3 Negatively Cashflowing “Assets” That Devastate 20-Somethings’ Finances

by | BiggerPockets.com

As I look around at my peers and friends maturing throughout their twenties, I find that many of them are unable to correctly distinguish between and asset and liability. Some of my buddies are accumulating liabilities at an alarming rate, all the while thinking that these things are assets, and these things will “pay off in the long run.”

In this article, I want to describe some of the most common “assets” that many of my peers are accumulating, and the devastating financial impact that these assets can have on the personal balance sheet.

Granted, some folks are quite content to sacrifice their balance sheets for the comforts and luxuries I list below, and I’m not suggesting that these things are wrong, but I will state that the items below should NOT be considered “assets” and should be recognized for what they are: insanely expensive luxuries that can delay higher objectives, like financial freedom, indefinitely.

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3 Negatively Cashflowing “Assets” That Devastate 20-Somethings’ Finances

“Asset” #1: A Financed Car

I myself am guilty of this one. Even an “economy car” like my 2014 Toyota Corolla is a huge financial hit when financed new. My payments will continue for years, and I’m leveraged against a depreciating asset (meaning that I took out a loan to pay for the car, when there is a 100 percent chance that it will decrease in value over the duration of the loan) — a surefire way to compound losses over time.

In my case, I attempted to sell my vehicle earlier this year, but quickly found that folks aren’t interested in buying a brand new car from an owner who’s had it less than two years. Turns out private buyers are distrustful of my motivations, and of course I’ll never get a great deal from a dealer. This has been a painful financial lesson that I won’t be forgetting anytime soon.

A financed car costs a tremendous amount of money per month, and in addition, incentivizes the use of vehicle transport more often because of the huge fixed expenses that come with owning a car (“Well, I already paid for it. I might as well use it!”), which hurts your wallet even more in the form of variable expenses like gas, maintenance, parking. That’s not to mention the subtler financial burdens of frequent driving, like increased insurance premiums, and of course the risk of a collision that increases with every mile driven.

If you can’t afford to pay cash for your car, then it is probably a good idea to question whether you can afford to own a car in the first place. There are plenty of alternatives to owning and driving a car regularly that are employable by the vast majority of Americans. Don’t make the same mistake that I did.



Related: Is Financial Failure Due to Lack of Motivation? Why Money Issues Run Rampant

“Asset” #2: A Financed House

There are three ways to design your living situation, each better than the last — you can rent, you can buy a nice single family home, or you can house-hack.

Renting is by far the worst financial decision in most markets. Every dollar you spend on rent is a 100% loss that you will never see again. It is imperative to move away from the status of “tenant” as soon as possible.

Anyone who’s read Rich Dad Poor Dad understands that a primary residence occupied solely by one’s family is not an asset. It is a liability with negative cash-flow. All else being equal, homeownership is usually superior to renting, but a huge portion of the monthly upkeep still leaves your pocket.

We on BiggerPockets understand the difference between an asset and a liability and seek the clearly superior solution of owning a small multifamily property, living in one unit, and renting out the remaining units.  Intelligently buying a small multifamily properties and renting out the remaining units can provide enough cash-flow to pay down the mortgage and cover the operating costs of the property, enabling you to cover the largest single expense in most American lives — housing.

Asset #3: A Financed Degree

Education is great. We’ve all seen the studies about how much more money people make over the course of their careers when they go to college, grad school, or become doctors and lawyers. I’m not here to argue with that. It is absolutely true that over the course of a 40 year career, you will likely earn way more money with higher education.

But only if you have a 40 year career. And only if your goal in life is to actively earn a lot of money.

Investors, like those of us on BiggerPockets, are well served to be wary of business school, law school, medical school, or similarly expensive educations. In most cases, this schooling can significantly delay one’s ability to accumulate net worth and the corresponding passive income that increases opportunity and frees up your time.

There are two main reasons why folks that are pursuing financial freedom might want to watch out for education beyond a value-centric college degree:

Reason #1: The Financials of the Education

Grad school is expensive and average debt load is roughly $57,600 for MBAs, though this will vary depending on your degree and university. On top of that, you miss out on the potential income you could have earned and invested while studying and spending at graduate school.

If your goal is to become financially free, or take control of the finances of your own life, this will set you back.

Reason #2: The Mentality of the Education

Suppose that you are pretty smart and go to Stanford or Harvard for business school. Two years later you emerge with a degree from one of the finest institutions of business learning in the world, and ask yourself, “What do I want to do with my life?”

Well, because you have a $200,000 degree from an elite school, guess what? Every single option you had in life prior to starting business school now makes less sense except one:

Working a high paying job with long hours at a large corporation.

You are now backed into a mental corner. Are you now free to work at a surf shop, take six months and backpack around Thailand, or even invest in low-end real estate? Of course not. You’ve got an MBA from Harvard! The MBA you are pursuing eliminates quite a few good options from your toolkit and replaces them with a small minority of dull jobs where you sacrifice the best part of your day for a hefty salary and bonus — most of which are used to pay down the financing on that very same education.


Bonus “Asset”: The Cash-Flow Negative Spouse

You’ll know this one when you see it. This is the husband who is too lazy to get a job and hits up the bar every night, or the stay-at-home mom who spends thousands on designer clothes and jewelry and expects a fancy dinner out at a nice restaurant every week.

Finance is both an offensive and defensive sport. It is imperative that both partners contribute to the family’s bottom line either by contributing income or enforcing a budget and financial discipline. A lack of alignment can result in devastating consequences that not only leave couples in dire financial straits, but also ruin relationships.

This is probably the most important “asset” to avoid in ensuring your long-term financial and mental well being. If you’ve got a spouse who is committed to helping the family achieve its long term goals, then avoiding the other “assets” on this list becomes much more achievable.

Related: Using Real Estate to Escape the “9 to 5? and Find True Freedom


Are you accumulating assets or liabilities in your life?

Everyone makes mistakes, as I did when I bought my brand new car fresh out of the dealership. It’s all about mitigating those mistakes, learning from them, and applying future capital to the things that will truly improve your life over the long run.

Those are real assets.

I don’t need a car, a house on a hill, or a fancy degree. I can get around quickly, healthily, and for free on my bike, live for free in my duplex, and learn and network for free here on BiggerPockets. I consider those to be my assets.

[We are republishing this article to help out our newer members. Weigh in with a comment!]

Looking to set yourself up for life as early as possible and enjoy time on your terms? Scott Trench’s new book Set for Life, slated for release April 23, 2017,and can be preordered on Amazon, Barnes & Noble and other fine booksellers! Whether you’d like to “retire” from wage-paying work, become less dependent on your demanding nine-to-five, or simply spend time doing what you love, Set for Life will give you a plan to get there. This isn’t about saving up a nest egg. It’s not about setting aside money for a “rainy day.” Set for Life is an actionable guide that helps readers build the accessible wealth they need to achieve early financial freedom.


What liabilities do you see people incorrectly viewing as “assets”? What would you add to my list?

Leave me a comment — and let’s discuss!

About Author

Scott Trench

Scott Trench is a perpetual student of personal finance, real estate investing, sales, business, and personal development. He is CEO of BiggerPockets.com, a real estate investor, and author of the best-selling book Set for Life. He hopes to now share the knowledge he has acquired with others so that they will have the tools they need to repeat his results in just 3-5 years, giving them the option to go anywhere they want in the world, work any job, start any business, or finish out the journey to financial independence and retire young. Scott lives in Denver, Colorado and enjoys skiing, rugby, craft beers, and terrible punny jokes. Find out more about Scott’s story at JoeFairless.com, MadFientist, and ChooseFI.


    • Christopher Moran

      #1 Buy an older Toyota for $2,000 or less
      #2 You don’t have to pay cash for the house, but rent part of it out to cover your mortgage
      #3 Assess if you need an expensive degree to reach your true dreams, before taking loans

      All three of Scott’s suggestions can be implemented with some prior planning and determination.

      As an example, my roommate (who is covering my entire mortgage with the rent he pays me) paid more for his fancy truck, than I did for the house we live in. He makes more money than me, but his choices will force him to have a job for a long time.

      • Jerry Kaidor on

        I worked for many years in Silicon Valley as a software engineer. When the stock went through the roof, and the new Benzes and BMWs were appearing in the parking lot, I soldiered on in my old pickup truck. I used my stock windfall to pay off my house.

      • Todd Hymel

        I followed 1 and 2 well. I did not follow three, but have no regrets about that. I have $2,400 1991 Toyota Previa that doubles as my daily driver, and my weekend surfing, camping rig. It get’s reasonable MPG and has paid for itself, 2 times over. I have a duplex and the second unit, pays for more than the mortgage payment. I’m now do for a refinance, to get out of FHA loan of 5%, and drop the PMI (which is small). It is very liberating to have no real monthly mortgage payment. I run an Airbnb in my second unit, which allows me to book it off for family and friends as a guest house. I’m loving this set up.

    • Scott Trench

      Glenn – thanks for the comment. I’m sorry you didn’t get value out of the article – It was not my intention to suggest that folks pay cash for all these items. I did not pay cash for my Duplex – I bought it with FHA financing. If I could do it all over again with the car, I would have delayed my purchase a few months and bought an older vehicle with all cash.

      • Deanna Opgenort

        I personally only buy used cars, cash.
        Financing a car CAN be a feasible option done the right way. There are nice cars low-mileage cars sold by rental companies. They are usually 1-2 years old, with 30-40k miles and the rental company has taken the hit on the “drive it off the lot” depreciation. Just like a house purchase, you still have to do your due-diligence research on (MPG, maintenance costs, reliability, etc.). Look into financing via credit unions (around here they are currently eager to get money loaned at 1.2 – 1.4%%)
        Plan on keeping it the car for at least 5-7 years, and DO THE MAINTENANCE! Oil doesn’t need to be changed every 3k, miles, but DO change it every 6k. CHECK your oil every 1000 miles or so, especially once the car hits the 120k mark. Budget for repairs, no matter how new your car

      • Josh Day

        Scott thanks for this article. It would be great if every college aged person could read this and truly consider the points you made. I really wish I would have found out about BiggerPockets before I went to physical therapy school (currently in my last semester). I could’ve graduated undergrad debt free, but now will have $150,000 in student loan debt. Thankfully public service loan forgiveness exists, at least for now, so all is not lost.

        • Justin Glass

          This should be discussed in high school. Most schools are too busy preparing / encouraging all of the above. I think you make a great point and the most hope most students have is scholarships.

        • Jasmine ZV

          Can I ask you more about your experience at PT school and whether or not you prefer it to real estate investment? I know this is an old post but I just came upon it and find myself in a similar situation as you. I appreciate your response:)

      • Marshall Martinez

        Scott – I’d be interested on your view of leasing a car. Often you can find terms with low monthly payments and no money down. Additionally, maintenance such as oil changes etc are covered by the dealership. Although buying an old used car with cash frees up monthly cash flow, you often end up with a lot of upkeep. Since interest rates on cars are so low, don’t you think that cash could be put to better use?

        • Scott A Smith

          I’m a different Scott – but let’s say you buy a solid used car (like a Toyota Camry) with 100,000 miles with the timing belt and other items that go along with that (like water pump and belt tensioner, etc) which may be noted on a full Carmax report if work was performed at a dealership. Let’s say you put $2,000 into that car to get it in tip-top shape for its age (fluid flushes, etc.) and you budget $1,000 per year to maintain it. Over a 3 year term (which is the shortest lease you can generally get), you would pay roughly $5,000 for the used car. Most advertised lease deals only offer 10k miles per year and a hefty down payment to get the advertised monthly payment. This makes the used car with 100k miles a much better deal, as with proper maintenance, a used Camry will last 200-300k miles – MUCH more than the 3 years you’ll get on your lease with only 30k of mileage allowance.

          We just purchased a 2009 Acura MDX for my wife using a similar methodology, but I didn’t pay cash for it. The Carfax report showed no issues and 1 owner, which we learned (from researching) was a doctor or spouse of a doctor living in the nicest area of my town. It had 139k miles on it at purchase and as an SUV, offers more benefits for a non-daily driver as a hauler, as it comes with a towing package and plenty of “trunk” space for moving furniture around from rental properties and whatnot.

          My mechanic (who I trust with any import car I’ve ever owned) said it’s the best car he’s seen at the age/miles it has and required nothing but fluid changes as all maintenance was done on time at the dealership by the prior owner.

          I “financed” the balance of $12,000 with my 2.5% cash back credit card and then transferred the balance to a 0% card for 12 months with $0 balance xfer fees. I pay the minimum payment on the credit card and will pay the balance off once the 0% deal expires, unless another 12 month deal with $0 fees comes along. That frees up $10k-ish in liquidity for an extra 12 months.

    • Steve Tan

      I didn’t read all the comments but buy a primary residence in cash is a horrible idea especially with the cost of capital being around 3-4 percent! Its virtually free money that I can use to make 12-20 percent!

      • Scott Trench

        Steve – I agree that if you are going to buy a house, now is a good time to do so with financing. That said, the point is that your house is a liability. Even if the house appreciates, what you pay in maintentance plus interest/insurance/taxes, etc will likely result in a net loss over time.

        It’s less of a net loss than renting, but still a loss.

        • Alan Mackenthun

          No, the house you live in is an asset. If you finance it, the mortgage is a liability. Is the food you eat a liability? Of course not. It’s an expense, just like the utilities you buy to heat your house and charge your cell phone. You should be wise to the fact that your house usually isn’t a great investment, and you should be conservative in the spending on it just like your car and really anything you’re buying. The problem some people have is they get pre-approved for a certain amount and use that as their budget. Cut the amount that you’re pre-approved for in 1/2 and then find a house at that price. Then you’ll have a place to live and still have some money left over for long term investments.

        • Totally agree with the concept of the article. I personally house hack a duplex right now, drive a paid off car but unfortunately I do pay for a degree that I’m not getting much use out of. One day though I do plan to buy a house because I don’t see it being very reasonable or enjoyable for that matter to be raising a family in a two bedroom apartment. Plus the luxury of having a yard, much more space, not hearing tenets go up and down the steps or walk around on the floor above me. I feel it’s an unavoidable liability but worth it to me. What are your thoughts?

        • Nathan Mansur

          Scott, you are right on the money. If anybody reads Rich Dad, Poor Dad you will understand that the home you live in ( if not a multifamily with tenants ) is a LIABILITY. It is a less expensive liability in the long run if you pay it off versus renting, but still a liability that costs you money. Good job man, I love hearing house hacking stories. I lived rent free for an extra couple years to save up to buy a duplex all cash. I’m now working on house number 5 and my first 3 properties pay for my single family home. Delay gratification.

        • Juan Carlos Ibarra

          Clearly, here we discuss the Kiyosaki’s Term of Liability, and the real accounting term. Kiyosaki used the term “liability” as a shock effect word to illustrate his point, but he knows perfectly what kind of good is a house. You can see it clearly in the financial statement that he propose in his next book.

          House’s value = Asset
          amount of loan = liability
          mortage = expense

          Have a own duplex with mortage and tenants it’s exactly the same, I think, that have whatever other kind of house/mortage (avoid the cost) and RE investments generating incomes. The main idea is might create pasive incomes to pay other expenses, but the same rules for Asset/liability/expenses apply here.
          BTW how is live just besides of your own tenants?, that could be a NIGHTMARE!.


      • Katie Rogers

        A lot people have the same idea as you, but studies repeatedly show that most individual investors make only a fraction of historic market returns. Another problem with capital being so cheap is many people undermine that advantage by paying too much principal for the house.

      • Alan Mackenthun

        How could it be that your expenses are lower when renting? More predictable, maybe, but lower? I buy houses usually on a 15 year mortgage and figure out my expenses, add on some for management and assumed vacancy and then add on some more for profit. That’s the rent. If you buy yourself, you don’t have to pay me for management, vacancies, or my profit. The problem is that people don’t buy the apartment size condo, they buy the 2,500 sq ft house on an acre lot and then their payment is higher than need be though they do have a nicer house to go home to at night.

      • James Free

        The key to making renting cheaper than buying is to rent something smaller than what you would buy, which makes the comparison kinda stupid. Obviously nobody rents a place out for less than what the payments would be if it was financed, because otherwise the landlord would be losing money!

        You can also lose by buying if you buy and sell (move) frequently. Transaction costs eat you up.

    • Rick Boothby

      I agree. Not to mention the odd advice not to go to law school or medical school. Not everyone wants to spend their lives avoiding service to others; not to mention that doctors and lawyers can quite easily become real estate investors AND work in their chosen professional.

    • Tony Maro

      I disagree Glenn. I’ve lived the true American Dream in my life – I’ve been on welfare in the past, and I have been a millionaire and I still need financial advice. While I agree it’s simplistic – as most “top three” “top five” and “top 10” lists are – I read this article based on the title and only guessed two of the three on the list.

      As for cars, I finally paid cash for two cars last year. If I hadn’t been reading books on personal financial security, and hadn’t been reading this blog, I probably would have still financed them even though I could pay cash. The last new car I bought was in 1992 when I paid $7200 for a Geo Metro. Ever since then I’ve bought 2 to 5 year old vehicles with low mileage and financed them for 3 years.

      I’ve bought two residences in my life- one I paid $27,500 for as a VA repo and paid $500 down that I borrowed on a signature loan about 28 years ago (thanks to Carlton Sheets, think what you will!) The second one I bought 12 years ago for $72,500 and 10% down. I paid that one off last year. (I’m also starting to see a pattern with sevens, twos and fives…)

      Just because you are properly managing your finances to the best of your ability doesn’t mean there’s not still things to learn – and sometimes we miss the basic stuff or need reminded. I’m thankful for posts like this both because it helps those who can’t pay cash for a car right now to set that goal for themselves, and it helps remind those of us who can pay cash for a car to remember that it’s good practice to do so. There’s so much “keeping up with the Jones’s” consumerism media shoved down our throats every day, you have to counter it with good simple info.

    • Dan Frey

      Scott, great post! I agree 100% with all of your points. I really think at the core- this is simply a measure of delayed-gratification; that is, we can either go for what we want now (and pay for it for a long time) or we can exercise a little more discipline and receive what we really want down the road- freedom!

      Side note on the education piece- and this will blow your mind- Harvard has a school, The Extension School, that was founded on providing high quality AFFORDABLE education to the, ahem, non-elite. Haha! Check it out. I’m half-way through my program and it’s been amazing!

    • Joseph Fancher

      xWish I read this article before going to college….graduating with a degree in Biomedical and Mechanical Engineering..but now have $140,000 in loans which will leave me paying about $1500 a month… at least.

      So, Glenn Pelt, my point is that maybe it’s not obvious for everyone, i.e ME…. You may have some more life experience than others on BiggerPockets, but I for one appreciate Scott’s article. Thanks Scott!

    • Julie Kent

      Your comment hits the nail on the head! Most people realize that all three of these tips are “obvious” yet for some reason, don’t follow them. I believe the problem is that we live in a society, a culture, that sells the idea that a car, a degree from an accredited institution, and a home mortgage are all items that one deserves… Further, that they’re necessities vs. wants. I firmly believe that if you have to finance a car, you can’t afford one. Walk, bike, or use public transportation. Even if you can pay cash for a car, never buy a brand new one. Instead of paying for a college degree yourself, get an entry-level job at a corporation that has tuition reimbursement. I had almost 100% of my MBA paid for by a company I worked for. Or, utilize the plethora of free courses online and start using those skills- most employers are interested in seeing what you can actually do vs. a piece of paper. Housing can be a little more tricky, but house hacking is a great solution which Scott mentions.

      • Katie Rogers

        You wrote, “Instead of paying for a college degree yourself, get an entry-level job at a corporation that has tuition reimbursement. I had almost 100% of my MBA paid for by a company I worked for. Or, utilize the plethora of free courses online and start using those skills- most employers are interested in seeing what you can actually do vs. a piece of paper. ”

        Good luck finding and landing one of those jobs that pays tuition. I did by most people will not be able to. also most resumes these days go through an online sieve. If the job posting requires a college degree, your plethora of free course will get you filtered right out.

        Anecdotes are not general advise or necessarily representative of what is likely in the real world.

        • Scott D Burrows

          I agree with your opinion on this.

          Getting a job to pay for an MBA, and then also stating that one shouldn’t go to college…. is implying that your having a degree had nothing to do with you getting the job, which had tuition reimbursement, and that someone without a degree could get the same job and also get an MBA, without an undergraduate degree, first? Confusing.

          I get your point. However, the job market is EXTREMELY competitive and most jobs do require some type of FORMAL education. It is very easy to say that jobs pay for tuition, when you already have a job, and are in a good spot in life. The fact is, most people have to get the degree to get noticed, in order to get the job that pays well. The jobs will always exist that don’t require college, for the most part (sales, etc). However, even some of the more technical sales jobs require degrees, not to mention the lifetime pay is stifled, regardless of anyone’s opinion, it just is.

    • Jennifer Fernéz

      Hi there,

      Interesting article, but I found some of it offensive and disagree with some of the statements. I’m a college professor and my husband is an engineer, we met at a ‘fancy’ college.
      1) If it wasn’t for going to this fancy college, I wouldn’t have met the type of man I would want to spend the rest of my life with. There certainly aren’t any of those in the area I grew up in.
      2) We both make a lot of money doing work we love, something that would have not been obtained without degrees. Sometimes it’s not just about the money – it’s about what you are doing to get the money. We both love our jobs. I consider work a vacation and it’s the rest of my life that is more challenging (in a good way)
      3) Overall my degree is worth it. The debt I paid back for it? A very small amount compared to the salary. If you do school right, which I believe most people do, school loans shouldn’t be an issue. I think the issue is not financing a school loan from a nice school, but rather what you choose as a profession. I strategically choose math, wise decision because the need is high.

      Second, I’m the wife that loves clothes and dinners. Just rude. If someone falls in love with someone who has good taste, it should be worth it if it’s true love. Rude to knock on people who like to spend money. I could argue a less desirable spouse is someone who watches sports on TV. But that’s my opinion and I’d never write an article with a blanket statement about it.

      • Scott A Smith

        The point of Scott’s article was that you need to be on the same page with finances with your spouse, and if you’re a house hacker type, then you’re pretty frugal and having a partner who wants lavish things isn’t a good match. If you and your husband have no problem wasting money on tangible goods or meals for short-term happiness gains and you have cash flow outside of your jobs that covers your expenses then good on you. If you don’t and truly looked at your personal net worth statement, perhaps it would show you that your desires aren’t really sensible.

        If you have kids, then even if you LOVE LOVE LOVE your jobs, you’re doing it wrong if you say you’d rather work at a college or some engineering firm than live off your property management income with the ability to spend more of their formative years with them than with family members or worse, a daycare facility.

  1. Jeffrey Vandagriff

    Great article Scott! I wish someone would have shown me the light when I was 16. I spent way too much money on a car that hindered my financial future for years. I’m sure there were guys out there who had it all figured out like Glen Pelt here, but no one taught me how to think about money when I was younger. As a result of that hard life lesson, I pay cash for all my vehicles. They aren’t new, but they will do for now. I pay cash for my house and I even get paid for my education! This article and advice is hopefully going to resonate with someone out there. Keep spreading the advice and opening people’s financial minds Scott!

    • Scott Trench

      Thanks Jeffrey! I definitely feel that as a 24 year old just get started with my personal finances, I may not be able to provide as much value to veterans in personal finance, but I feel that I have carefully thought through some of the major expenses for many 20-somethings. I’m trying to do the best I can and I believe that this line of thinking and these thought processes could be very valuable to my peers that are looking for more basic wealth-building strategies. Definitely appreciate your support!

  2. Michael Gabrieli

    Anything that has a negative cash flows are more so Liabilities (my opinion) unless those Cash generate cash for you to offset the negative cash flows. A financed Car is an asset if you use it to deliver goods or services for your own business which makes this Car an asset.

    • Scott Trench

      Michael – I’m not going to disagree with you on that one! If you are buying a vehicle with the intention of using it to generate cashflow as a delivery or work vehicle, thats one thing. I feel that people buying cars with that purpose in mind are in a tiny minority though.

  3. Alex Craig

    Scott — a little relationship advice and I say this laughing, so do not take offense. Don’t show this post to your present or future girlfriend. A lot of wives when they turn into a mother like to stay at home with their children–she will not want to be referred to as a “cash flow negative spouse.” As a husband, I love the fact that I am able to provide for my family which allows my wife not to work and stay home with our 3 children. Now if we are talking about a 20 something without kids staying at home….major problems there.

    • Scott Trench

      Alex – I’m glad you enjoyed that part of the article – I definitely wanted to be a little cheeky with that bonus section. Thanks for the advice thought haha! I’ll try to keep this article from going public 😉

    • Deanna Opgenort

      Anyone who is dating Scott had better know what she’s getting into, or she sooner or later she will be an EX wife/girlfriend!
      I remember an older co-worker commenting that 50% was the biggest number in the world… .

        • Brad Lohnes

          Haha. I read it differently – Scott wasn’t saying that a stay-at-home mom is a liability, but that she could be if she likes buying expensive things and living the high life. The choice to have one spouse (let’s face it, most often the woman) stay at home and look after the kids is a personal one based on values, and can even make sense financially. My wife is a veterinarian, and with 3 little ones not even in school yet, it actually makes financial sense for my wife to be at home with them. But it’s also a decision based on our values – we want our kids to be raised by their parents more-so than care-workers or teachers, particularly in these formative years. Great post overall!

    • Noreen Eddy

      Just read this article, as it was republished in a newsletter today (from the archives) – thank you Alex for saying this!! Once I read that line about housewives with designer clothes, I thought, “HOLY COW THIS WAS WRITTEN BY A MAN & I HOPE HE DOESN’T EXPECT A LOT OF DATES ON HIS BICYCLE!” 😉 (chuckle chuckle…)

      In all seriousness, great article that many young folks ought to listen up on! Nice work, Scott.

  4. Jeff Jenkins

    Hey Scott,

    Great idea, but I disagree completely about paying cash for a car or house. I suggest always using debt, but here’s the kicker. Instead, use the income from rental properties, or other cash flowing assets to cover the car or home payments. Save all cash, or capital, to purchase real assets. It’s counter intuitive I know, but this method renders a tremendously positive impact on your long term balance sheet and P&L statement. I actually break this down by the numbers in one of the posts on my site.

    • Scott Trench

      Jeff – I think that your strategy here is a great one for folks that already have sources of passive income, but most of my 20-something friends (including myself) don’t have passive income sources that they can use to make car or housing payments. I definitely hope to be in your position one day, but I need more time earning, saving, and investing money to develop the passive income streams to cover the types of monthly payments that you describe here.

    • Mike Blair

      Hi Jeff, I agree…can you explain though in a little more detail? I think you are just saying to use passive income to pay for expenses (car, house, etc.) and the remaining cash (and regular earnings from job) to pay for more assets, correct?

    • Brad Lohnes

      I think the numbers would be interesting to see. Given that you have cash flowing into your pocket from your rentals, and you’re using it to service debt for things that aren’t assets (e.g. car) then how is that any different from paying for the car from your own pocket and re-investing the cash from your rentals? Wouldn’t it be best to use all of that cash for investments? I think what people tend to miss from these examples is that when most people finance a car, they buy a pretty decent car – say $20k or more. But when they pay cash for a car, they don’t pay $20k for it – they get a $2k car and live with it. Completely different approach to meeting this “need”.

  5. My biggest concern here is the house buying. I know you said in “most markets” house buying is better then renting but that is just to much of a generalization. It’s not just. Comparison between rent and mortgage costs it’s a thing about financial maturity and preparedness . honestly most people are to lazy to figure put if they live in a place where it males sense to own vs. Rent so this is a dangerous broad statement. For example most people in California ( the major cities) would do well to rent instead of own. Since putting together a 20% down payment likely constitutes 100k or more. Most end up putting less and pay more or the mortgage then their rent.

    Lets not kid ourselves either that if you take a 30yr loan on that big of an amount and put less then 20% down most of your payment is not going to equity it is going to interest.

    So I guess I don’t agree that renting is inferior to owning

    • Jerry Kaidor on

      Even here in the SF Bay Area, it makes sense to buy. A rising market. If you rent, you don’t get any of that appreciation. Every time I think that property around here has “arrived” and isn’t going to appreciate anymore, it surprises me. And the rents in SF itself are purely mind-boggling. Not that I’d invest there….SF probably has the most evil rent control in the country, with the possible exception of….nowhere.

      • Scott Trench

        Jerry – thanks for your comment. We actually saw some folks that seem to be very vested in rent controls in SF trolling around in the comments in my previous article.

        I totally agree with your point about appreciation – it’s a huge factor for why homeowners build more wealth over time than renters.

    • Scott Trench

      I’ll have to disagree on this point. Every market is different, but it is my belief that it would take a fairly extreme set of circumstances for owning to be a worse proposition than renting. That’s because of two powerful factors:

      1) Principal reduction – you make a point that the most of your payment is going to interest, and that’s true, but only for the first few years. As time passes, owning a home becomes more and more beneficial to your balance sheet and personal financial position.

      2) Appreciation – In certain markets, specifically like the ones you mention in California, property values are appreciating at impressive rates. Homeowners have done quite well in those markets over the past few decades.

      The factor that that homeowners are missing out on though, is the cashflow that comes with having tenants.

      • Katie Rogers

        Most websites with a rent-vs-own calculator make erroneous assumptions. They try to compare apples to apples. For example, renting a 3/2 vs buying a 3/2. Young people are usually in a one bedroom apartment. They make the rent-vs-buy analysis based on the hit to their own wallet, as in, should I stay in this apartment or buy that house? In my town, the median rent is $1500, and the median house is $1,000,000. Therefore, 75% of the residents are renters.

    • Bryan O.

      You may want to do some research into the math of owning a home, particularly when you can use things like FHA loans for multi-family units, or engage in various house hacking methods. Scott’s generalization is absolutely correct.
      You say that taking a 30 year loan with 20% down payment is sending most of your money to interest. You are absolutely correct! Using that understanding, how much of your rent payment builds equity for you? Does it provide you with some cash flow?

      • Scott Trench

        Agreed with this Bryan – It’s the difference between a -100% return (rent which goes entirely to someone else’s pockets) and perhaps a -50% to -70% return on homeownership (because parts of the payments go to principal reduction and parts go to tax deductible interest payments). It’s still a loss, but less of a loss over time than renting. That’s why the bulk of American household wealth tends to be in the value of family’s primary residences.

  6. Ayodeji Kuponiyi

    great article Scott! I’m learning that having a brand new car quickly gets old when you have to pay it off over time and I agree with you about having a spouse that has the same mind-frame when it comes to saving. It does become tough to convince your wife to house hack instead of buying a SFH but that we’re knowing what you want & discussing it before hand comes to play.

    • Scott Trench

      Thanks for the comment! I think it’s about aligning with higher objectives with your spouse, though I admit that I am not in a position to give much advice there haha.

      I can definitely relate to the feelings about the brand new car though!

  7. Sarah W.

    Agree with Glenn and Jeff. It is also region dependent. I’m in Charlotte and you cannot NOT have a car. The city is not built with enough public transportation, at least that you would want to travel in without worrying about a mugging.

    We also don’t have much multi-family here. What we do have is lower income and I would not consider living there.

    You have to have capital to have a car that isn’t financed, a home you don’t have to finance, and the best way to get there is the education to get a high paying job that you can afford to start stacking paper to do these things.

    As far as education, I don’t think your opportunities are limited. In fact, they are the exact opposite. Your opportunities become limitless! The bonus value of the education are the contacts and networking opportunities you have with fellow grads, business connections, etc… More opportunity.

    Seems like the premise of this post is based on rich dad, poor dad. While I think it’s a great book and I know it is really popular here, I think it is missing a really big piece of the puzzle. You have to start somewhere. I like the idea of using your education to get the high paying job to then finance your endeavors & begin making your money work for you.

    • Scott Trench

      Sarah – thanks for the comment.

      I’m not suggesting that everyone pay cash for a house. I AM suggesting that most folks would do well to seriously consider using public transportation or similar to purchase a vehicle with all cash, but I certainly agree with you that buying a house with all cash is not a reasonable option for most 20-somethings.

      That said, the small sacrifice of managing next-door neighbors via a small multifamily IS possible, even in tough markets. I’m doing this myself here in Denver, CO, and while I didn’t pay cash for the property, I do believe that it is not unreasonable for me to call my duplex an asset.

      These suggestions ARE the start. They are for folks that are just getting started in personal finance, and I believe in this. I think that folks just starting out, who are serious about their long term personal financial situation should buy a cheap car and seek to commute for free, should seek to house hack with their first property or properties as soon as possible, and should not consider higher education unless they have a powerful non-financial motivation for doing so.

  8. Ira Smith

    Great article, but I have to disagree somewhat with you on financing a vehicle. It is pretty tough getting by without a vehicle. I agree it is a depreciating asset, but I would state the following.

    If you don’t have the cash, and it is a required purchase, not I feel like I deserve a super flashy car, and your credit rating is such that you can take advantage of advertised rate specials, then finance for the term no greater than how long you expect to keep the vehicle. That way, you won’t owe money still when you sell or trade it in. Own with financing this way and don’t lease and that way you won’t lose out.

  9. Chris Rosenberg

    A few points I’d like to make.
    #1. I’ve had plenty of old cars. Cheap cost up front but maintenance kills you. I’ve spent plenty of time under the hood and plenty of money fixing them just to get them working again. But you can save insurance money on a piece of junk car by not having full coverage. And paying cash for a car? All bigger pockets talks about is putting the minimum down to finance properties so why pay cash for a car instead of putting the least amount down and staying liquid and using the leftover money to invest.
    #2. Who says owning is always better than renting. It’s a lot cheaper to rent. I can buy a house and have a $4000 a month mortgage or I can rent an apartment for $1000 a month and invest $3000 in a triple tax free muni bond paying 5% a year. At the end of 30 years I either have a house paid off or I have around $2.7 million cash (no taxes need to be paid) and continue paying rent. Invest the money in the S&P 500 instead of munis and you will probably have around $4.8 million. On $2.7 mil you can still keep your money in munis and earn $135,000 a year tax free and your principle will never be reduced. Oh yea, I forgot about the extra costs for your single family home (property taxes, insurance, maintenance, cap ex, etc). Getting into investment properties is a whole different ballgame.
    #3. I agree. If you don’t need a degree for whatever you choose to do in life then you can skip it and save the money, but also miss out on the knowledge and possibly your career of choice.
    #4. True. Even worse for the divorced people paying alimony and child support.

    Sorry Scott, I don’t mean to bash your article. I just like seeing more supporting evidence and hearing both sides of the argument. I also know someone can argue with me about how my responses are wrong and im sure they can bring up plenty of points to prove I’m wrong. I just wanted to bring up another side to each point.

    • Scott Trench

      Chris – thanks for the thoughtful reply to my article.

      I think that you may be taking my suggestions too literally – and missing the mentality of the article. I get around primarily by using my bicycle. I have a car that I use when I need to haul things, or travel large distances (greater than 10 miles) . With that mentality, an expensive new car makes little sense. The idea is to purchase a cheap car that does the job on the rare occasions you need it, and to optimize transportation costs in your life in general.

      As far as your rental argument, of course in the scenario that you describe it would be a poor decision to purchase a property if you care at all about financial independence! A $4,000 mortgage payment is borderline insane for a 20-something prioritizing long-term financial well being. I would never suggest that that person’s financial situation is better off buying a property with the financials in your example.

      On the other hand, if you could buy a similar property to the apartment for $1,000, and get a mortgage payment of $1,000 per month, I’d argue that the purchaser is better off in the long run than the renter.

    • James W.

      That. Exactly my thoughts.

      Saving, may be overrated and misunderstood.

      What good is all the saving and frugality if you cannot have what you’d rather have?

      You can save 20k buying a used and beaten car, but the experience and joy of something new or something in the recent years is lost, and that image that bad car gives you can only regret it later.

      Owning? Unless you live in a suburb or a low cost housing area – condo prices on the Waterfront in NJ and NY are just impracticable. The HOA and tax on the condos here is probably close to the rent of a comparable apartment.

      I did make two fold gains through appreciation, but that only happens when you buy in a low market. And that is appreciation, not the typical “owning is better than renting” thing. Owning especiallty in a high market, is mostly a liability.

  10. Steve Vaughan

    I like that the article touches on 4 major broad-stroke issues to get you to think and consider before blindly going out and being ‘normal’. Identifying things that matter long-term if you get them wrong is a key first step. Choices regarding the car you drive, your spouse or SO, your college choice and buying vs renting will help or hinder you for years to come, depending on your choices. At least you are considering them! I would like to add some simple things that are broadly purchased without thought, but very much can alter your long-term prospects of feast / famine or having to keep your J.O.B. the rest of your life. Some things I do (I haven’t had a w-2 job since I was 31 in ’02) is brew my own coffee, brown bag my own lunch and don’t chase the latest electronic gadgets. I don’t need the new $600 phone to replace the one I have that works just fine. Try home brew and brown bag lunches for a little while and invest that money into appreciating assets or savings. You will be amazed!

    • Scott Trench

      Steve – I love this comment thank you so much! I think you and I share the same mentality and I love the suggestions that you make. I think that cooking your own meals and eliminating or optimiizing luxuries like the daily latte are great next steps once you take care of the really big things in life – like transportation, housing, and education. The job you choose is definitely up there as well!

    • Micah Watson on

      Great additional points Steve! These are completely in line with the points in the article. It’s a mentality….to break out of the common, brainwashed way of thinking. I get endlessly harassed by EVERYONE for still using my 1st generation iphone…..yes, i still use the original iphone. Hahaha. It works just fine, why go along with the crowd that is in debt up to their eyeballs and barely treading water?

  11. Darren Young


    To seasoned investors and personal finance veterans, you are stating the obvious. I, however, wish I had this information when I first started working. I read as many books as I could on investing in the stock market, but there wasn’t much available about the fundamentals of personal finance. So I waited…and missed opportunities that I wasn’t even aware existed…and I tried to invest in the stock market…and lost thousands of dollars when the stock market bubble burst with the new millenium.

    Most people still don’t know what an IRA is or how to invest money. Keep providing the information, and those who are ready to receive will listen and start taking action.


    • Scott Trench

      Darren – thanks for the comment. This is why I write, and am passionate about personal finance. I think in the near future, I’ll do a study on the total return of making these types of “investments” correctly, and demonstrate how investing time and money to optimize basic lifestyle choices can have an unbelievably more powerful impact than investing in the stock market or similar.

      Also – I know that this stuff is a little basic for seasoned pros like yourself. I’m writing for my peers and folks that are just starting out. I think that while these choices may be obvious to you they aren’t to most people. It’s amazing but true, and I think that when you are able to demonstrate the finanaial impact of these choices in clear terms, that you can change people’s behavior for the better.

  12. Tom Short

    The simple common sense of this article needs to be shared with so many youth of our day.
    My simple plan for building wealth has included some of the above. Here it is:
    1. Drive a car for transportation — not status.
    2. Live on last years level of income, not next years.
    3. Always stay married to the same person — divorce is expensive.
    4. Honor the Lord from your wealth — after all, He’s the source of life and wisdom.

  13. Christopher Moran

    I think the main point is to control your expenses.

    For most twenty-somethings, the biggest expenses are car, housing, education, and bad spouse choice. But all four of these expenses can be dramatically reduced with planning.

    Before buying a car, consider public transportation, bicycling, and car sharing. If that is not possible, buy a solid ten-year-old car like a Corolla or Scion, or a scooter or motorcycle. When choosing a house (or apartment), consider the potential to rent out part of it, and even make a profit on your living situation. When choosing education, consider top in-state schools and scholarships, or edx.org if you want a free Harvard or MIT education. When dating someone, move on if they are a spendthrift, or at the very least don’t marry one.

  14. Kevin Williams

    I disagree with people when they say buy a cheap car for two thousand dollars. Dave Ramsey is great for this. Having owned a mechanic shop going on fifteen years and buying and selling cars every chance we get, the cheap car doesn’t exist. It’s very sad to tell someone their cheap car they just purchased has major problems and there looking at thousands of dollars to repair with no guarantee something else won’t fail next week.

    • Scott Trench

      Kevin – I think that you are correct, but only when you rely heavily on vehicle transportation in the first place. If you are commuting 10 miles to work each way every single day, and need a vehicle for that, then of course a used $2,000 car makes no sense, because the maintenance will be enough of a pain to change the game.

      The greater point with the vehicle situation is to break free of the mentality that it is normal to spend $5,000 – $10,000 per year on vehicle and transportation costs, and to eliminate your most frequent vehicle use. I do this by biking to work. Therefore, a cheap car that is used infrequently to collect groceries from Costco or take a fun trip to the mountains/beach makes much more sense.

  15. Anne Chiramberro

    As a 20-something, I completely agree with this post. Instead of house hacking with a small multifamily (which for my budget would mean living in the suburbs–not ready for that yet!!), I bought a condo in San Francisco and am renting out my spare bedroom to cover expenses. In the long-run I want to house hack with small multifamilies but for now I’ll sacrifice some privacy in the form of a roommate so that I can afford to live in the big city.

    • Scott Trench

      Anne – I’d absolutely count what you are doing as house-hacking! Great stuff. That’s a great strategy for taking advantage of your market. While “risky” in the sense that you probably aren’t getting great cashflow in the SF market, you are taking advantage of one of the fastest appreciating markets in the country, while offsetting your mortgage payment with rent from your roommate.

      Great stuff, and a really smart way to make the most of your living situation in a tough market!

  16. Brendan Morin

    Great article! My car has cost me something like $4000/year in depreciation alone – something most people don’t consider. Fortunately it’s paid off already, but it looks like it is going to continue to depreciate heavily for the next few years so I’m thinking about selling it in the next few months and buying something around the same price with much lower projected depreciation/maintenance. Unfortunately that means taking a “downgrade” on model year, features etc., but I don’t really need most of those, and in the long run it’s the most financially sound decision.

    • Scott Trench

      Brendan – thanks for this comment. My car, as a Toyota Corolla, will likely hold its value much better than other vehicles going forward, and has likely already experienced the most depreciation that it will see in any one year going forward. The greatest loss I experienced was in the moment that I walked off the lot with the car. Depending on what make and model you have, you may be in a different position with a faster depreciating vehicle. The most important thing is that you are intelligently thinking through the situation and giving your financial position the priority in your decision making process.

  17. Chris Newman

    Hi Scott,

    I’ve lived about three of your lifetimes and can readily confirm your advice about avoiding non-productive debt however possible. Debt is the Life Sucker. The ability to defer personal gratification in pursuit of higher goals (such as financial freedom) is a big part of growing up and it sounds like you’ve got that mastered at a very young age.

    As for relationships, I’m still working on that one. 🙂 A big part of the challenge is that most of the winners are married and they tend to stay married, often for far longer than they should have. So, the pool of unattached winners is small.

    The best relationship advice that I’ve ever heard came from the wife of comedian Mel Brooks (at the time they’d been happily married for 30+ years):

    “Find someone who can stand you!”

  18. JP Larcheveque

    Agree with some of the things – most of them actually are pretty straightforward. I do have to disagree with the education part, there is too much of a myth surrounding working on your own, or for a startup or whatever exciting things 20 something love to talk about.

    If you want to work in a startup it’s true that an MBA won’t help you much and might be a waste of money. “Financial freedom”, making your assets work for you etc… Some people might be happy with living in the country side and pay very little and I appreciate this, but that’s not everyone. An MBA is a way to switch career and to get into very well paid jobs – if you so wish you can disconnect after 10 years and have all the freedom you want in the world.

    Finally – owning a flat in a multi housing unit vs. a stand alone flat is a better choice. I have to disagree. I have my flat, and I am very content in it. I also have 3 other flats across 2 countries, and they are all rented by myself (no real estate agents involved), the other flat I have in another country I am lucky enough to have my mom help me with it. You need diversification – it’s the foundation of any financial portfolio, multiple housing units in the same place is the exact opposite of that.

    • Scott Trench

      JP – thanks for this thoughtful reply. As a 20-something that left the corporate world to work at a startup, I may have a biased perspective on the education point. That said, I want to elaborate on your point about “disconnecting after 10 years”. That’s my problem with the MBA. I think that in most cases the debt load that you take on in pursuing that higher education dictates the direction of your life for at least a decade. That’s a pretty big sacrifice merely for a higher marketable salary. You will miss out on the opportunity to take smaller risks for some of the most productive years of your life if you wait that long to disconnect.

      Also – with regards to diversification, there are many schools of thought on this. Some people will argue the merits of diversification all day long, while others will suggest that you eschew diversification in favor of one market/thing that you are really really good at. I choose to focus heavily on one type of real estate in my specific, local market.

      • JP Larcheveque

        I think an MBA is a lot more than just 2 years of debt and expecting a higher salary. I agree that taking on loans to go to a no name university does not make much sense (but might for someone else). However, you are buying a network and some skills that will be of value for the rest of your life. Even if you want to start your own empire building, having this brand recognition will be the difference between raising USD 100K and USD 10mln. A few of my friends finished HBS, and are now running their own show, except they are able to do this because they are able to get financing thanks to the stamp on their CV.

        Regarding diversification I agree with you that knowing one market makes sense, but the problem with that is that you are not protected from any external macro forces. At the more micro level, you could be in the same market looking at buying different flats, the idea of having all my equity in one building is quite scary. What happens if they decide to open a KFC right in front of the building. Or what happens if the structure or the construction is particularly weak? You can get a lot of unknown and not having diversified can really hurt you. What stops you from buying a few flats in a 1km perimeter? Same market, but at least you have some form of diversification.

  19. Walker Hinshaw

    I think your point about obtaining a financed degree is a great one. By adding a ton of debt to your personal balance sheet you have backed yourself into a corner – you now have to take that high paying job in order to pay off your debt. What happens if you end up not liking your job? Too bad, you are stuck. I would much rather keep my options open so if my life priorities change and I want to do something like quit my job and open a taco truck or backpack through Argentina I don’t have to worry about defaulting on my student loans if things go south.

    • Scott Trench

      Thanks for the comment Walker! I agree completely with this. If you have the mentality to take control of your own financial situation as rapidly as possible, then a financed degree is absolutely a liability in the sense that it limits options for a significant period of time.

  20. Nicholas Schwab

    I loved this article. Yes, perhaps I’d prefer to use leverage instead of cash most of the time but that doesn’t take away from the theme of the article. Housing is the biggest expense so attack that one first. If you’re paying little to no housing costs, soon enough you WILL be able to keep a cash reserve and buy a new car with cash.

    • Scott Trench

      Nicholas – thanks for the support! I absolutely agree with this. I will say that I see that quite a few people seem to think that I support paying cash for a house. I don’t necessarily think that was the point of this piece – it was to demonstrate that the house you buy is a liability, financed or not, unless you buy and live in an investment property. Recognizing this is a key part in the decision making process.

  21. Jacob Sanders

    I think that a lot of these things are “common” sense to most folks, however, due to pride and laziness, we tend to ignore the simple truth. The truth is that if we finance our purchases, we become a slave to money instead of a master of our money. It’s extremely tempting to buy the car with bluetooth audio and heated seats, but you have to try and keep yourself grounded. What would you rather have, that 2015 sedan, or an extra $400 in your asset column every single month working FOR you? These are the questions that most people (I’m guilty too) don’t ask themselves before making a purchase.

    • Scott Trench

      Thanks Jacob – this is exactly right. The problem is that a lot of folks, for whom this is not obvious, tend to think of a new car, or a new house as an “asset” or “investment” and not a “purchase” or “luxury”. That line of thinking is dangerous to your pocketbook and can cloud judgement.

  22. Ken p.

    Scott, great advice all around. I got married and bought my first house in my mid-20s, and both were the best decisions, financially and otherwise, that I’ve ever made. We followed the path you advocate here, buying a duplex and having the tenant’s rent completely cover the mortgage. We lived there for 6 years right up until the arrival of our first child, and the financial freedom that came from not having a mortgage allowed us to sock away quite a bit of our earnings in savings, pay cash for a car, and pay for my wife’s college degree without resorting to loans. While it’s true that you cannot count on appreciation, it can be a wonderful thing when it does happen, and we picked up enough equity from appreciation and principal pay-down to springboard us into a financial situation now that wouldn’t have been possible if we’d been renters.

    The only comment I would make regarding education and advanced degrees is that there are lot of other reasons besides financial that people pursue particular career paths, and in some areas such as medicine and law, the system is stacked such that it is extremely difficult to avoid debt. There is often a way to achieve an undergraduate educational goal that doesn’t involve taking on high debt, such as starting out at a community college and transferring to a state school, but the options for med school aside from joining the military are limited. The best scenario would be for parents to start making the right decisions that you outline in their 20s, combining frugality with sound investing, so that they’re in a position to provide for their children’s education even if that includes medical school or a Harvard MBA!

    While I’m on my soap box about education and careers, I want to say that, while I’ve been an investor for years and am intent on growing further, there is a sense of achievement and satisfaction that comes from a successful career that is hard to imagine matching no matter how successful an investor I become. Police officers, teachers, and doctors are often used as examples of people whose careers can be immensely impactful, meaningful, and fulfilling. As an engineer, I derive great satisfaction knowing that the products my team designs employ thousands of people in their production and are used by millions every day. A programmer or product designer at Apple or Google, or Microsoft or Pixar, can make his or her mark on the lives of literally more than a billion people through their work. I’m not criticizing or calling you out, but I do sometimes see others on BP expounding on the benefits of real estate while denigrating the 9 to 5 job, while in reality the two areas, professional career and RE investing, can be complimentary for much of a person’s life.

    • Scott Trench

      These are all really great points thank you so much for this thoughtful comment.

      With regards to higher education, I think you are exactly right. If you have a strong non-financial reason for getting higher education, THAT is the perfect reason for pursuing that. If you want to save sick people in Africa, and take a $200,000 loan for med school, or if you want to help orphaned or troubled children here in the States by working through the judicial system and take $100,000 in law school debt, those are good reasons for accumulating a financed degree. Do it. Follow your passion and take on the world.

      But if you are just bored with your current job and want to make more money, pursuing an MBA or a law degree is (in my view) a terrible choice. You lock yourself into a career that you may not like just for the sake of a slightly higher salary. It’s a bad investment.

      If I had unlimited resources and was retired, guess what I’d be doing? Probably writing about the subject that I’m passionate about (resolving income inequality with widespread financial literacy) all day long. Guess what I get to do with my day job? I get a tremendous amount of satisfaction working here at BiggerPockets and think that this is far more rewarding work than the real estate investing I do on the side.

  23. Jeff S.

    I believe homes are an asset and for many it is their biggest. Without a home many would have almost no net worth. For me my first home was a duplex which I still own and rent out. My second home was also a duplex which I still own and rent out. My third home was a condo which I ended up turning into a rental and then sold for twice what I paid and put 44k profit, plus equity, in my pocket. My fourth home was a condo that I ended up renting out and then selling for a small profit; economy was contracting. My fifth home was a condo where I lived 14 years and now rent it. Will sell tax free before the tax free period expires and will make over 50k profit and will have a ton of cash; 15 year loan. My sixth home was a foreclosure and I forced 50k equity by fixing it up. Live there with owner occ financing. The point is buying a home gives you a place to live and is a vehicle to be turned into an investment property complete with superior financing.

    • Scott Trench

      Jeff – this is exactly the strategy that I think makes sense. In your case (and mine) I believe the home IS an asset.

      For most Americans a home is only their largest asset because of it’s usefuleness as a “forced savings account”. Whereas renters see a 100% loss on their rent payments, homeowners are paying down part of their principal with each payment, and they are also benefiting from tax deductions on their interest payments. In this case, it their house is still a liability, but because it is slightly less than a 100% total loss, and because those funds aren’t immediately accessible, folks build equity in their homes, resulting in wealth over the long term.

      • Deanna Opgenort

        I rent where I live and work, but own where I can afford. I LIVE in an expensive metro area (where higher paying work is avail), and OWN a decent property in a poorer rural area (where I could purchase without over-extending myself). I have 4 roomies in the 5 bedroom where I live. Our place is outdated and a bit scruffy, but I pay $500/month in a safe older neighborhood of $600-850k homes, with a million-dollar view. For comparison, studios in bad parts of town are going for $850+. 1 bedrooms in nothing-special-but-not-get-mugged parts of town are $1200.

        • Scott Trench

          Deanna – I think you have great financial reasons behind your decision on where and how to live. I think it would be unreasonable to suggest that your situation is misguided financially, when you live with 5 roommates in a nice part of a great city. Good stuff!

  24. John Kollhoff

    I think each of these needs a “cost-benefit” analysis.
    I have a few cars of varying agree, cost, and utility. Some don’t carry their weight financially, and some do.
    If you can buy as cheap as renting, don’t plan to move for a while, etc, buying probably makes sense.
    Education is usually the best way to jump from lower to middle class, or middle to upper.
    I got a great degree from a state school for about $50k and most graduates of the program are earning 6 figures.
    I might still be doing okay, but I wouldn’t have nearly as much real estate if I didn’t get my degree.

    • Scott Trench

      John – all of your points are good ones. I’d say that in each case it depends on your long-term outlook and the way you approach each decision. If you have a strong, well thought out financial plan for each of those three purchases, then I won’t argue with your decisions. In my experience, very few people do, and they accumulate them because they are bored, or because they think its the thing to do.

  25. Garrett Hyde

    Scott, great article!

    “Every single option you had in life prior to starting business school now makes less sense…” This is an interesting, even scary way to think about it.

    I hear many people talk about how financially well-off they want to be in the future, and figure that getting an MBA is the means to that end. Many who choose this path will make more money and enjoy luxuries others do not, but they will also be more indebted to their careers. They will not have the freedom of choice, nor will they have the control over their jobs they sought in the first place. One of the most important takeaways from this is that voluntary debt is not necessary, even though society pushes us to believe it’s the norm.

    Continue to spread the BP knowledge! Thank you for taking the time to put this piece together!

    • Scott Trench


      Thanks a ton for this comment! I really appreciate the support. I definitely intended to scare a little bit with that comment and I think that the MBA is a choice that a lot of 20-somethings think of as a no-brainer. It’s not. There is a SERIOUS cost to getting an MBA, of which a huge portion is that commitment to middle management for a good decade or so.

      Not arguing with the financial benefits over a 40 year career, but if you have any entrepreneurial spirit, the MBA can really take away options if you succumb to that mentality and take out heavy loans.

      • Garrett Hyde

        I completely agree. We are all different and to each his own, but I’m glad I’ve been exposed to the entrepreneurial spirit at this point in my life. So many possibilities if you’re willing to educate yourself and dive in!

  26. Jon Tudor

    Great article Scott! It’s nice to see other 20 somethings caring about personal finance. It seems that I’m just a bit older than you based on what I’m seeing in the comments.

    A few of my thoughts below.

    1.) Complete agree with your car point.

    2.) i think the strategy you recommend is viable and I agree with it. I have decided to follow a different strategy however. My wife and I decided to buy a condo that is well below our means on a short term loan. Additionally, we are planning to buy a vacation rental that we can use as an investment property. This way we don’t have to live directly next to our tenants and will likely earn a better return since the location is more desirable and vacations tend to pay more than long term renters. Additionally, this gives us a vacation location that can help us cut down vacation costs. I will say that buying a condo with an HOA is not the smartest financial decision however it is helped us limit time spent managing our own property since our jobs keep us busy, particularly mine.

    3.) I agree with you completely if you have to pay for the graduate education, however does your opinion change when the graduate education does not cost you financially? In my situation, I can have my grad school education 100% funded by my employer and through scholarships. This means that I would not be in financial debt for going to grad school. I would plan to pursue an MBA at a top 20 university part time so I would not have to stop working. I am currently trying to answer this question for myself. I am trying to determine if it is worth the time and effort to get a grad degree under these circumstances? Your comments regarding being stuck in a high paying job that requires a lot of hours and no flexibility after getting an MBA are interesting to me. Can you elaborate?

    4.) My wife and I are both very frugal so I think I’ve got this one covered. However I will add that when it comes to who you are going to live your life it is more important to be truly happy with that person than to worry about their spending habits….it is likely thought that someone with the same spending habits as you will also make you happy.

    Again, nice article!

    • Scott Trench


      I think that you’ve nailed the mindset here. I will say that I think it is very difficult to argue with any of the points you make as a reasonable person, or with your overall mindset and lifestyle design.

      I’ll elaborate on some of the specifics that you bring up:

      2) I think that you simply believe that dedicating the extra effort to what I imagine is a rewarding and high paying job with nice benefits outweighs putting that extra effort in on the property side. I feel the same way, and think that making investments as passively as possible is a great strategy for that situation. Yes, you could increase your return, but you’ve thought through the situation and decided that you are willing to make the dollar sacrifice to have the HOA take care of larger issues.

      3) Absolutely I’d consider taking the MBA in your case. If someone were to give me a car or house for free, I’d (usually) jump right on it! The MBA will have a slightly different value, and I’d want to know if you had to commit to any lengthy relationship with the firm, but I think that given that it’s free, it’s likely to be very rewarding over any short to medium timeframe (3-5 years). Assuming that you love your current line of work, and the MBA will result in a $10,000 – $25,000 salary boost over the next 3 years, you’ve got a great ROI on your time in my opinion.

      With regards to the mindset – I think that this is where the danger may lie for someone in your situation. Supposing that you do get this MBA, you will be predispositioned to work relevant jobs that pay you larger salaries for the next decade.

      For example, if you oversee widget manufacture, then after you graduate, you might get a nice salary bump and offers from 5 similar widget firms at $100,000K. If you like widget manufacture, that’s great, but if you really want to be in real estate, it will take you YEARS to get equivalent business income from any real estate business – an opportunity cost that’s hard to spot.

      It’s a matter of not being able to follow your passion because it will be so hard to turn down the money in the short term – which inevitably results in a lifetime of earning high salary, but making even MORE money for your employer.

      You know yourself – will you be susceptible to this type of mindset and could it cause you to lose out on what you really want to be doing?

      4) I agree completely. That one was a little tongue in cheek 😉 I think that a truly misaligned set of objectives (financial) can be a real problem, but with any relationship, making sacrifice is part of the deal.

      Thanks so much for the thoughtful response. It’s great to hear that you are doing so many things right!

      • Jon Tudor


        Thanks so much for the lengthy response. Sorry for my delay in replying. This article was the first article I had seen on BiggerPockets and I have been really wrapped up in the site ever since! Thanks for writing an article that caught my attention and brought me to BiggerPockets!

        To give a few responses to your thoughts. My employer would require 5 years of service following the MBA before I could leave without owing anything. There would be a 20% reduction on what I would owe each year. My biggest concern with getting the MBA is not so much this however, it’s that I don’t think an MBA will significantly increase my salary at my employer (it would at others though) and that the time I sink into an MBA could be time that I could use to do real state investing or start my own business. I’m not worried about the higher salary changing my life style as my wife and I l already live well below our means and would only invest more if we made more. We are much more focused on achieving financial freedom earlier in the future than using additional capital to improve our lifestyle now.

        Which brings me to point 4. The best scenario in my mind is to not only find the person you love and who has similar financial goals to you but also to find someone who is willing to go into business with you. My wife and I are looking to do real estate together as a team and as we’ve begun the journey we’ve found that having this common goal between us is bringing us closer together and making everything more fun. Not something I can say for our current 9-5 jobs.

  27. Ronald Perich

    There are a lot of very “line-in-the-sand” comments on this post, which is interesting to me. I think there is merit in listening to both sides. And if you really think about what Scott’s saying, it’s that some people just aren’t wise stewards of their finances. They spend money they don’t have or they spend the money they do have without concern.

    Let me give you an example… I bought a new car two years ago (before I read Rich Dad). Was buying this car a wise investment? I’ll leave that up to you to decide.

    We had always set aside a monthly budget for a car payment. That budget was $325/month. When we paid off a car, the $325 went into a separate account used to buy the next car. So in 2013, my 10 year old Impala with 200K miles was reaching the end of it’s ropes. I started looking. We had over $8K saved in that account. And I need a car because public transportation doesn’t get me, my wife, and the four-year old to grandpa’s house 90 miles away.

    So I bought a brand spanking new car with a $495/month payment for six years! Sounds like I really screwed up! Until you hear the rest of the story.

    First, I got an interest rate of 1.49%. Many forget that a cash purchase is actually like taking out a loan at the rate of inflation… It’s like I am making a spread of 1.5% (or more) tax-free. That’s a savings of $3,600 at 3% inflation.

    Second, I didn’t use any of the $8K as a down payment – I kept it. And third, because of state and federal incentives, I received $11.5K in tax credits and rebates which I still have. So I have $17.5K invested and making more than 1.49%. And I now have a little more in the emergency fund.

    Fourth, because the car I bought is getting much better gas mileage, I save over $200/month in gas. (For those interested, I bought a Volt. I hope commenters will stick to the point of these comments and not go off on tangents about government incentives, buyouts, etc. Especially since REI are some of the most tax-friendly investments out there).

    Add in a couple of manufacturer rebates and my $44K new car cost me less than $25K new. Because of inflation, I actually pay less for it in the six years of payments than I would have buying with cash outright. Because I drive my cars into the ground, I will continue saving in the gas budget for many years after I have paid off the loan.

    And you know what, I really like driving it.

    Coming back to my original point, each one of us has different goals and are at different stages in our lives. Scott was talking about new entries to “adult” life that throw away their money without thinking. I think he gives sage advice to many.

    Stealing from The Most Interesting Man in the World, “Spend smart, my friends”.

    The line-in-the-sand comments may now continue.

    • Scott Trench

      Ronald – thank you for this very well thought out comment. Where I think my line in the sand is – is the definition of asset. I believe that the car is not an asset because it is costing you money every month. Even though your car is costing you LESS money than your previous one in certain respects like gas mileage, etc, the car itself is not an asset – its just slightly less of a liability than your old one was.

      I’m definitely not saying that these things are wrong or evil – just that these “assets” are in fact negatively cash flowing liabilities that should be considered luxuries and not thought of as “assets” that increase your net worth or make you money over the long term. THAT’s where I think the line in the sand is.

      • Ronald Perich

        I completely understand your point… in no way do I consider anything that’s an expense an asset.

        But you could choose to logically conclude that your bike riding is also a negatively cash flowing liability if you want to. Let’s say, just for the sake of being ridiculous, that you value your time at $60/hr.

        If riding your bike for an hour can be accomplished using a vehicle in 15 minutes, haven’t I effectively “saved” $45? Especially if I use that additional 45 minutes to make more money? An extra 45 minutes spent on marketing could mean one more deal a month.

        So reasonableness has to come into play when we’re talking about certain “luxuries”. A boat you use three times a year certainly seems like a luxury to me. But if you use “luxury” to sew up three deals you would otherwise not have gotten, who knows.

        I totally get the point of everything you are trying to say. And I agree that the vast majority of people have the wrong thinking when it comes to spending money. I was one of them.

        And luckily I’m at the point where spending $24K on a car is reasonable for me and my situation. Especially since I had no cash out of pocket to buy it, because the money I didn’t spend on the down payment is helping to pay off the car due to returns, and because I can sleep better at night knowing I have several months of living expenses in an emergency fund.

        I do have a regret, though. I bought a new house about five years ago. I put over $30K down on it… Had I used that $30K as an investment, I think I’d be a lot better off right now. I didn’t leverage my asset for its best use.

        • Scott Trench

          Ronald – great, great points all around. I won’t argue with any of those points. But I am a sucker for the bike case specifically.

          I agree with your point about the car – if it really saves you that much time every day, use a reasonable judgment of course. However, I believe that most people wildly overestimate the time savings associated with car transportation. Those who drive more than 10 miles to and from work save a tremendous amount of time over biking of course, but to me it seems like living 10 miles or more from the place that you go every single business day is quite crazy. THAT’s the real “luxury” that you are paying for – both in car expenses and immense commute times just to live in a slightly different neighborhood.

          For me (and almost every trip I take that’s less than 5 miles in the Denver area), the time saved by driving a car to work is negligible compared to biking, if not even SLOWER, net of parking and walking to and from my parking spot. That’s probably true for many other cities as well, but less true in less populous areas.

          Also, the bike is healthy – exercising for my 20 minute bike commute, vs not exercising for my 18 minute car commute is a nice bonus to my health that I consider to have value.

          So it’s all in the question of what is the lowest liability. Often, it’s true that certain things we purchase are huge liabilities that make our lives way worse. A hit to both your wallet and your lifestyle.

  28. Deanna Opgenort

    How exactly do you define an “asset”?
    Is it only something that produces cash-in-hand every month?
    My computers and cars COST me money or depreciate in value, but help me EARN far more money than I could without them, so Asset or Liability?
    Is my rent wasted if I live in a neighborhood where I likely WON’T get robbed or mugged, vs buying where I could (not really) afford, but my car would broken into on a monthly basis?

    • Scott Trench

      Deanna, most folks do not use their cars (or personal computers in a lot of cases) as assets. A pizza delivery man, or an Uber driver for instance, can reasonably define his car as an asset because he uses it to produce income, and would need to do so no matter what.

      I think that for most people, cars and personal computers are not legitimately defined as income producing or cost saving assets – that can certainly vary by person and there are tons of exceptions. Furthermore, based on your previous comment describing how you live with 5 roommates and believe that you are in a safe part of town, I do not think anyone can reasonably challenge your living situation as financially misguided. Great work!

      I use a company computer as my primary work vehicle. I would instantly define my computer as an asset that provides far more value to myself and to BiggerPockets than it cost. I’d define the car that I’m stuck with as a massive liability and luxury on the rare occasions that I decide to use it (like today when it was snowing very wet snow and I wussed out and drove to work).

      On the other hand, the person that lives in the suburbs and uses his car to commute to his job in the city 10 miles every day has purchased himself not just one, but TWO liabilities – the car, and the house in the suburbs. He fools himself into thinking that both are assets, but they really just serve to drain his finances and force him to stay in that cubicle downtown for the next 30 years. Just because he bought a massive liability in the form of his fancy house in the ‘burbs, does NOT give him credibility when he defines his thus necessary car as an asset.

      • Brad Lohnes

        I completely agree with all of the points in the article. I just wanted to mention a caveat to the “drive across town” liability that you’ve mentioned in a couple of your comments.

        We find ourselves in the situation that we have a house in a very good neighbourhood but is getting quite small with 3 little kids. We’d like to move to something bigger and closer to work – without taking on additional debt for the luxury of a bigger house. As you mention this would make far more financial sense. One thing to keep in mind for people with kids is access to schooling – unfortunately where I live the quality of schooling tends to follow the money – more expensive neighbourhoods tend to have better schools and vice versa. This is a significant factor for us, and makes the decision much harder than it would be if we didn’t have kids. The cost of, for example, sending 3 kids to private school would far outweigh living in a nicer neighbourhood with access to better public schooling. (Interestingly, the math is quite different had we chosen to only have one child ;-).

        Anyway, just something to keep in mind for people with kids. Certainly for single or no-kids 20-somethings, I completely agree with your advice and especially the mentality. It’s a mentality that I didn’t have in my 20’s (or, sadly, even in the first half of my 30’s) and I will be passing it all on to my kids as they get older.

  29. Chris Newman

    Hi Scott,

    This thread has certainly grown legs. 🙂 Shows how important the subject is.

    Some of the best advice I ever received, proven out over the past 40 years, seems to sum up your thesis:

    “Don’t borrow money to buy toys.”

    There’s nothing wrong with toys, just don’t take on debt in order to get them.

    Personally, I have found that there’s a great deal of satisfaction to be milked in knowing that I could buy the latest fancy toy that catches my eye for cash, but choosing not to. It doesn’t bother me nearly as much to provisionally tell myself, “No,” than to be forced to the same end point without a choice. This way, I always have the freedom to change my mind, which doesn’t happen often. But, I always have the freedom from the life-sucker of (non-leverage) debt, and that’s what this is really all about.

    Keep up the good work!

  30. Colin Smith

    Great article, thanks for sharing! I wish articles like these could be given to the younger generations. So many of us just fall into the trap of here is what you do now and this is what you do next when it comes to school, college, and jobs. But in reality, if our mind was open to a different way of thinking, then we could have changed the path our life is on many years ago. It’s too bad our school are taught by people who don’t have this open minded thinking but only teach the “normal” way of life. Not to say out teachers are bad or the education is flawed, but it could certainly be tweaked, even if it is just one teacher reaching out to one student in a class of 20.

  31. It appears by the volume of replies and the tone of some of them that you have struck a nerve, I marvel at your level of wisdom at such a young age. It does appear that some may have missed your message or perhaps they got the message and it was too personal for them to admit. Keep sending the message, Scott. I am having my 12 year old read it. I hope it gets through to him and he uses it some day.

  32. I do not believe the negative posters read the headline of the post – this post deals with common mistakes that 20-somethings make. It is not a post intended for older folks who have been around the block a few times. As a post for 20-something folk, this story is spot on. I see it happen again and again.

  33. Minh Le

    Sounds like a non-working but spending spouse is not an asset, but rather a liability. It’s better be a trophy spouse that you’re marrying, and you knew it going in. Basically, if you want to play, you have to pay. LOL!!!

  34. Christy Greene

    Well, Scott…..I’m not in my 20s anymore but I learned from dear old dad. All my cars were in cash. All used except I did buy one new car and I still have it 15 years later…..my education was paid through a scholarship. I am married to someone who FINALLY agrees with my financial perspective.
    I have always lived in VERY EXPENSIVE places (i.e. Honolulu, Orange County, San Diego, Boston,etc) . We still live in Southern California but we are saving to put a big down payment on a modest house. So, we don’t own right now.
    My question is this, all these people on here that have all these properties under their belt….if they still owe on these properties, wouldn’t that mean that technically, they don’t OWN? They are liabilities not assets. It doesn’t matter what the value is , if they still have a mortgage on them, right? If you took what you OWE minus what you OWN, isn’t that what your REAL NET WORTH is?

    • Christy Greene

      oops, By the way, Make your life easier by marrying a girl who shares your same outlook on life and money. If she doesn’t, at least explain the thinking behind that and how it moves toward your goal of financial freedom. If she still doesn’t share in your dream, find a a girl who has the same passion you do. ; )

  35. Jerry W.

    Wow, interesting article. I agree on buying a car. Get rid of car payments. As to education, well using your philosophy why even go to college go get a job at McDonalds and start saving now, don’t let education get in your way of success. In fact why even do high school, you get a job at McDonalds when you hit 16. Don’t even bother buying and reading books, you are wasting money, just get the job and save. Don’t even get married save that money if you do get married, don’t worry your wife won’t mind raising 3 or 4 kids and working a full time job and living in the smallest cheapest multi unit you can find for them. If you think this post rates in the top 60 for BP for the year, then … well, I don’t think this article should have been published past the car part. Education is a useless expense? Show me a single self made millionaire, especially one without any college, and I will show you a person who insisted their kids go to college. Why do you think that is? College not only teaches you things, it opens your mind to new ideas, concepts, and opportunities. How many college kids with no education work for BP? Don’t get me wrong you can go to college get a degree and still be useless.

  36. Brian Cumberledge

    This is great for someone starting out. 18 to early 20s. However don’t demoralize yourself by being all about money. When someone calls buying a 2014 Toyota Corolla fiannced a mistake or going into marital discussions or saying live in a mufti family, it makes me crazy. Like I said great for a young person. As you get older I demand you enjoy life. Spend the money unless you are only working to give your family everything when you are gone. Give to charities and volunteer and enjoy a nice car and home. Live life. Otherwise you. An suggest living on the street for a few years to save money too.

    • Scott Trench

      Hi Brian – I actually subscribe to a different philosophy. I will continue to live an efficient lifestyle (but enjoy my life, of course) and RELISH biking to work, living for free, and building passive income. I’m actually in position right now where I could last for decades without the need for paying work. I’ll simply continue to do what I’ve been doing until my passive and business income can pay for these types of luxuries. Then, if I wish, I will use that income to purchase more and more lifestyle expansion.

      So, it’s just a delay of gratification for about 5-7 years, such that passive income, not wage-income, can pay for the good life.

  37. Ethan Cooke

    Scott –
    Thanks for another thoughtful blog. You make some good points which all boil down to financial self-discipline. These “assets” devastate the finances of people of all ages, not just 20-somethings. Regarding higher education as a liability: the right kind of education can be an asset. I agree that paying for multiple degrees is not wise for a “succeed or die trying” real estate entrepreneur. But most of us don’t fit that mold. A degree in business, computer science, etc. will pay itself off in less time than it takes most of us to achieve financial freedom. I got an MBA many years ago and saw my salary double immediately. Even with student loan repayments, I was able to save much more for real estate than I could have saved without the degree.

    • Scott Trench

      Thanks Ethan – in your case, it sounds like the degree made a huge difference! I can definitely respect that argument. however, as a fellow finance professional, I found that I was able to achieve significantly greater total income and wealth generation than the MBA might have provided by taking a job with a performance based component (sales here at BP) and investing everything I could into index funds and real estate.

      Of course, I can’t be sure as I did NOT apply to business school. Perhaps I’d be doing far better with the degree. But, I’d definitely have had to take out debt or forgo income to make that degree work!

  38. Ian Fretheim

    Great article. I came late to the game of personal finance. Didn’t get my act together until my early thirties. Before that I suffered from severe chronic lifestyle creep. 36 now and I really have the taste for it.

    The car.

    Funny. Got my first salaried job in my late 20’s and went out and financed a car for an ungodly percentage of my income. I was happily frugal on everything else so the monthlies seemed to work…

    Lucky for me I worked my tail off to make double sized payments and got the thing paid off in about 4 years. Learned a big, big lesson when that payment disappeared from my monthly budget. Even luckier? It was a diesel VW. Yup. Just turned the thing back in- 2011 with 72k on it and sometime this week I’ll be getting a hell of a bump in my bank account. Can’t plan for that sort of thing, but I’ll take it.

    Now, given that VW was giving me this chuck of change, I thought long and hard about the replacement. I put on maybe 5k per year now that I live within 4 miles of my work and bike most days, but didn’t want the maintenance and unknowns of the used car, and loved the idea of resetting the odometer to zero for free. Went and got a new fiesta, so basically an even break with the VW buyback. Thing is, I went and financed it before the buyback, figuring I’d just clear the loan once I got the cash. But then I got a rate of 2.5%. That’s cheap cash and the payment is fairly low- finance cost over the term is honestly negligible vs the opportunity of liquidity on this dirty diesel cash. I’m looking to buy my next property this spring and so unless my lender tells me that I need to get that loan off my income to debt, I’m staying liquid until the dust settles on the next purchase.

    All that being said- I’m fully on board with the article. Even the financed car scenario changes dramatically when you ride your bike. Your car gets significantly faster when you bike most of your miles. It gets amazing even. And it doesn’t get miles. If I put about 5k on my car each year and go to sell it or it get’s totaled, that lack of miles is like a hedge against the gap. Not only does the bike keep me younger, it keeps my car newer!

    In a duplex currently and looking for number 2.

    Love what you said about expensive educations limiting a person’s opportunity. Folks don’t think in those terms, but it’s the truth.

    • Ida McNeill

      Bill, don’t give up yet! The whole point of all this, is not where you are but where you’re going, and learning the better ways to get there! I’m also 64, living in a friends basement, driving 4-600 miles a week in a ’99 Explorer bought by another friend for $2200, paying back @$200/mo. ( I thot it too expensive, but God literally told me “don’t tell Me how much to bless you!!) 6 mos ago, I literally had no house, no car, no job, zero income. I had to start by doing cleaning a warehouse factory at nite. Now I’m back doing work I love (stagehand-concerts, theatre, movies). I’m saving for a lease/ purchase or owner financed fixer- upper, then another. Or a wholesale. Or another fixer-upper. Or…
      The point is, I’m not where I want/ ought to be, but I’m not stuck where I was. I’ve learned a lot of ways how NOT to get there, now I’m learning the right ways to get there. AND I’m bringing some with me… Just talked some folks at work into savings and Roth IRAs, (including my 30- something daughter). The hole is only as deep as you think it is.

  39. Adam Schart

    I agree with including buying a house when taking about the new “American Dream” of a $375k house in the upper middle class suburbs. However, there is an opportunity cost to living in that unit of the multi family too… let’s say $500-$700/Mo in rent. This amount will cover PITI on a nice modest post-war home in many market. So really, what’s the difference in the end. You may have more upkeep than the apartment, but quality of life would be worth that much to me.

    • Scott Trench

      Adam – You are correct in spotting that opportunity cost. However, in my case, and in cases similar to mine, that opportunity cost does not exist. The reason for that is that I bought my duplex with 5% down using and FHA loan. The property cost $240,000 and I brought down $12000. I probably broke even (PITI +PMI = $1550 total rent from a roommate and other unit was $1700 + expenses). But, if I were to rent a nicer place it might have cost me $800 per month. So, I’m really coming out $800 per month ahead. That’s a 60-70% return on my $12000 down annually, prior to appreciation and loan amort. Minimal taxes incurred.

      Now, if I had $60K at the time and put that down, then this argument makes sense, as I could have produced $2200 in rent on a $1400 mortgage (lower payment from smaller loan) and been $800 per month better off, prior to expenses. But, because I used an FHA loan, I was able to deploy my purchasing power to a more powerful result.

      So, for the first few properties, house-hacking makes a ton of sense. But, when you get to 5+ properties, the financial benefits are less material. So, see me in 3-5 years. With a $3-5M portfolio, I bet I’ll either be done with house-hacking for the reasons you suggest, or hacking a place with some style, maybe down towards the city center, so that I can live affordably in luxury.

  40. Alex Sanfilippo

    I love these 3 steps! My generation especially seems to have no issue with taking out huge loans for things like new cars and expensive apartment living. In addition, most of them have student loans that they won’t pay off for 20 years!

    I made a commitment almost 10 years ago to pay cash for my cars. As a result, my wife and I may not have the nicest cars out there; but they are reliable and the last one I purchased I actually sold for more than I bought it for after a year of driving it.

    My wife has no debt from school and now owns her own business with money she had saved since graduating. I was unable to afford college after getting out of high-school; so I simply did not go – which people hate, but it doesn’t bother me.

    We personally own a condo in a top 5 complex in my city (Jax FL) we’ll have it 100% paid off within 12 months!

    I can tell you that the points you listed here are SOLID. Thanks for sharing this wisdom and I hope it really reaches some people!

  41. Michelle Marty

    As a stay at home mom I’d like to point out that we have more value than you’re giving us credit for. I handle all the child care, cooking, cleaning, bill paying, buyer of gifts for every occasion, grocery shopping, vet up keep, dental appointments, keeper of the social calendar and errand runner and tenant whisperer extrodinaire, If you hired someone to do all that it would cost way more than I spend on clothes and jewelry. Plus, if I were the type of lady to wear sweat pants and sensible shoes my hubby wouldn’t have been interested. You get what you pay for.

    • Scott Trench

      Haha! The first time this article came out, the last line was “We’ll just have to see about the girl.” My gf was not so happy…

      I see your point and have learned my lesson (somewhat). As Warren Buffet says, “price is what you pay, value is what you get.”

  42. Dan Frey

    Scott, great post! I agree 100% with all of your points. I really think at the core- this is simply a measure of delayed-gratification; that is, we can either go for what we want now (and pay for it for a long time) or we can exercise a little more discipline and receive what we really want down the road- freedom!

    Side note on the education piece- and this will blow your mind- Harvard has a school, The Extension School, that was founded on providing high quality AFFORDABLE education to the, ahem, non-elite. Haha! Check it out. I’m half-way through my program and it’s been amazing!

  43. James Barnhart

    I found that buying a house was definitely an asset.
    After leaving the Navy at age 22, I rented a place. But, I bought a house at age 26 with zero down, (VA mortgage). Two years later, I had about $10k equity in that house due to appreciation. The PITI was about the same as the amount I was paying to rent. Had I continued renting, I would have no equity built up. So, that house paid me $5,000 per year to live there.

  44. Paul Merriwether

    Buying rental properties I’d lease a new truck if needed. 1) It’s tax deductible; 2) has a maintenance agreement; 3) small amount of money out of pocket!! 4) The money SAVED over paying cash for vehicle can be used to buy more property!!!! 5) In today’s world of low interest rates on vehicles it’s far smarter to buy on time vs paying cash unless it’s a junker. You could up spending $2k every other yr or yearly on them. NO WAY!!!

  45. Paul Merriwether

    Followup: on my 2014 Ram Hemi 2 dr short bed I purchased for $19,500 Dec 2014. I got $10,000 off the $29,200 sticker, because I bought at the right time of the year. 2 yr’s later it only has 5,000 miles on it and it’s still worth more than I paid!!! You get these types of deals on mostly all cars & trucks! TIMING!!! Very much like real estate!

  46. Viviane Rittell on

    Great Article!!! Awesome lessons that I wish I had known before. The only thing I would add not necessarily disagree but just add is that the education being a liability may depend on the situation. In my case I made $10/h. Couldn\’t do anything with that. Was working a dead end clerical job. I went to nursing school. I did not have any money so I have $30,000 on student loans. But my income went to $79,000 a year. And since nurses can only work 3 days a week 12hrs shifts, I got a second job working an extra day a week. I was at the time dating my current husband. He was passionate about real estate investment & started teaching me… Asked me to read Rich Dad, Poor Dad, listen to BP. Learning financial responsibilities allowed me to save $20,000 on my income while paying $400 a month note on my student loans. Also after we got married I decided to invest in my husband\’s real estate goals! Since I made $79,000 a year he was able to quit his job & work on real estate full time. I also had bought a house while single, that I sold when we got married to live in his house & made an additional $20,000. So after our wedding I gave him $40,000. He had one rental before our wedding. Now with the extra cash we opened a business with both of our names. He does real estate full time, I still make enough to pay my student loans & the house bills & we went from 1 rental property to 25 rental properties in less than a year in a half! We just bought an apartment complex of 12 apartments that we are renovating completely, which made us go from 13 properties to 25. Once it\’s all done it will cash flow beautifully! & I still have my W2 income to show banks when we need to finance properties! So for me it worked! But I understand that\’s not the case for everyone! ?

  47. Viviane Rittell on

    I didn’t mean to add ? At the end. Also I forgot to add that we are going to finish paying my student loans & all of personal debt this year using some of the cash flow. We never took money from the business, since I paid all the bills. So happy ending! ?

  48. Viviane Rittell on

    Great Article!!! Awesome lessons that I wish I had known before. The only thing I would add not necessarily disagree but just add is that the education being a liability may depend on the situation. In my case I made $10/h. Couldn\’t do anything with that. Was working a dead end clerical job. I went to nursing school. I did not have any money so I have $30,000 on student loans. But my income went to $79,000 a year. And since nurses can only work 3 days a week 12hrs shifts, I got a second job working an extra day a week. I was at the time dating my current husband. He was passionate about real estate investment & started teaching me… Asked me to read Rich Dad, Poor Dad, listen to BP. Learning financial responsibilities allowed me to save $20,000 on my income while paying $400 a month note on my student loans. Also after we got married I decided to invest in my husband\’s real estate goals! Since I made $79,000 a year he was able to quit his job & work on real estate full time. I also had bought a house while single, that I sold when we got married to live in his house & made an additional $20,000. So after our wedding I gave him $40,000. He had one rental before our wedding. Now with the extra cash we opened a business with both of our names. He does real estate full time, I still make enough to pay my student loans & the house bills & we went from 1 rental property to 25 rental properties in less than a year in a half! We just bought an apartment complex of 12 apartments that we are renovating completely, which made us go from 13 properties to 25. Once it\’s all done it will cash flow beautifully! & I still have my W2 income to show banks when we need to finance properties! So for me it worked! But I understand that\’s not the case for everyone!

  49. Al P.

    I just read this article an all the comments with it. Im at the point where my thinking is NOTHING in life is for certain and you can’t generalize situations/areas and you just have be be smart and knowledgable remain optimistic and keep good vibes instead of doubt.I love bigger pockets but it can make you obsessed with “enjoying” life.

  50. James Free

    I financed my first house in the Denver area in 2009. It’s appreciated by $175k since then, while my non-principal payments on it have been less than half that. I’m… not sure it was a bad purchase, especially with an FHA loan and a first-time homebuyer tax credit. It cost less than an apartment, it’s been a cash-flowing rental for years now, and my annualized ROI on the down payment is about 60% over 8 years.

  51. Mike White

    Some good points but obviously written by a single guy living in an urban area. I was there too, but once i got married and planned for kids I left the city for a more serene life so needed a car (although used and paid cash or a 2% loan), wanted a yard for my kids to play in, and didn’t want some revolving door of Megan’s listers living in the other half/third of the ‘plex. Life happens and priorities change.

  52. Jonny R.

    Comment on the renting portion of this article: I think it’s good to view renting not just in financial cost/value. For the right person and the right scenario, renting is a fabulous option – zero liability for the house and it’s fixtures (unless you break things intentionally), if you get a better job elsewhere – you move, if you hate your neighbors or community – move. Also, I live in extremely high priced Alexandria where the market is inflated and it makes zero sense to buy – speculating in a market like this is disastrous. No doubt home ownership has many benefits, but renting should never be an inferior alternative. Also, re: multifamily ownership, I feel like this is such a popular asset class on this blog and a means of entry into REI, but the inventory of these homes is sparse (speaking on behalf of East coast/DC). Also, for many men, the task of explaining this arrangement to their wives is an insurrmountable task: the thought of raising a family in a four-plex is often not appealing.

  53. Lauren Weiss

    Nice one Scott. I don’t know what I enjoyed more, cash flow negative spouse or the response to it. It definitely seems your work probably appeals to 30 and under’s who don’t have a silver spoon in their mouth. (I mean that jokingly and seriously haha) I came from the fancy college (we call them universities where I come from), sure education is amazing and an investment for some, but for those that resonate with the idea their time might be better spent elsewhere, there aren’t enough people giving this advice, and thats the reason we and the millennials and so on are all so f***ed unless we take our finances into our own hands. I’m seriously sad to watch many 20 somethings “choose” car payments, high rent etc and make decisions that could ultimately have landed them thousands more in their pocket and a life of freedom: just becuase that what their friends and family did. In particular, young women, in some cases just don’t even know where to start. Every time we look at money as empowering and are open about learning, instead of keeping our financial fears behind closed doors, we move towards being in a FAR better position. I’m on the cusp at 30 years of age and many of my friends find it bizarre that I own a house and want to own more. What the?

  54. Adam Widder

    Great article Scott, some mentioned these are obvious things that aren’t assests. I disagree, maybe to this population they are easy to see as liabilities but to my other 20 something friends, these perfectly acceptable purchases because their parents did it. I believe most my friends get lost in what their parents say and take it as the holy truth instead of doing their own research into finance. A quick 30 minute research on the internet is just the tip of the spear for people who fall to these purchases.

    I believe one thing that could be added to this list is the “latest craze,” example a Yeti tumbler, which I feel for, but bought because it responded to a craigslist ad job to buy it and still had money leftover #frugalwinkindof If one keeps buying the latest craze they’ll never have enough to buy the next latest craze! Clothes and shoes I think are a big one for 20 somethings as well, we want to change our wardrobe from the free college shirts to a professional one. While it’s a necessity, I feel many go overboard on this part of their budget.

  55. Sean Maloney

    Yeah I blew it on 1, 2 (still renting), and 3! But the important part is to always remember it’s never too late to turn the ship around. My (thankfully frugal) wife and I are expecting our first baby soon, and I don’t want to spend his entire childhood at work. So I’m turning our ship around and heading to financial freedom.

  56. Juan Carlos Ibarra

    It’s a good take, but we are looking the half of the possibilities. Financially, buy or rent NEVER is a good/bad decision by itself, Pay in cash or with a loan neither. Keeping in mind the time value of money you can calculate if is better rent or buy, pay cash or pay a loan, and this calculations depends of several variants as rate, capitalization, time of loan, opportunity cost, asset’s value, loan’s amount, rental payment, inflation, etc. That is only cold numbers, you need considerer also personal situations as ability to pay down, ability to monthly payment, personal asset’s useful life, time in this city/country, and more and more. The financial calculation in costs and expenses needs be, perhaps, more deep than in inversions situations. Some decisions really are good/bad by itself, as buy a car when really I don’t needed, buy a house with 19 bedrooms and 5 bathrooms outside when I’m a single guy and work 12 hours per day in the Center, study laws in Harvard because dad is a lawyer, and the grandpa was a lawyer, but this is for other topic.

    On the other hand the duplex thing is very good idea, but i thing, is exactly the same as buy with a mortage wathever other house and have other rented houses with incomes. Maybe is diferente because the original conception was have a “half inversion” on it (and geographically), but we need valuate our house by itself and the value of “asset/liability/expense” is exactly the same.

    Thanks for your take Scott.

    PS: totally agree, the family is a team, specially with money.

  57. Lori Cooke

    I completely agree with all points discussed in this article. I really wish I had this insight in my 20s instead of my 30s. Heck, I wish I had gotten into BP 6 months ago before we signed a contract to build (and finance) a new house. These are the kind of articles that are so helpful to those starting out.

  58. John Johnson

    Scott, thanks for the article, but I disagree about grad school the way you listed it. I was able to get my MBA paid for 100% (over $60k in tuition) by my employer, so no debt. AND it was an online program from a very reputable school (top 30 school), so I didn’t miss any work except two 1-week residencies (employer provided these free, ie. i didn’t have to use my vacation). This cost my nothing, and has given me a new perspective on life and a significantly better understanding of the time-value of money.

    Education is important. Whether its continuous reading to learn (which I do too), or further your education through a certificate or grad school, education is an appreciating asset…as long as you act on what you’ve learned.

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