Today I’d like to tell you about a book that my friend Jim Collins has just released and that I think is worth reading by just about anyone interested in improving their financial situation.
It’s called The Simple Path to Wealth and it covers investing and the road to financial independence, but not in the way that most books talk about these things.
Sure, there’s plenty of information about how to choose your asset allocation, which retirement accounts to use, what to invest in, and other technical things like that.
But most of all, this book is about creating the freedom to live a life you enjoy by making a small number of simple, yet powerful, financial decisions.
And Jim can talk the talk because he’s walked the walk.
No, he doesn’t live in a mansion, drive a Mercedes, or wear fancy clothes. But that’s exactly the point.
He COULD do all of those things. He just finds it a lot more fun to have the freedom to do things that actually make him happy.
I’ve known Jim for a couple of years now and he’s the real deal. Kind, generous, interesting, and smart as hell.
In his 50+ of life, Jim has used what he calls his F-You money to do a number of simple things that stand out as quite remarkable in the modern world:
- At the age of 25 he decided that $5,000 in savings was enough freedom to quit his job when his employer wouldn’t let him take four months of unpaid leave to travel aroud Europe. His boss, perhaps in shock at Jim’s audacity, quickly changed his mind and gave Jim 6 weeks off immediately, plus another month of vacation for every year after that.
- Jim was laid off during the 2001 recession, but instead of jumping right back into the rat race he decided to stay unemployed. For 3 years. Simply because he could afford to wait for the right opportunity.
- When his daughter was 2, Jim took another couple of years off so he could watch The Lion King and play Lincoln Logs with her. At the same time, his wife quit her job and went back to school to pursue the career she really wanted. Over that period, with no income and all the expenses associated with caring for a small child, their net worth increased.
- These days he spends his time reading, writing, riding his motorbike, enjoying the great New Hampshire outdoors, escaping to South America, and generally spending his time as he pleases.
- So you don’t get the wrong idea, Jim’s had a number of highly successful careers in between each of those stints. It’s not that he can’t hold a job. It’s that he chooses not to from time to time because his good financial decisions allow him to make that choice.
The Simple Path to Wealth shares these stories and the simple strategies you can implement to make similar choices a reality for yourself. It’s nothing grand there’s no promise of riches beyond your wildest dreams.
It’s simply an entertaining and easy-to-follow guide to investing and financial independence from a man who has followed the same principles to create his own version of freedom.
With that, here are some of my favorite moments in the book.
Quick note: No, I am not being compensated in any way for writing this review. Jim is a friend of mine and I did help fact check the book, so there’s that. But I’m recommending it solely because it’s excellent and anyone who reads it will be in a better position to make good financial decisions and good life decisions than they were before.
What it’s REALLY about
“For me, the pursuit of financial independence has never been about retirement. I like working and I’ve enjoyed my career. It’s been about having options. It’s been about being able to say “no.” It’s been about having F-You Money and the freedom it provides.”
This mindset is the spirit behind the entire book.
The goal isn’t retirement. It’s not about one day in the distant future when you can hang it up, stop doing work you hate, and finally start to enjoy yourself.
It’s about creating the freedom to do the things you love NOW. Work, play, and relaxation are all enjoyable in balance when you get to decide when and how you do them.
“Waste no time. Debt is a crisis that needs immediate attention. If you are currently in debt, paying it off is your top priority. Nothing else is more important.”
Jim doesn’t mince words. When he believes something, he lets you know it.
And there are two topics that get his full ire: debt and financial advisors (more on that below).
As Jim sees it, debt is a quick path to indentured servitude. The more debt you have, the more dependent you are on your next paycheck. Which means that you’re further from true financial freedom.
This isn’t to say that you should feel guilty about being in debt. It’s just that in Jim’s view you should recognize it as the emergency it is and do everything you can to shed it as quickly as possible.
Some eye-opening math
“Let’s consider an example. Suppose you make $25,000 per year and you decide you want to be financially independent.
Using some of the lifestyle tips from the blogs above, you’d want to organize your life in such a fashion as to live on $12,500 annually. Two important things would immediately happen. You’d have reduced your needs and created a source of cash with which to invest. Now let’s use our calculators to play with some scenarios.
Assuming you’ll be financially independent when you can live on 4% of your net worth each year, you’ll need $312,500 ($312,500 x 4% = $12,500). Investing your $12,500 each year (We’d invest in VTSAX—Vanguard’s Total Stock Market Index Fund) and assuming the 11.9% annual return of the market over the last 40 years, you are there ($317,175) in ~11.5 years.
At this point suppose you say, “OK I’m done with saving and I’m going to double my spending and spend my full earned $25,000 from now on. But I’ll leave my $312,500 nest egg alone.” In 10 short years it will have grown to $961,946 without you having to add a single dime. That amount yields $38,478 a year at a 4% withdrawal rate. You can now not only quit working, you can give yourself a (rather substantial) raise.”
Forget for a moment the specifics in this example of $25,000 in income and $12,500 in annual expenses. Those are used (I believe) purposefully to illustrate that this kind of thing is possible even without a huge income.
The math works similarly no matter what your salary is, so let’s instead focus on the three key takeaways from this example:
- A 50% savings rate gets you to financial independence in about 11.5 years.
- At that point you could stop saving, keep working, double your lifestyle, and in 10 more years have enough money to stop working completely AND give yourself a significant raise.
- That’s a total of 21.5 working years. Or put another way, it’s 23.5 FEWER years than the traditional path of working until age 67.
Pretty eye-opening, right?
On financial advisors…
“Advisors are expensive at best and will rob you at worst. Google Bernie Madoff. If you choose to seek advice, seek it cautiously and never give up control. It’s your money and no one will care for it better than you. But many will try hard to make it theirs. Don’t let it happen…. Not surprisingly, a field that provides access to people’s life savings is a magnet for con men, thieves and grifters.”
This one takes a direct shot at my profession, so you may think I disagree, but…
For the most part I don’t.
I’ve written before that the world of financial advice is a dangerous one, filled with people who, well-intentioned or otherwise, end up taking more of your money than they give back.
While a good financial planner can be an invaluable resource, Jim is absolutely right that you need to be careful. And whether you work with an advisor or not, you will be well-served by being an active participant in your financial plan.
The more you know and the more involved you are, the better off you’ll be.
“Simple is good. Simple is easier. Simple is more profitable.”
Throughout The Simple Path to Wealth, Jim’s advice is simple enough for anyone to follow, yet powerful enough for everyone to benefit.
Jim speaks from experience and he speaks from the heart. If you’re looking for a way to use your money purposefully and intelligently to create a life you enjoy, this is it.