In this The Simple Path To Wealth review I’ll share some of the lessons I learned and why I think this book is essential reading for most people. Learning money lessons from books like The Simple Path To Wealth helps many of us in our financial journeys.
As we move from paying off debt to building wealth books like this are essential. They are creating the map for us to plan the way financially.
This book by JL Collins is one of the most recommended books in the FIRE community.
FIRE, or Financial Independence Retire Early, is a community of people who are living far below their means to save up money in order to retire early and live the way they want. Books like The Simple Path To Wealth outline how they are doing this and how you can do it too.
Lessons From The Simple Path To Wealth
The Simple Path To Wealth is such a great book and it focuses on some of my favorite topics:
- passive investing
- using broad based index funds
- tools for building wealth for FIRE
- asset allocation for the different phases of building and preserving wealth
- determining how much you need
The book takes the complex concepts people often avoid and makes it easy.
Here are the money lessons I learned from The Simple Path To Wealth:
1. Save a percentage of every dollar you make.
This savings lesson is super important no matter where you are starting. Being able to save a percentage of your income is critical to achieving every other financial goal.
Saving money is a foundational lesson for personal finance.
In The Simple Path To Wealth the concept of savings as a percentage of your total income is huge. You want to save a percentage of every dollar that comes in via income.
This means you don’t pick and choose when you can save – you are ALWAYS saving at least some percentage of your income.
2. Maintain a high savings rate.
Saving a percentage of every dollar is foundational. But for people to move beyond just the basics you have to maintain a very high savings rate.
In order to reach financial independence or retire early you have to maintain a high savings rate.
For people in the FIRE community the ideal savings rate is as high as possible – often 75% or more. At the lower levels in that community people aim to achieve 50% of their income. This is the type of high savings rate that The Simple Path To Wealth encourages.
This can be very difficult to start with and many people can never achieve it. With the high cost of living in many areas a high savings rate can be difficult to achieve.
While it is obviously difficult and achieving it includes massive privilege, this high level of savings rate leads to financial independence quickly.
You can see this in the famous chart shared by Mr. Money Mustache in this post about the simple math behind early retirement.
When you save 50% of your income you have 17 working years until retirement. When you save and invest 75% of your income then you only have to work 7 years until financial independence and retirement is possible.
3. Avoid fiscally irresponsible people.
Avoiding fiscally irresponsible people is another key lesson to learn in building wealth.
While you don’t have to dump your friends you do need to evaluate who you spend your time with and how they effect your money habits.
Do your friends and family encourage you to overspend? Does your circle expect certain levels of spending? Do your friends make bad financial decisions and ask for monetary help?
When you are constantly surrounded by people making bad decisions with money you are more likely to do the same. If none of your friends save and always spend money going out then you likely will too. If your friends all have $600 car payments then you are more likely to follow that path too.
Changing up your circle can help you change directions with money too.
Being around people who are smart with money can help you too. Spending time with people who make good financial decisions and grow their wealth can help you do the same.
If they are always investing and talking about their investments then you will participate in those conversations. If your friends always look for fun and frugal activities then you will as well. You’ll spend less and save more if your friends and family are trying to do the same thing.
Your success can be directly affected by who you surround yourself with so be careful with your choices.
4. Avoid money managers.
I always like to tell people they are smart enough to figure out how to invest with index funds and the author of this book agrees with that assessment.
In The Simple Path To Wealth JL Collins advocates for people to avoid money managers and instead invest in low cost index funds.
Instead of picking stocks or having a money manager do it for you, you skip all of the downsides to investing.
By focusing on investing in index funds you are buying the market as a whole. You don’t pay commissions or high fees that you would with many asset managers. You also are investing in an asset that always goes up over time.
Avoiding the fees that money managers charge helps you build wealth faster and keep more of your money.
5. Money can buy you anything you want in life.
One of the best things about money is that it can buy anything you want in life – including financial freedom.
This is a key lesson in this book:
“There are many things money can buy, but the most valuable of all is freedom. Freedom to do what you want and to work for whom you respect.”
By building wealth you are buying your freedom. When you have enough money you get to make choices that you would not otherwise make. Money can buy you the freedom to spend your time how you want.
The alternative is spending money on a fancy lifestyle you can’t afford just to impress others. When you do this and live paycheck to paycheck you end up a slave to the job you are working in with no ways to leave.
If you are pursuing financial independence then you will resonate with this lesson. Saving your income, investing your income, and growing your wealth are buying your financial independence.
One dollar at a time you buy your freedom.
When I first found out about the idea of FIRE I was not very interested. It sounded like being miserable saving money just to later live miserably on limited income.
I also love working and figured I would always work in some fashion. Why bother pursuing financial independence if I like working?
However, now that I’m working with fluctuating income I see the benefit in building up wealth in order to retire early – if I want to or need to!
Reading this book and writing this The Simple Path To Wealth Review post has helped me solidify the idea that I do want to work toward financial independence.
Having the money available to live the life I want without worry is very appealing. This is the major takeaway for me personally after reading The Simple Path To Wealth.
In addition to helping me settle on pursuing financial independence, this book definitely taught me and others some very valuable lessons.
After posting my video recapping these lessons from The Simple Path to Wealth I had a lot of comments about how great this book is:
- “This book changed out lives! Tops my list of favs.”
- “Such a good resource!”
- “I’m working toward that 50% savings rate where I can also live comfortably. It’s the motivator reminding me why I need to earn more and manage what I have well.”
- “Thank you thank you THANK YOU for saying that investing is easy!! So many people say ‘investing is hard’ or ‘investing is confusing’ so ‘this is why you need to pay ME to teach you!!”. We are a lot more capable than we give ourselves credit for.”
For those who have already read this book it was a resounding agreement. This book is a must read for anyone curious about money or achieving financial independence.
Want to read this book and see if you agree with the lessons in this The Simple Path To Wealth review?
Get The Simple Path to Wealth: Your Road Map to Financial Independence and a Rich, Free Life