To Scott Trench: What is a good personal finance foundation?

[Gabriella Vehrs]

In @Scott Trench's latest post on a potential crash, "Yes, I’m Afraid of a Real Estate Bubble—But I Continue to Invest Anyway. Here’s Why." He says,

"I buy well within my means, with a rock solid personal financial foundation, and spend extremely little on my lifestyle. I maintain a high savings rate and have stashed away a large cash reserve. I also own a stock portfolio."

I'm really curious what a rock solid personal financial foundation looks like. As someone just starting out, looking for my first property, what should my personal finances look like before I buy? Eliminate all debt, including safe-ish debt like student loans? What about savings reserve? If my first purchase is a house hack like a duplex, how much reserve cash should I have on hand beyond a downpayment?

[Scott Trench]

Hi Gabriella,

When I bought my first house-hack, I had about $20K liquid ready to go. I put down $12K, and continued to save over the three months I repaired and put the place up for rent. When I got tenants in, I aggressively built up a $15,000 reserve before I gave myself any breathing room.

Nowadays, I make sure that I have $15,000 + $10,000 per property stocked away in a high yield savings account. I have a separate, cash personal reserve for my personal life as well. I have a stock portfolio, and sock away on a monthly basis way more than 50% of my after-tax take-home pay.

It has taken me years and years to get to this position, a position that I consider to be very solid at this point in my life/career. The goal I think is not to wait so long to take action that you delay for years and years while stockpiling cash, but to be constantly uncomfortable about things and paying extremely close attention until you do. 

I don't know if that's helpful - I did not have a "rock solid" financial position at first - I took a shot on what I believed to be the best odds of success with my house-hack as soon as I thought the odds were in my favor to a significant degree. I won't be taking the same risk today with 80%+ of my personal net worth, and invest from a much stronger financial position.