The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life

by J.L. Collins

Spend less than you earn—invest the surplus—avoid debt.

Do simply this and you’ll wind up rich. Not just in money. Carrying debt is as appealing as being covered with leeches and has much the same effect. Take out your sharpest knife and start scraping the little bloodsuckers off. If your lifestyle matches—or god forbid exceeds—your income, you are no more than a gilded slave. Avoid fiscally irresponsible people. Never marry one or otherwise give him or her access to your money.

Avoid investment advisors. Too many have only their own interests at heart. By the time you know enough to pick a good one, you know enough to handle your finances yourself. It’s your money and no one will care for it better than you. You own the things you own and they in turn own you. Money can buy many things, but nothing more valuable than your freedom. Life choices are not alway...

Sound investing is not complicated. Save a portion of every dollar you earn or that otherwise comes your way. The greater the percent of your income you save and invest, the sooner you’ll have F-You Money. Try saving and investing 50% of your income. With no debt, this is perfectly doable. The beauty of a high s...

The stock market is a powerful wealth-building tool and you should be investing in it. But realize the market and the value of your shares will sometimes drop dramatically. This is absolutely normal and to be expect...

This will be much, much harder than you think. People all around you will panic. The news media will ...

Nobody can predict when these drops will happen, even though the media is filled with those who claim they can. They are delusional, trying to ...

When you can live on 4% of your investments per year, you are fin...

If you intend to achieve financial freedom, you are going to have to think differently. It starts by recognizing that debt should not be considered normal. It should be recognized as the vicious, pernicious destroyer of wealth-building potential it truly is. It has no place in your financial life.

Your lifestyle is diminished. Set aside any aspirations to financial freedom. Even if your goal is living the maximum consumer lifestyle, the more debt you carry the more of your income is devoured by interest payments. A (sometimes huge) portion of your income has already been spent. You are enslaved to whatever source of income you have. Your debt needs to be serviced. Your practical ability to make choices congruent with your values and long-term goals is seriously constrained.

Your stress levels build. It feels as if you are being buried alive. The emotional and psychological effects of being saddled with debt are real and dangerous.

You endure the same type of negative emotions experienced by any addict: shame, guilt, loneliness, and above all, helplessness. The fact that it’s a prison of you...

Your options can become so narrowed and your stress levels so high, you risk turning to self-destructive patterns that only reinforce the dependence on spending. Drinking perhap...

spending. It’s a dangerous, self-perpe...

Your debt tends to focus your attention on the past, present and future exclusively in the worst possible way. You become fixated on your past mistakes, your ...

Your brain tends to shut down on the subject with the vague hope it will all resolve itse...

Less than 3%, pay it off slowly and route the money to your investments instead. Between 3-5%, do whatever feels most comfortable: Either put the money to debt payment or investments. More than 5%, pay it off ASAP.

Astutely dealing with such debt is beyond the scope of this book, other than to say those who use it successfully do so with great care.

invested $130 per month ($1,560 a year) by January 2015 you would have had $985,102.2 Not quite a million, but not a hand full of mud either.

Want nothing less than the full million? Kicking it up an extra $20 to $150 per month—or $1,800 a year—would have gotten you to $1,136,656.2 Your million plus a new Tesla and Corvette.

Spend less than you earn—invest the surplus—avoid debt

(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.

Stop thinking about what your money can buy. Start thinking about what your money can earn.

It is simply not possible to time the market, regardless of all the heavily credentialed gurus on CNBC and the like who claim they can. The market is the most powerful wealth-building tool of all time. The market always goes up and it is always a wild and rocky ride along the way. Since we can’t predict these swings, we need to toughen up mentally and ride them out. I want my money working as hard as possible, as soon as possible.

the CRSP U.S. Total Market Index.

The typical investment advisor’s rule of thumb is: Subtract your age from 100 (or more aggressively 120). The result is the percentage of your portfolio that should be in stocks.

Bonds are in our portfolio to provide a deflation hedge. Deflation is one of the two big macro risks to your money. Inflation is the other and we hedge against that with our stocks.

When you buy stock you are buying a part ownership in a company. When you buy bonds you are loaning money to a company or government agency.

The two key elements of bonds are the interest rate and the term.

When interest rates rise, bond prices fall. When interest rates fall, bond prices rise. In either case, if you hold a bond to the end of its term you will, barring default, get exactly what you paid for it.

Fund 401(k)-type plans to the full employer match, if any. Fully fund a Roth if your income is low enough that you are paying little or no income tax. Once your income tax rate rises, fully fund a deductible IRA rather than the Roth. Keep the Roth you started and just let it grow. Finish funding the 401(k)-type plan to the max. Consider funding a non-deductible IRA if your income is such that you cannot contribute to a deductible IRA or Roth IRA.

VTSAX is the Admiral version and provides the lowest cost, but has a $10,000 minimum buy-in. The Investor Shares option, VTSMX, holds the same portfolio, but with slightly higher costs and a $3,000 minimum. He should use Admiral Shares whenever he can and Investor Shares if needed as a start. Once the account reaches $10,000, Vanguard will automatically switch it to the lower-cost Admiral Shares.

VBTLX in the IRA, as it is tax-inefficient. VTSAX in the Roth IRA, because this is the last money I would spend and the money most likely to be left to my heirs. Roths are an attractive asset to leave upon your death and, since this is my most long-term money, the growth prospects of VTSAX make it the preferred investment here.

VTSAX also goes into the taxable account because, of the two funds, it is more tax-efficient. VTSAX is also held in our regular IRAs, as even it can benefit from tax-deferral.

I hold: VTSAX in my Roth and in my regular IRA. Our entire bond allocation in VBTLX in my regular IRA.