah, look, if you don't, you don't need the cash reserve, if you're just like, I'm gonna pay down my debt as aggressively as possible and that's it. Have a cash reserve that's like a few months, you know, it doesn't have to be like six months or a year. But if you think you've got other alternatives, like what we just discussed or want a house hack, that's where you'd build up the cash reserve aggressively in order to do that, right. Otherwise, you just arbitrage and 8% interest rate that your debt is accumulating for your.02 percent and your savings account, right. Get what you need to sleep at night.

Stacey Cordivano: 35:56

Great. Okay. Yeah. Good clarification. Okay. So and then we are going to create a mindset shift of living well below our means. If we want to pay off the debt, it's what you've got to do.

Scott Trench: 36:09

Yep. And you know what I blog you should check out if you're interested in this is mister money mustache. I love this guy. He really influenced my journey. When you read how he writes, you're like, this is the way to live. Really. It's just, it's about of course, achieving financial independence and the power that you gain over your life. But there's also something empowering and happy about being like, why is the rest of the world so inefficient, compared to how I'm living? That truck, well maybe veterinarians need trucks for business purposes, I don't know. I can see that being the case.

Stacey Cordivano: 36:40

Some of us, yes. It's a business right off, though!

Scott Trench: 36:42

That Tesla, my Corolla gets me there and it's probably worth seven grand. And that guy's car is 30 or 40 grand. Did they realize how much how much they've trapped themselves with that car purchase and their life. When I bike to work, I'm like, I'm saving this gas money. It's like I'm getting an exercise. I'm, it's beautiful outside, these guys are all stuck in traffic. There's all these advantages that can accrue to you in excess of the wealth generation. If you approach it with the right mentality, at least explore like, hey, this crazy guy might be at least worth diving into a little bit. Mister money mustache, you probably think I'm crazy, too. But that's okay.

Stacey Cordivano: 37:20

Well, and also kind of in line with that is Vicki Robbins book, Your Money or Your Life. I felt like that about her perspective on sort of the environment. And why buy everything new when you know, there's so many ways to save money, and you're not creating more plastic junk. And so yeah, I think there's a lot of ways to kind of get into it. And you got to find what speaks to your soul about what will get you there.

Scott Trench: 37:45

I got this shirt in high school.

Stacey Cordivano: 37:48

You and my husband. Haha. Okay, so I do want to talk a little bit about your book, it's called Set For Life. And if anyone is at all interested in financial independence, it should definitely be required reading. You lay out a pretty specific framework for people, especially younger people in order to achieve financial freedom at an early age. And I did just have one question that I've been dying to ask you. My husband and I listened to it together. And several times throughout the book, we would stop and look at each other and say, geez, Scott, tell us how you really feel. I'm curious if you got any pushback from that hard line that you drew? Or if you feel like any of those ideas have changed since you wrote it? Or is that just what people absolutely need to hear?

Scott Trench: 38:42

100%. So I look, I wrote the book, I think at the perfect time. So the book is written for and the purpose of it is to say, here's how to go from zero to a few hundred thousand dollars in net worth in as rapid a period of time, as is practical for the median income earner with little to no assets starting out, right. So that's the premise. And it's like, for that you got to be intense, you have to grind, you have to spend very little, you have to be like, I'm going to figure out a way to earn more income and make my mark on this world. I'm going to figure out a way to get reasonable investment returns, I'm going to self educate, I'm going to put in the grind of mental energy, lifestyle design, and grueling hard work in order to get there because I want to accelerate that freedom. I was 26 years old when I wrote the book, and I wouldn't change a word because that is how I felt at the time. That is how I perceived the world at the time. And that is every bit what was needed to get me from point A to point B and the amount of time that it took me to get from point A to point B. Now I'm sitting here I just turned 30 I go back and reread it. I'm like, yeesh, who is this guy? What is he doing? That is so direct, like telling people like how to make huge life decisions like from this seat. Look, I think if I wrote it now it'd be way worse. You're looking at it from your seat right now. Right, as a moderately wealthy person who's financially free, right? And you're looking back and like he's that's pretty intense there.

Stacey Cordivano: 40:07

I'm a pretty direct person so I liked it.

Scott Trench: 40:10

When you're broke or in debt, the answer is like, you have to be extremely intense in order to get out of like, if you're listening this podcast, you won't achieve financial freedom, you have to be extremely intense for a period of many years, probably at least five, to take yourself out another five, to get way ahead, right? That is worth it. In my opinion, people who do that go and have way more control, I think, become very happy, have a chance to make a big impact on society that their peers who don't do it don't. But like you're going to be really making a different set of choices about your lifestyle, and you're going to be sustaining it for a long time, and people are going to be giving you a funny looks. And your mom is not going to understand why you live there like that, doing this, driving that, eating like this. You know, my mom loves me very much. But yeah, I think she gave me some funny looks a few times.

Stacey Cordivano: 40:58

Sounded like that came from personal experience! Yeah, no, I, we loved it. But there were some hard lines in there. Also, while I have the president and CEO of Bigger Pockets on the line, I have to ask... we have several very active Facebook groups for veterinarians, different populations. And a lot of times I will see people asking about getting a rental property as a side hustle. And it's obviously been very beneficial to my family but I always cringe a little bit, because it's a lot of work and education needed. So I'm curious, what would your, well I know what your answer would be. I mean, you said to house hack, but for someone who's busy and has no real estate investing background, what's your advice?

Scott Trench: 41:41

Yes, the barrier to entry in real estate, aside from the financial ones, the downpayment, good credit, and the income, right? The barrier is really an investment of time, in order to be have a good risk adjusted chance of success in real estate investing, you're going to need to invest several hundred hours of your personal time into listening to podcasts, reading books, networking with local investors, and agents, and otherwise consuming educational content, which is now available for free in many places over the internet, including our website, which you have graciously plugged a few times here. That investment of time is not worthwhile if your income is extremely high, or you're extremely busy all the time, it is extremely worthwhile, however, if you're earning 50 to$200,000 a year, which is veterinarians, I think fall fall right into, and you are willing to put in that upfront cost over the course of six months to a year. And then you're willing to invest on a sustained basis for a 10 or 15 year period following that, if you do that, I honestly believe that you have a very reasonable chance of achieving a adjusted long term return of like 15 to 17%, maybe even a little bit more, which is significantly better than what you can get in the stock market. You can still lose with that. But I think that that's a reasonable framework for this and why so many people like real estate investing is because they believe that maybe they don't articulate it differently, to a certain extent, or to watch for diversification. But that's why I invest in real estate and why I paid that price before I ever worked here. Right. So that would be my advice to understand if you're willing to put into that level of education, whether you your why is powerful enough for you just like it enough to want to do that. And then go after it. And yes, of course it can be a powerful wealth building tool that's appropriate for someone in this position.

Stacey Cordivano: 43:29

Yeah, great. Okay. That's a great answer. So 500 hours of investment time, and then you can start to make a plan.

Scott Trench: 43:36

That's right. Yeah, I'm gonna call it somewhere between 100 and 800. I don't know. It depends on the person.

Stacey Cordivano: 43:43

I'm gonna quote that when I respond to people's Facebook question.

Scott Trench: 43:46

Yeah.

Stacey Cordivano: 43:46

Okay. I ask all of my guests, What is one small thing that has brought you joy this past week?

Scott Trench: 43:52

One small thing that has brought me joy this past week. It's COVID. I'm getting married in two months, but I hadn't been able to see my family the whole time. And I put on the mask, I went out back east, I flew out and I got to see two of my best friends from high school. And we did what you can't really call a bachelor party, but you can call a couple of buddies be able to see each other for the first time in months, and hang out, have a cigar, have some scotch, which was wonderful. I got to meet my brother's fiance. Again, socially distant, and I got to see my parents. And so that was my big thing from last week. That brought me a lot of joy a lot. A lot of good laughs really good to meet someone who could be very important going forward in my life, and his life, of course, and I got to see some great friends and family.

Stacey Cordivano: 44:42

Great. That sounds very fulfilling. I'm happy. Oh, also, I don't ask all my guests this, but do you have any good animal jokes?

Scott Trench: 44:51

I've got some cow jokes that are probably distasteful.

Stacey Cordivano: 44:55

Yeah, we're pretty rough bunch. I think it'll be all right.

Scott Trench: 44:58

All right. What do you call a cow with No legs.

Stacey Cordivano: 45:03

I don't know.

Scott Trench: 45:04

Ground beef. What do you call a cow with two legs?

Stacey Cordivano: 45:10

I don't know.

Scott Trench: 45:11

Lean beef. Oh, dairy me.

Stacey Cordivano: 45:16

Oh my god, Knock knock.

Scott Trench: 45:17

Who's there?

Stacey Cordivano: 45:18

Interrupting cow.

Scott Trench: 45:20

Interrupting cow

Stacey Cordivano: 45:21

MOOOOO! that's my son's favorite joke. I stole it from him. Okay, thank you so much for your time. I really appreciate this. I think it's gonna be super beneficial to some listeners who are interested in paying down debt or achieving financial independence.

Scott Trench: 45:39

Yeah, I think I think this is that really fascinating. I learned a lot about the problem. I hope that my on the spot thinking here was somewhat helpful for someone and thinking about a strategy for that, you know. Please feel free to ping me if anybody has any questions about this.

Stacey Cordivano: 45:56

Where else can people find out more information about you and bigger pockets?

Scott Trench: 46:00

You can just go to bigger pockets a search by just search my name in the search bar and I'll come up as one of the members. Also some results there will be like disappointed in Scott trench and some threads that have my name in them. And you can also email me at scott@biggerpockets.com.

Stacey Cordivano: 46:12

great. And you're on Instagram also?

Scott Trench: 46:14

I am on Instagram@scott_trench. I haven't been quite as active last couple months, but I am pretty spurt heavy on there.

Stacey Cordivano: 46:21

Great. I so appreciate your time. Thank you again for joining me today. Well, we certainly covered a lot in that episode. Thanks again for listening. And thank you again to Scott Trench for his time. He's a super busy guy, and I really appreciate it. I hope you heard something new today. I really enjoyed the discussion and if you have any interest in continuing it, send me a message. I also just want to say thank you so much for the support over these last 15 episodes. This project has been amazingly fun and I am certainly going to continue it. There will be a break over the holidays. I'll probably release some bonus episodes but nothing formal. If you've enjoyed any of my episodes, please do me a favor and share with a friend. You can also subscribe or leave a review but I mostly just want to get this out to more people. So if you share that is the best thing you can do for me. If you want to find out any more information or see more content that I share, you can find me at www.thewholeveterinarian.com or on Instagram@thewholeveterinarian. I will definitely be talking to you soon. And please one last thing. Make sure you VOTE. Thanks guys. Bye bye