The Simple Path to Wealth: Your road map to financial independence and a rich, free life ♦♦♦♦♦
by J L Collins
286 pages, Published June 2016
This past week I’ve had a few opportunities to ponder the importance of talking about money and finances with friends and family. All of us have so much to learn, and so much knowledge to share (successes and mistakes), that it’s a shame that most of us don’t talk about money and are left to re-invent the wheel as we roll down our path to financial security.
I recently read a short post from Vanguard called “Money Talks … Why Don’t We?” It makes the point that discussing money and finances is often considered taboo in our culture. I think this was true in my household growing up…yet I managed to internalize some core frugality principles through the example set by my parents. A little straight talk would’ve helped too though ~ lessons-learned in the real world to supplement what little financial literacy we were taught in school.
With good humor and much expertise, JL Collins has shown us the way with his new book, dedicated to educating his daughter about what she needed to know early on in her financial life. As a recent fan of Jim’s financial blog, and especially the Stock Series, I had the distinct pleasure of sitting down to read an early copy of The Simple Path to Wealth and it’s a page-turner, especially helpful for those in the wealth-accumulation phase of their lives. It’s a great example of how to share financial wisdom with the next generation in your family, to try to provide a good “Road Map to Financial Independence and a Rich, Free Life”.
With a forward from Mr. Money Mustache that sets an inviting and folksy tone, this book delivers the “what you wish someone had told you message” that every young person should hear, plus stories with hard-won words of wisdom for those at all financial stages. The fact that it’s coming out during graduation season might just give you the obvious opening to give it to your nieces and nephews as they graduate from high-school or college. If they only read the pages on debt (especially student loans), your gift will make an indelible impact on their lives!
Jim’s goal is a noble one:
"What is so simple and clear now I personally had to learn the hard way, and it took decades. Those initial letters to my daughter, then www.jlcollinsnh.com and now this book are all my efforts to share with her what works, where the minefields lie and how simple it all can and should be. My hope is that with it her path will be smoother, her missteps fewer and her own financial freedom will come sooner and with fewer tears".
I appreciate his key message in Part 1 of the book, and strive to follow it myself. “Spend less than you earn—invest the surplus—avoid debt”. I credit the fact that I was able to leave my corporate job at 51 largely to the fact that, while still fully enjoying the good things in life, I always have lived below my means. This paves the way for the early investing that makes financial independence easier, and just simply gives you the freedom to realize you have options (which Jim calls F-You Money 😉 )
I also truly believe in Jim’s theme in Part II that “Simple is good. Simple is easier. Simple is more profitable”. It’s just common sense really ~ and so you won’t be surprised to hear that I’m a fan of Vanguard. For a long time now, I have followed the approach that Jim advocates in his blog and book, to invest primarily in low cost index funds.
Based on my particular goals and my phase of financial life, Vanguard has recommended an allocation of 4 index funds: Total Stock Market Index, Total International Stock Market Index, Total Bond Market Index, and Total International Bond Market Index. I value Vanguard’s expertise and I’ve implemented this variation from the 1-index fund model that still keeps expenses very low, and the annual management quite simple. My allocation of about 75% stocks / 25% bonds (and a comfortable level of cash equivalents) is based on the idea of taking no more risk than needed to maximize the likelihood of achieving my goal to not run out of money. It works for my peace of mind, and when (not if) the next major market meltdown happens, the plan is that my cash cushion will allow me to be emotionally tough enough to ride it out without giving in to panic.
There’s lots of good stuff in Part II and Part III of the book for those of us closer to the wealth-preservation phase of our lives to help us build confidence in index investing, stay the course, and resist timing the market. Part IV is especially timely for me since it’s focused on what to do once you get “there”. Take my word for it…at this stage of life one can become oddly fascinated by mechanisms for withdrawing assets and minimizing taxes. Even for those of us trying to keep it simple, enjoy life, and not focus on the stock market, there’s a lot to think about!
Circling back to the original topic of talking about money – how to manage it, save it, invest it – I highly recommend talking with friends and family. I’m lucky to have a few smart hiking buddies to bounce ideas off of – we sometimes “walk-n-talk” about such things as Roth conversions for pre-59.5 money, health care subsidies, asset allocations, and minimizing taxes on RMDs. No really…we’re fun people, and talk about other things too! But we never talked about any of this while we were working together – it seemed taboo, or at least too private. Too bad – I think a friendly Personal Finance Club (like a book club) would’ve helped all of us learn from each other earlier. The Financial Independence community online, including the lessons from J L Collins at his blog and The Simple Path to Wealth, is possibly even better for sharing new ideas and lessons!
Do you talk about money in your family? With close friends? Or is it a topic to be avoided, like religion or politics? (Let’s not get started on politics this year!)