{"id":48047,"date":"2021-09-06T10:53:00","date_gmt":"2021-09-06T14:53:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=48047"},"modified":"2021-09-14T15:35:41","modified_gmt":"2021-09-14T19:35:41","slug":"the-simple-path-to-wealth-by-j-l-collins","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/the-simple-path-to-wealth-by-j-l-collins\/","title":{"rendered":"The Simple Path to Wealth by J.L. Collins: Overview"},"content":{"rendered":"\n

What is The Simple Path to Wealth<\/em> about? What advice does J.L. Collins give to beginner investors? <\/p>\n\n\n\n

In The Simple Path to Wealth,<\/em> blogger and financial expert JL Collins offers a simple road map to achieving financial independence<\/a> and a secure retirement: Spend less than you make, avoid debt, save \u201cF-You Money,\u201d and invest in stock index funds. He demystifies stocks and bonds, as well as a plethora of investment plan options.<\/p>\n\n\n\n

Below is a brief overview of The Simple Path to Wealth<\/em> by J. L. Collins.<\/p>\n\n\n\n\n\n\n\n

The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life<\/em><\/h2>\n\n\n\n

Most people realize money is important for getting what you want out of life\u2014but they don\u2019t want to spend a lot of time thinking about it. The Simple Path to Wealth<\/em> grew from a blog series Collins subsequently wrote simplifying money and investing for his young adult daughter. To get along in the world, you need to understand money, he argues. Your options are to take charge of your money\u2014put it to work for you as your \u201cservant\u201d\u2014or be mastered by it.\u00a0<\/p>\n\n\n\n

Of course, everyone has better things to do than obsess about money\u2014for instance, live your life, raise children, make your mark on the world, or enjoy retirement. But ignoring money leaves you open to being taken advantage of by financial advisors who profit from your ignorance<\/strong> by, first, convincing you that you need help, then by selling you complex and costly investments that perform poorly.<\/p>\n\n\n\n

In contrast, The Simple Path to Wealth<\/em> by J.L. Collins argues that investing isn\u2019t complicated\u2014you can do it yourself. Collins\u2019s \u201csimple path\u201d is: Spend less than you make, stay out of debt, and invest in index funds<\/a>.<\/strong> If you follow this prescription, you\u2019ll end up wealthy and live a more fulfilling life<\/a>.<\/p>\n\n\n\n

Take Two First Steps<\/strong><\/h3>\n\n\n\n

Before starting to invest, do two things:<\/p>\n\n\n\n

1) Save until you have \u201cF-You Money,\u201d a financial cushion that gives you the ability to make choices about what <\/strong>you<\/em><\/strong> want to do rather than being a victim of your circumstances.<\/strong> For example, having F-You Money<\/a> allows you to walk away from a job you hate, take a \u201csabbatical\u201d to do something you dream of, or avoid poverty if you\u2019re laid off.  <\/p>\n\n\n\n

F-You Money, plus the money you invest for your long-term future, both buy you freedom\u2014and your<\/strong> freedom is the most important thing your money can buy.<\/strong> Ultimately, your goal is financial independence: the point where you can live on 4% of your nest egg a year without having to work for the rest of your life. (Your nest egg remains stable or grows if you withdraw only 4% a year and the market grows.)<\/p>\n\n\n\n

2)<\/strong> Get out of debt<\/a>. <\/strong>While borrowing gets you the latest consumer products, it keeps you from saving and building wealth<\/a> because your income is consumed by debt and interest payments. Also, debt makes you a slave to your employer: You have to stick with your job, even if you hate it, because you have to make debt payments.<\/p>\n\n\n\n

Change Your Mindset<\/strong><\/h3>\n\n\n\n

The rest of the book focuses on investing, which requires changing your mindset about money. To build wealth and become financially independent<\/a>, stop thinking about money in terms of what it can buy<\/em> and instead think of it in terms of what it can earn<\/em>.<\/p>\n\n\n\n

Wealth accumulation is made possible by compounding, in which money you invest earns interest, and you add the interest to the original sum, making it larger so it earns even more interest. With compounding, a relatively small amount of money invested in stocks grows significantly.<\/strong><\/p>\n\n\n\n

Here\u2019s how it works. Based on the average market return of 11.9% a year with dividends reinvested from 1975-2015:<\/p>\n\n\n\n