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The Simple Path to Wealth (Part II)
Matt Karamazov
August 23, 2024 • Estimated Reading Time: 32 minutes
“Two close boyhood friends grow up and go their separate ways. One becomes a humble monk, the other a rich and powerful minister to the king.
Years later they meet. As they catch up, the portly minister (in his fine robes) takes pity on the thin and shabby monk. Seeking to help, he says: ‘You know, if you could learn to cater to the king, you wouldn’t have to live on rice and beans.’
To which the monk replies: ‘If you could learn to live on rice and beans, you wouldn’t have to cater to the king.’
Most of us fall somewhere between the two. As for me, it is better to be closer to the monk.”
“It was my first ‘professional’ job and it had taken me two long post-college years supporting myself doing minimum wage grunt work to find it. But I wanted to travel. I wanted to spend a few months bumming around Europe.
I went to my boss and asked for four months of unpaid leave. Such a thing was unheard of in those days. He said ‘no.’ Back then I had no idea that working relationships were negotiable. You asked. Your employer decided and answered. Done.
I went home and spent a week or so thinking about it. In the end, as much as I liked the job and as tough as I assumed finding another would be, I resigned. I wanted to go to Europe. Then a funny thing happened. My boss said, ‘Don’t do anything rash. Let me talk to the owner.’
When the dust settled, we agreed on a six-week leave which I spent riding my bicycle around Ireland and Wales.
While I might not have initially realized such things could be negotiated, I learned quickly enough. I asked for and received a month of annual vacation going forward. That got me to Greece the following year. My eyes were opened. F-You Money not only paid for the trip, it bought me room to negotiate. I’d never be a slave again.”
“It’s a big beautiful world out there. Money is a small part of it. But F-You Money buys you the freedom, resources, and time to explore it on your own terms. Retired or not. Enjoy your journey.”
“The more and greater things you allow in your life, the more of your time, money, and life energy they demand.”
“Flexibility. How willing and able are you to adjust your spending? Can you tighten your belt if needed? Are you willing to move to a less expensive part of the country? Of the world? Are you able to return to work? Create additional sources of income? The more rigid your lifestyle requirements, the less risk you can handle.”
“Fast-forward to 2010-14, my daughter’s college years. The all-in yearly cost averaged $40,000 at the University of Rhode Island, also a state school. New York University, her other option, would have run ~$60,000 per year.
As a former colleague of mine once said, that’s like buying a new BMW, driving it for a year, and throwing it away. Then buying another. For four consecutive years.”
“Unlike other kinds of debt, as truly awful as they are, you can never walk away from your student loans. They survive bankruptcy. They will follow you to your grave. Your wages, and even Social Security, can be garnished to pay them. No wonder banks are falling all over themselves to issue this debt.
I am a firm believer in personal responsibility and that debt freely taken on should be faithfully repaid. But the ethics of encouraging 17 and 18-year-olds – who likely have little financial savvy – to almost automatically accept this burden give me serious pause. We have created a generation of indentured servants. It’s hard to see the ethics or benefits in that.”
“I owned my freedom. Freedom to choose when to leave a job and freedom from worry when the choice wasn’t mine.”
“The lines between need and want are continually and intentionally blurred.”
“What the media wants from these commentators is drama. Nobody is going to sit glued to their TV while some rational person talks about long-term investing. But get somebody to promise the Dow is going to 20,000 by year’s end or better yet, is on the verge of careening into the abyss, and brother you’ve got ratings!”
“It’s your money and nobody will care for it better than you. But many will try hard to make it theirs. Don’t let it happen.”
“With less effort than choosing an advisor, you can learn to manage your money yourself, with far less cost and better results.”
“Mr. Buffet talks in terms of owning the businesses in which he invests. Sometimes he owns them in part – as shares – and sometimes in their entirety.
When the share price of one of his businesses drops, what he knows on a deep emotional level is that he still owns precisely the same amount of that company.
As long as the company is sound, the fluctuations in its stock price are fairly inconsequential. They will rise and fall in the short term, but good companies earn real money along the way, and in doing so their value rises relentlessly over time.”
“The Dow started the last century at 66 and ended at 11,400. How could you lose money during a period like that? A lot of people did because they tried to dance in and out.”
-Warren Buffet
“Wisdom comes from experience. Experience is often a result of lack of wisdom.”
-Terry Pratchett
“Money frees you from doing things you dislike. Since I dislike doing nearly everything, money is handy.”
-Groucho Marx
“As individuals, we only have one obligation to society: To ensure we, and our children, are not a burden to others. The rest is our personal choice. Make your own, and make the world a far more interesting place.”
“Everything you want is on the other side of fear.”
-Jack Canfield
“Avoid debt. Nothing is worth paying interest to own.”
“You’re young, smart, healthy, and tough. By your thirties, you’ll have F-You Money and you should have a blast getting there. Once you’ve got it, it will continue to expand, as will your personal options. Your future is so bright it hurts my eyes to look at it. That’s what I have told and will continue to tell my daughter.
So, if you are also in college, or a few years out, and wanted to know what your kindly old Uncle Jim suggests, there you have it. Like everything we’ve discussed, it is all about expanding your opportunities in life.
If you are a bit more seasoned, don’t despair. It’s never too late. It took me decades to figure this stuff out. Like mine, your road has likely already had more bumps than those who follow this path from the start will endure. But those bumps are in the past.
It is your future that matters and that starts, for all of us, right now.”
Doing well with money has a little to do with how smart you are and a lot to do with how you behave. Exploring exactly how this plays out in real life is Morgan Housel's project here, and in this book, he covers 20 of the most important logical flaws, biases, and causes of bad behavior that do the most to make the world of money such a circus.
One of his greatest observations is that knowing what to do tells you nothing about what happens in your head when you actually try to do it, and he also explains why people make decisions with money that may seem crazy to us but actually make perfect sense to them.
No one is crazy, says Housel, it's just that we've each learned different lessons about money depending on our worldview, how we were brought up, and the individual experiences we've had.
In this breakdown, we're going to be looking at why gaining control over your time is one of the highest dividends money can pay, and the parts that luck and risk play in the formation of our strategies for life.
We're also going to be working on making you "antifragile" by making sure you eliminate any single points of failure that currently exist in your life, and I'm going to be introducing you to one of the most effective investment strategies ever devised, otherwise called "Shut Up and Wait."
Sample Quotes from the Book:
“People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, born into different economies, experiencing different job markets with different incentives and different degrees of luck, learn very different lessons."
“None of the 2,000 books picking apart Buffet's success are titled This Guy Has Been Investing Consistently for Three-Quarters of a Century. But we know that's the key to the majority of his success. It's just hard to wrap your head around that math because it's not intuitive.
There are books on economic cycles, trading strategies, and sector bets. But the most powerful and important book should be called Shut Up and Wait. It's just one page with a long-term chart of economic growth."
“The hardest financial skill is getting the goalpost to stop moving.”
Read the Full Breakdown: The Psychology of Money, by Morgan Housel
You can get virtually anything you want in life, just as long as you help enough other people get what they want.
That's one of the earliest lessons I learned from one of the first self-improvement books I've ever read, and Brian Tracy has been a staple of my wide reading ever since. The truth of his principles has been proven time and time again, and in my own life, much of my success can be directly attributed to what I've learned from him.
In this book, The Science of Money, Brian breaks down some of the myths and misconceptions concerning how money works and how to bring more of it into your life, as well as provides enlightening explanations of the ideas that will help you create wealth. Perhaps "science" is too strong a word - there's certainly a softer, more human element to wealth creation, too - but these ideas are solid.
Importantly, the ideas in this book are foundational. They will help you to start your journey to riches on the right foot.
There's a ton of misinformation, bad advice, and downright lies that are propagated today when it comes to making money, but you'll find none of them here. And even if you're a little further along on your journey, you'll find that this book is an excellent refresher and one that you may want to keep close by.
There are a ton of great ideas contained here in this breakdown, such as the vital importance of investing in yourself, a discussion about identifying infinite opportunities, and advice about how to increase your earning capacity, but I will just say this: if you bring these ideas to your life through your daily actions and activities, your financial life will change for the better. It will improve.
The world is getting richer all the time; the principles of wealth creation are known; you are more capable than you know, and Brian Tracy's hard-won wisdom is available to all who seek it at the foot of the Stairway to Wisdom.
Sample Quotes from the Book:
“If you invest in yourself, you own 100% of the investment forever. You get 100% of the return.”
“As long as there are human wants unfulfilled and human problems unsolved and human needs that have not been taken care of, there will always be opportunities for the creative minority.”
“What is the amount that you need to reach in assets and cash flow, monthly and annually, so that you can stop? Self-made millionaires spend a good deal of time thinking about the answer to this question: how much will I need in order to be able to support the lifestyle I desire, and what will I do then?
Then they focus on that, and they sacrifice a lot in the short term in order to finally accumulate that amount of net worth, yielding that amount of income, so that they are free, their family is free, their children are free.
They’re not going to stop working, but that’s the crossover point. At that point they can get involved in philanthropy and in other activities and cut back. But for the first part of your life, you must put your whole heart into becoming financially free, and you must do it when you have the highest amount of energy, drive, ambition, and opportunity.”
Read the Full Breakdown: The Science of Money, by Brian Tracy
Most people aren't wealthy. They may or may not be struggling financially, but the average person will never become rich, and this is because it's literally impossible both to remain average and make above-average money at the same time.
You must elevate your financial game if you wish to become wealthy, and that process starts with embracing the mindsets and thinking patterns of the world's wealthiest people.
Now, obviously, there's a huge difference between a person's value to society and their value to humanity itself. Each and every individual's value to humanity is literally infinite - there are no "extra" people on this planet. But your value to society is what directly affects what you get paid, and the amount of wealth you can accrue in your lifetime.
If you want to be rich, you must make yourself exceptionally valuable to society.
Sample Quotes from the Book:
“By wanting to become wealthy, you are also saying that you want to accept the challenge to be better at making money than 99 percent of the people on this planet.
Just by attempting this, you are going to have to accept the fact that you must not just be good, you must be incredible. If you think differently, then you are done before you even get started."
“It might take you ten years, but if you never give up, you will have something to show for it.”
“It is VERY hard to spend $5 million every year.”
Read the Full Breakdown: The 10 Pillars of Wealth, by Alex Becker
An extraordinary life is won on offense and then preserved on defense. This book is about increasing your offensive capacity - and, specifically, about creating an income that will enable you to live free forever - while avoiding the mistakes and pitfalls that derail so many other well-intentioned people as they try to make a big move forward in life.
The Great Rat Race Escape blasphemes against the current “economic religion” of the world, which tries to convince people that they “wouldn’t be too unhappy” working away for 40+ years at a job that they “kinda-sorta like” (or, in many cases, passionately loathe), just so they can maybe - hopefully - get their freedom back fifty years later when they can finally enjoy their money from the safety of the nursing home.
That sounds like a waste of a perfectly joyous life to me, and M.J. DeMarco teaches how we can avoid that fate by starting a business and taking advantage of the internet gold rush that we’re currently experiencing.
The creator economy is absolutely booming right now, new businesses are appearing all the time, entrepreneurship is “hot,” and our time is now.
Sample Quotes from the Book:
“If the crowd knew any better, they wouldn’t be two paychecks from broke and wasting their life in front of a television.”
“Our culture thrives on mediocrity and obedience. It is the world’s business model.”
“Never live within the parameters of someone else’s opinion unless you want to live within the parameters of their existence.”
Read the Full Breakdown: The Great Rat Race Escape, by MJ DeMarco
No one's ideas are beyond questioning. In this section, I argue the case for the opposition and raise some points you might wish to evaluate for yourself while reading this book.
#1: The Simple Path to Wealth is the Slow Lane
Wheelchairs don't fit inside the trunks of Lamborghinis. That is to say, investing is a long-term game, but life is lived immediately, right now. So there's a balance that needs to be struck between living a good life today and investing for an even better life tomorrow.
The Simple Path to Wealth would be an example of what entrepreneur MJ DeMarco calls "slow lane" thinking, as opposed to the "fast lane," which might involve starting a business that allows you to reach financial independence in, say, 5-10 years, instead of investing in index funds for five decades until you're too old to enjoy the fruits of your labors.
There's nothing "wrong" with either approach, but whichever choice we make, we need to go into it with both eyes open, aware of our options, and what our choices mean for the road ahead.
#2: International Readers May Want to Skip Whole Sections
Everyone who handles money in their lives can benefit from reading this book, however, JL Collins is American, and he's writing for American readers, which is why he'll often reference investment vehicles like Roth IRAs and the like that have different names - or don't exist - in other countries.
That's not a criticism of the book, it's just to say that you may want to know that going in. Anyone who's planning on investing in American stocks and bonds will also likely benefit from reading the book, but again, whole sections of the book will be most useful to readers based in the U.S.
That being said, I did stumble upon the website Bankersonwheels, which is quickly establishing itself as a leading Investing and Personal Finance website for Global Investors that invest through European and UK Investment platforms and products.
They have their own summary of The Simple Path to Wealth, and the following is an excerpt from their summary aimed at European readers:
"As a next step, you will need to cover specifics related to European Personal Finance, including European tax regimes, tax wrappers, etc.
Finally, investing in Europe is a bit more involved and this part is clearly missing.
For instance, we wouldn’t advise Europeans to buy US-centric Index Funds, but rather a mix of a World ETF and a Global Bond ETF.
Or you could consider a Vanguard ETF that simply combines the two – it’s quite easy! But it won’t take you more than a week to understand all the aspects to apply JL Colins’ principles to our European investing landscape."
"The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.”
The quality of your questions determines the quality of your life. That's also how you get the absolute most out of any book that you decide to read:
You ask great questions the whole time - as though the book was on trial for its life.
Here in this section are a few questions that can help guide and stimulate your thinking, but try to come up with your own additional questions, especially if you decide to read this book the whole way through...
#1: "What investment stage are you in right now? Are you in the wealth accumulation stage or the wealth preservation stage? Some mix of the two?"
#2: "What level of risk are you comfortable with? What kind of asset allocation is going to enable you to sleep at night while maximizing the chances of reaching your financial goals?"
#3: "Is investing talked about in your family? Or is it a subject to be avoided? Do you have anyone you can talk to about money matters?"
#4: "How much of your debt do you regret taking on in the first place? Can you change your relationship to debt so that you see it as the enemy of wealth accumulation that it is?"
#5: "How much does your dream life actually cost? Have you ever taken the time to calculate it? Were you surprised?"
"Judge a man by his questions, rather than by his answers."
So you've finished reading. What do you do now?
Reading for pleasure is great, and I wholeheartedly support it. However, I am intensely practical when I'm reading for a particular purpose. I want a result. I want to take what I've learned and apply it to my one and only life to make it better!
Because that's really what the Great Books all say. They all say: "You must change your life!" So here, below, are some suggestions for how you can apply the wisdom found in this breakdown to improve your actual life.
Please commit to taking massive action on this immediately! Acting on what you've learned here today will also help you solidify it in your long-term memory. So there's a double benefit! Let's begin...
#1: Before You Do Anything…
In her excellent time-management book, 168 Hours, Laura Vanderkam writes that the best way to gain control over our time is to figure out how we're spending it now. We can take a similar approach to our finances!
So before we do anything else, it's a good idea to figure out where we are now with our finances - what our situation is, and what our options are. This means making some sort of budget, taking into account your lifestyle, cost of living, any assets or liabilities you have...that sort of thing.
Then, it may be a good idea for you to calculate how much you'd need to have invested to be able to maintain your ideal lifestyle by withdrawing 4% per year from your investments.
As discussed above, if you want to live on $100,000 per year, that means having $2,500,000 invested in the stock market and living off the interest.
#2: Destroy Debilitating Debt
Debt has no place in your financial life! JL Collins says that repeatedly, I say it repeatedly...so yea!
Sometimes it's more or less unavoidable, or at least understandable, as in the case of taking on student loans or buying a car, but it's that mindless consumer spending that leads a lot of people into debt trouble, and that's the kind that needs to be ruthlessly eliminated from your life if you want to give yourself the best odds of becoming financially free.
There are two popular methods for eliminating debt, and the first is to address the loan with the highest interest rate and pay that off first. Mathematically, that's the best option, because you're paying down the principal and reducing your interest payments along the way.
However, other people have success with something called the snowball method, where you take the smallest debt balance and pay that off first. The thinking behind this is that if you have multiple smaller loans all competing for your attention, it makes it difficult to get a handle on everything psychologically.
If you take out those smaller balances first, putting every single dollar you have into paying off that smallest amount, you'll build up momentum, and you'll be able to move on to the next highest balance, and so on until you're completely debt free.
The choice is up to you, but the important thing is that you get this situation handled once and for all.
#3: Make Your First Deposit
Getting in the habit of investing is so incredibly important. That's why this Action Step is simply to open an investment account and deposit your first $10.
Earning 8% interest on $10 is almost literally nothing, but it's NOT nothing, because you're getting started. You're moving down the path, and that's something to be celebrated.
Depositing just $10 a month is $120 in 1 year (if my math serves me correctly!), but as you keep eliminating your debt and working to make more money, the amount you'll be able to deposit will keep rising as well, until you're able to start getting into triple digits and even higher!
The important thing is that you just don't stop. You can even set it up so that a certain amount is invested automatically each month so that you don't even have to think about it!
Eventually, you'll look back and realize that you are an investor. You've armed yourself with the requisite knowledge, and taken the appropriate steps, and you're now destined for financial independence.
"The path to success is to take massive, determined action.”
These days, I'm a book author and financial blogger on jlcollinsnh.com, but it wasn't always so. I started selling flyswatters door-to-door and picking up empty pop bottles from the side of the road for the 2-cent deposit. Gimme a break. I was eight. My first real job was scrubbing out big metal ice cream cans. I was 13. It paid $1.25 per hour.
From there: Busboy, dishwasher, order-puller, grocery bagger, stock clerk, produce clerk and gas station pump jockey back in the day when someone pumped your gas, washed your windows and checked your oil (ask your grandparents). Mail clerk, tree-trimmer, landscaper, ad agency founder, account executive, ad space salesman, investment officer, entrepreneur, consultant, sales trainer, speaker, writer, radio talk show host and magazine publisher. Pretty much in that order although I've done some more than once. And I may have forgotten one or two.
My work has taken me to most U.S. states as well as Canada, Germany and England. One of my few regrets is that I've never had an international posting. But I've had the good fortune to see a bit of the planet on my own: Mexico, Canada, Ireland, Wales, England, Greece, Crete, Puerto Rico, Tahiti, Venezuela, Curacao, Scotland, Italy, Germany, Spain, Paris, India, Kashmir, Goa, Nepal, Zanzibar, Tanzania, Eleuthera, St. Thomas, St. Martin, Barbados, Antigua, Martinique, Ecuador, Perú, Bolivia, Chile, Prague, Guatemala, Galápagos. Pretty much in that order although I've visited some more than once. And I may have forgotten one or two.
I've traveled by plane, train, bus, boat, subway, taxi, hired car, motorcycle, bicycle, rickshaw, hitch-hiking, foot, horse, donkey and elephant. Not only traveled by elephant, but herded rhinoceroses by elephant back in Nepal. My degree in English Lit is from the University of Illinois at Champaign-Urbana. They still send me alumni letters mostly, I think, hoping I've become rich and famous. I'm working on it.
Here's my favorite cartoon: The visual is two guys in a corn field, up on racks dressed in shabby clothes. Straw coming out from their shirt cuffs and pant legs. They are serving as scarecrows. One is looking over at the other and saying... "English Major. How about you?"
A pal of mine once said I had won the family lottery. He is right. My wife Jane and I have been married for 34 years. Our daughter Jessica graduated Summa Cum Laude from the University of Rhode Island. She currently serves in the Peace Corps.
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Until next time…happy reading!
All the best,
Matt Karamazov
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