The Simple Path to Wealth

The Simple Path to Wealth is a three-step template for achieving financial freedom in a straightforward way, passed from a wealthy man to his teenage daughter through a series of letters.

“If your lifestyle matches—or god forbid exceeds—your income, you are no more than a gilded slave,” Collins says. He mentions Mike Tyson, one of history’s greatest boxers, who made over $300 million (!) yet still wound up bankrupt.

I’m sure you too know someone who should have more than enough but somehow keeps complaining about how much they have to work — a symptom of wearing golden handcuffs. That’s because “You own the things you own and they in turn own you,” Collins says. Our possessions require a lot of mental and financial maintenance, and, over time, that takes a toll on us.

The book doesn’t have a big section about budgeting, cutting back on lattes, or re-negotiating credit card rates. Collins simply appeals to our common sense. Everyone knows how much they have, and, with a few simple calculations, everyone can know, at least roughly, how much they spend. Building wealth is about making sure there’s a positive difference between the two and making sure it stays that way.

“The beauty of a high savings rate is twofold,” Collins says. “You learn to live on less even as you have more to invest.” Collins doesn’t live a lavish lifestyle. He never even had a car payment. In exchange, he is free to choose whom he works with and how he spends his time. Collins’ savings rate is 50% of his income, and he recommends you target the same number.

From the moment you make more than you need, aim to spend less than you earn.

There are many different approaches and takes on having debt. Some experts say it can be a useful tool. Others suggest you should get away from it as far as you can. Personally, I lean more towards the latter perspective, and so does Collins. “Carrying debt is as appealing as being covered with leeches and has much the same effect,” he writes. Therefore, whatever debts you have, you should get out of as quickly as you can. As soon as you’re debt-free, the surplus you can invest into the stock market each month will start growing. Collins also addresses three kinds of debt we usually consider “good debt,” aka money we borrow to use towards productive ends: business loans, student loans, and mortgage loans. The first kind must be handled with great care. The second should not even exist, as it only inflates the cost of education and forces people into jobs they’d never take years after they’re done with college. As for…