JL Collins, author of The Simple Path to Wealth, outlines three foundational principles that can set anyone on the path to financial independence and long-term financial success. Here’s a breakdown of these principles and how they work together to build wealth over time:
1. Save Aggressively—Ideally 50% of Your Income
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Collins emphasizes the power of a high savings rate, recommending that you aim to save as much as possible—up to 50% of your earnings if you can.
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While this might seem unrealistic to some, Collins argues that many people can achieve a higher savings rate than they think by living below their means and prioritizing savings over lifestyle inflation.
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The benefit of a high savings rate is twofold: it accelerates your journey to financial independence and ingrains habits that make wealth-building automatic. As your income grows, maintaining the same savings percentage allows both your lifestyle and investments to grow in tandem.
2. Avoid Debt—Treat It as an Emergency
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Collins is adamant that carrying debt is incompatible with financial independence. He describes debt as a financial emergency that must be addressed immediately.
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The strategy is straightforward: stop accumulating new debt, spend less than you earn, and direct as much of the surplus as possible toward paying off existing debt.
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Once debt is eliminated, the money previously used for repayments can be redirected into investments, further accelerating wealth accumulation.
3. Invest Simply—Use Low-Cost Index Funds
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Instead of trying to pick individual stocks or time the market, Collins advocates for investing in broad-based, low-cost index funds.
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Index funds offer diversification, low fees, and historically strong long-term returns, making them an accessible and effective option for most investors.
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Embracing index funds early on can make the path to financial independence smoother and less stressful, as demonstrated by Collins’ own experience and the stories of others who have followed this approach.
Additional Insights
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Collins also highlights the importance of growing your income by doing work you enjoy or excel at, which naturally leads to higher earnings and greater savings potential.
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He acknowledges that a 50% savings rate may not be feasible for everyone, especially those in high-cost areas or with single incomes, but stresses that extraordinary results require extraordinary actions.
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The core message is that financial success is less about deprivation and more about making intentional choices that align with your long-term goals.
By focusing on these three principles—saving aggressively, avoiding debt, and investing simply—you can lay a strong foundation for financial independence and a secure future.