This week I decided to do another book review. Although I finished this book a few weeks ago for the 2nd time, I wanted to make sure I got this out on The Cyber Union. Despite its cheesy name, The Simple Path to Wealth is actually full of great insight that seems to be the core of F.I.R.E movements philosophies. Save money, invest it wisely, and tons of other great info are touched on. Today I will discuss my favorite portions of the book and why everyone just starting their path to financial freedom should read this book.
To start with a little background on the book, it originally started as letters the author JL Collins sent to his teenage daughter. He wrote in such a way that she could understand the crazy world of finance. Although he states that she “wasn’t ready” to care about finances at the time, he turned these letters into a blog series and this book. This means that non-accountants and non-financial specialists have an easy to understand book to get our toes wet in the financial world.
The fact that Collins’ book was a relatively easy read without being dry is probably one of my favorite things about this book. It’s hard to find financial books described as easy to read. Trust me on this if you haven’t read many. Most are filled with either high-level garbage that doesn’t help or so over your head. In the latter group is The Intelligent Investor, which is supposed to be a classic, but damn, is it a rough read. I have yet to finish it.
Back to the topic.
But not only is it easy to read, but the book is also filled with practical and actionable advice.
Filled With Goodies
Another one of my favorite qualities about this book is that it is filled with personal insight and solid nuggets of advice. Not to say that you should do precisely as the author does, but if you did, you probably would be in a really good place. In line with the spirit of the F.I.R.E community, he recommends you do your own research and find what works for you.
Everyone is different. Different levels of income. Different worries. My retirement plan probably won’t work for you, and neither will his. But some pieces of it will. The game of financial freedom is a choose your own adventure.
An excellent example of what works for one person and not another is paying off your mortgage debt. Some people prefer to make it a priority after all other debt is paid off. Think, Dave Ramsey. Others prefer to put most of the extra money into investments after paying all debt besides the mortgage.
Collins actually made a good argument that made sense in my mind for the latter camp. If the interest rate is around 3%, then it’s not as big of a concern. The market and other investments will make the interest rate negligible.
Another example is that some people prefer to have more bonds and liquid assets than others. Having to worry about stock market crashes keeps them up at night, and life isn’t really free if you are watching stock tickers all day. These folks sleep better by having more considerable emergency funds or a more diverse portfolio.
Filled With Action
Also, unlike other books in the Self-Help/Finance genre, this book has straight-up actionable steps. The guy literally tells you what he invests in. If you are familiar with Mr.Money Mustache and others in the community, they all pretty much point you to Vanguard. I also use Vanguard for my self-managed funds and my IRA’s that I have transferred from previous employers.
I can’t remember if I have spoken about Vanguard before, but they are pretty much the answer to the high-cost mutual funds we use in our 401k’s at work. If you are not being charged an arm and a leg for someone to manage your money, count yourself lucky. I found this out the hard way.
To see how much you are being charged, just look at the expense ratio. If it is over 1%, they are basically murdering your retirement account.
This is the amount of money they take out every year to manage the fund regardless of its performance. Vanguard is known for its insanely low funds. Looking at Vanguard 500 Index Fund Admiral Shares (VFIAX), the expense ratio is currently 0.04%. Yes, that number is correct!
This isn’t to say Vanguard is the only one that has low expenses. Check to see what you are being charged and see if other investment options have similar returns and lower expense ratios.
NOTE: This is the I am not a financial advisor message. I am not. Do your own research and consult a professional if you feel uncomfortable.
Some of the major topics he covers in the book are:
One of my major takeaways from this book was creating a FIRE calculator to determine how much money I will need to retire. I just did this in an excel spreadsheet using my modified version of Dave Ramsey's budget. I was able to see that I didn't need as much money as I thought. In my office, I actually have this number posted on my goal board. One day I will get around to sharing my budget template. Let me know in the comments below if you are actually interested.
Another take away is that changed my F.I plan slightly was my allocations in Vanguard. I now have about 20% of my money in a growth fund, 25% in bonds, and everything else in an S&P 500 index fund. Previously, pretty much everything was in an Index Fund. This also motivated me to move my money over from my previous employer to Vanguard.
This book will motivate you to get what Collins calls fuck you money. When you get to the point where you can say that this isn’t worth it and just leave without worrying about starving, you have f you money.
If you are brand new to the idea that you can be financially free before 60, then I suggest at least checking out his blog and getting his book if you like his writing style. He will inform you, fill you with motivation, and getting you started in the right direction.