Through letters, a wealthy father gave his adolescent daughter The Simple Path to Wealth, a three-step blueprint for simply reaching financial freedom. Two pals from childhood grew into adults and went their separate ways. One turned into a strong royal advisor, while the other became a monk. Years later, when they finally cross paths, the minister is sad for his friend. He tries to counsel him, saying, “You wouldn’t need to survive on beans and rice if you learnt to serve the king.” “If you learnt to live on beans and rice, you wouldn’t need to work for the king,” is all the monk has to say in response.
J. L. Collins uses this tale as his introduction to The Simple Path to Wealth to highlight one important point: richness is not about having power, living in luxury, or sitting about. The topic is freedom. Collins believes that the most valuable thing you can purchase is your independence, and he provides a clear route to achieving it in this book.
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His then-teenage daughter received a series of letters that eventually turned into a best-selling book that sold about 400,000 copies. The fact that Collins’ method is as straightforward as the book’s title suggests contributes to its allure. He claims that if you take these three actions, accumulating riches is practically guaranteed:
1. Make sure you spend less than you earn.
2. Steer clear of debts like the plague.
3. Put all of the remaining money into index funds.
Are you ready for an easy way to get rich? Let’s take an in-depth look at J. L. Collins’ road map!
Lesson 1: Save more money than you earn at all times.
Collins claims that “you are nothing more than a plated slave if your standard of living matches—or preferably surpasses your earnings.” He brings up the example of one of the finest boxers in history, Mike Tyson, who made more than $300 million (!), but ultimately went bankrupt.
As a sign of having golden handcuffs, I’m sure you too recognize an individual who ought to have a lot more but nevertheless never seems to stop whining regarding the amount of work they must accomplish. Collins argues that “you own everything that you own while they eventually own you,” which explains why. Over time, we suffer psychologically and financially from the constant upkeep that our belongings require.
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There isn’t a significant portion of the book devoted to credit card rate negotiations, budgeting, or reducing coffee consumption. Collins just makes a common sense argument. Everyone is aware of their financial situation, and anyone can determine their spending, at least roughly, with a few easy computations. Ensuring that the difference among the two is positive and maintaining it that way is the foundation of building wealth.
According to Collins, “a high level of savings has two benefits.” “As your investments increase, you develop the ability to live on less.” Collins doesn’t lead an opulent life. He never even paid for a car. He gets to pick how and with whom he works in return for this freedom.
Collins advises you to aim for the same percentage of savings, which is 50% of one’s salary.
Aim for spending less than what you earn as soon as you have more money than you require.
Lesson 2: Quickly pay off your debt and remain debt-free.
Debt can be viewed from a variety of perspectives. Experts claim that it may serve as a helpful tool. Some advice you to distance yourself from it as much as possible. Personally, Collins and I both tend to favor the latter viewpoint.
He writes, “Carrying debt has much the identical effect and is as pleasant as being enveloped with leeches.” You should therefore pay off any debts you have as soon as possible. Your monthly excess that you can put into the stock exchange will begin to increase as soon as you are debt-free.
Collins also discusses company loans, educational loans, and mortgage loans—three types of debt that are typically regarded as “good debt,” or money borrowed for useful purposes. Extreme caution must be used when handling the first sort. The second category ought to be abolished since it does nothing but drive up the expense of school and force people into professions they wouldn’t want to take years after graduating from college.
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In reference to the third option, Collins advises purchasing “the least residence to meet your requirements as opposed to the most apartment you can theoretically afford.” “House” is like “apples” to him. Something you can buy in any amount, but the more you purchase, the longer it will hurt your finances.
Try to maintain your debt-free status if you are (still). Try to pay off your debt as soon as possible, then concentrate on increasing your wealth.
Lesson 3: Until you’re financially independent, allocate the majority of your savings to index funds.
I dislike repeating myself when I’m making the same point, but index funds are a common theme in finance literature for a good reason. Collins is not an anomaly. He is one of the many financial professionals who have made index fund investing the cornerstone of their wealth-building plan.
Collins suggests the Vanguard Total Share Market Index vehicle (VTSAX) or the VTI, which is the corresponding exchange-traded vehicle. You should put all of your money into this vehicle that tracks US stocks if you’re in the wealth building stage, which is when you’re attempting to build a nest egg that is 25 times larger than your annual costs, he adds.
Collins tells us that this is going to be much, more difficult than you anticipate. “People around you will panic,” as the market plummets. even if you have every month’s payment to your broker automated. The press will be yelling, “Sell, sell, sell!” However, you have a good chance of success if you persevere. The stock exchange has historically always benefited those who have supported it long enough.
Based on the 4% rule verified by a well-known study, Collins asserts that if you reach a portfolio target, let’s say 1 million dollar you’ll be able to comfortably take 3-7% annually while still increasing your assets. Enjoying your newly acquired independence is all that’s left to do!
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“Invest the excess, spend a little more than you make, and stay out of debt.” In a nutshell, that’s the straightforward route to riches, and I sincerely hope you can follow it all right through to the finish.
The Easy Way to Become Rich Review
A book that was written by a parent for their child, just as The Wealthy Gardener. Those are always compelling reading. I believe you will truly love this book if you want direct, conversational advice that is written in a lighthearted manner.
To whom would I suggest giving our overview of The Simple Path to Wealth?
The forty-five- who still has a surprising amount of time till retirement, the 24-year-old fresh college graduate who is about to acquire his first huge paycheck, and everyone else searching for a tried-and-true, no-frills investing method.