The Simple Path To Wealth by JL Collins Book Review
This book clears through the confusopoly of finance
The Simple Path To Wealth by JL Collins is a book I recently finished re-reading. It is the second or third time I've read the book. That right there should tell you that I find a lot of value in this book.
I believe it is an excellent and timeless book for both understanding investing at a high level, but also is a practical guide on what to do with that knowledge. In short, it's a book full of hard earned financial wisdom.
Collins writes in a very enjoyable way. He is writing this all down to explain the importance of finance and investing to his college aged daughter who just isn't that interested in this stuff yet. For that reason he makes the book personal and entertaining instead of academic and boring.
It's one of the few books I would recommend to anyone who wants to put their financial house in order.
Wealth Building Made Simple
I'm a sucker for simplicity. The best things in life are simple (but not always easy). JL Collins advocates for a plan that is simple, but requires guts to stick with when the market is down.
The basic idea is this - to get rich you must do three things. Spend less than you earn, invest the surplus, and avoid debt. Do this and you end up rich.
The practical steps are this:
Get and stay out of debt
Live on 50% of what you earn
Invest the remaining 50% in VTSAX (Vanguard Total Stock Market Index Fund) and let it ride
The book goes into more detail, but that's the high level investing strategy to accumulate wealth. Once you have "F-You Money" the strategy shifts to more of a 75/25 stock to bond mix in retirement. That's the meat and potatoes of the plan.
Getting To “F-You Money”
Now let's talk about "F-You Money". The entire point of getting rich in the first place is to buy your freedom. I have a personal mantra "the bank makes the rules". So if you want to maker the rules, you have to become the bank. To become the bank you have to buy your freedom.
While this is a simple idea, it isn't easy. Staying out of debt isn't easy. Living on 50% of your income isn't easy. Investing in the stock market over decades and not taking your money out when it crashes isn't easy.
Buying your freedom isn't easy, but it is simple.
That gets to the heart of what I love about books like this. It gives you the wisdom of someone who walked a hard path and learned expensive lessons. The answer is distilled down to the most simple form. But do you have the strength and discipline to pursue it?
Most people don't have the strength of character to follow a plan like this. It's easier to get distracted by picking stocks, or abdicating financial responsibility to a financial advisor. In truth, both paths lose you money over time.
The hard path, the simple path can make you wealthy. The question is are you willing to do it?
How I Put This Book Into Practice
For me, it's a path I'm pursuing. I'm out of debt, saving a high percentage of my income, and I'm moving my investments into VTSAX.
One modification I make to the plan is to give at least 10% to others. Some goes to church, some supports mission work and disaster relief, and some is being a joyful giver in less obvious areas.
Experience has taught me that being a generous person is the right thing to do. And paradoxically, generosity will make you wealthier over time. A lot of people miss this, but it's true. The sooner people learn to give, the sooner they become the kind of person who can handle the responsibility of wealth.
So my ideal income allocation is probably something like live on 40-50%, give 10%, and invest 40-50%. Over time I'm hoping to live on less, invest more, and give more.
But that's just my own spin on the path to wealth I want to take. You should find your own way.
Overall, I think JL Collins' The Simple Path To Wealth is an excellent book and it is not only worth reading, but putting into practice. There is a deep well of wisdom in this book. It's simple, but not everyone will have an easy time putting the advice into practice. People love shiny things and not everyone wants freedom.
But if you want financial freedom in your life, The Simple Path To Wealth will get you there.