Episode 73 – Book review: “The Simple Path to Wealth”
Sometimes people get overwhelmed trying to find the “right” financial advice. But for a simple and effective method, look no further than “The Simple Path to Wealth” by JL Collins. His three core rules – spend less than you earn, invest the extra in low-cost index funds, and avoid debt – have become a strong foundation for those looking to grow financially. We discuss Collins’ approach to compound interest and simplifying your finances.
Episode transcript:
[music intro]
Jenny
Welcome back to Fund Your Future with DRS. In today’s episode, we’re diving into one of the most celebrated guides to financial independence. A little book called “The Simple Path to Wealth” by JL Collins. And I love kind of the origin story of this book because he started off writing letters to his daughter where he wanted to pass on this financial advice to her and didn’t feel like she was really soaking it in or interested in it.
And he started these letters, which kind of turned into a blog of his, and then he published this book. But I love that his philosophy is really straightforward. It’s really these three simple rules for managing your money. So, one: spend less than you earn. Two: invest the extra into an index fund. And three: avoid debt.
And I loved this when I heard it because it was like, “oh my gosh, that’s exactly it.” Like, I spend my job on the communications team here at DRS, talking to people about — on our website, specifically — about how and why people should save more for retirement. But then when I heard those three rules, it was like, “oh, that that actually was really simple.” It’s a great way to put it.
So, Seth, you’re the one who originally told me about this book. What was your impression of it?
Seth
Jenny, I think I first read this book a decade ago, maybe. And I remember one of my first impressions was, this book doesn’t need to be this long, and this book is actually very short book. But to your point, it is really three simple things, and a lot of it is just trying to make your life more simple.
And I generally lean more on the minimalist side. So, I think that’s one of the reasons I was attracted to this book. But yeah, it came up in conversation between you and I a few weeks ago because JL Collins pops up in my YouTube feed occasionally when he does a new podcast or an interview. And, it is a very straightforward, simple idea, especially around, you know, avoiding debt, thinking about how you can have compound interest work for you, or you can have it work against you.
And that’s just a really simple idea. And it doesn’t mean that he’s saying that all debt is bad, but it is something to think about and how you use it. And how it can be used against you. So yeah, lots of really good nuggets in this book. The other thing I really like about this book is anytime I interact with a younger person.
So, I’ve had some friends, some colleagues whose kids have graduated from high school or, I have a nephew who’s, recently gone to college. And they’ve expressed interest in personal finance. And this is the book I grab and I get them a copy and just say, just, you know, read it and see if anything sticks for you. Yeah, I really, really like it.
Jenny
I love that, yeah. And it sounds like that’s what a lot of other people have done as well. They’ve read it, absorb the information and said, oh my gosh, this is so great. I’m going to pass this along. I wish I knew this when I was 18.
Seth
One of the things in a recent interview, I heard JL say, or somebody who’s kind of grilling him about how he hasn’t turned this into like a giant enterprise, he hasn’t released follow up books or, you know, a series of books or, you know, turned it into a money-making [business]. Like, for him, this is really it. There isn’t that much more to it.
And I think sometimes with personal finance, we get into a lot of weeds. And one of the things I always try to remind myself is trying to get back to simple principles like, how can I make my investing simpler? How can I make my taxes simpler? How can I make my spending simpler? Like, what are the things that I can remove some of that noise?
Jenny
Yeah, I feel like the big takeaway really is that like simple life and that being wealthy necessarily isn’t about having like, the fancy cars and a boat and the huge big house, but it really his main motivation is helping people achieve financial independence, where you get to that point where you don’t have to feel like you have to work, that you have enough money, you can live off your investments and whatnot that you have that financial freedom, and there’s a whole group of people out there going for this.
He talks about the financial independence community that have really taken on with this book and kind of run with this idea of, okay, there’s this other option out there.
Seth
Yeah. One of the things that I appreciate that he often says in interviews is that these ideas are simple, but they’re not easy. And I think you and I were talking about before, some people end up being more fortunate. They’re farther along on this path when they start thinking about it, or they have fewer hurdles or barriers when they get started.
But his general principles really could apply to anyone in any situation. You mentioned cars, and it’s one of my favorite examples that he oftentimes gives, especially when you’re getting started. Like, drive a car that’s worse than you think you deserve, or some something along those lines.
And, you know, I remember being really struck as a younger person after I graduated college. I was continuing to work at university, and my wife was in graduate school, at one point. And we really noticed a lot of our friends buying new cars. Like as soon as they had a job and they all had vehicles that could get them from their home to their place of employment already. They were using the same – the car they had in school or whatever. And maybe they’d had since high school that, you know, had for some time.
But at some point you feel like you deserve or are ready for or have stepped up in life to a newer vehicle. And his point often is that if you can delay that gratification, if you can pay cash, even sometimes if it’s a new to you vehicle, but something that is less expensive, you can then invest the rest. Yeah, and I think that’s really a key point.
Jenny
Yeah, I love that too. Yeah. He shares that he’s never had a car payment and really, like you said, strives to push people towards that, saying you’re like, you don’t need this brand-new car. If you buy a used car, like you said, you could just go ahead and put that extra money, you’re saving interest, put that extra money into an index fund, or paying off credit card debt or whatever else it is that’s going to save you huge.
Seth
To his earlier point, it is simple, but it is uncommon. And I have some friends who, a few years ago paid straight cash for a brand-new car and like the people at the dealership were confused. Like, it’s just doesn’t happen. And they had made this intentional decision. They knew at one point in their life, you know, they had young kids.
They were going to need a bigger vehicle. And so they had saved up for this point of like, this is how much we think we’re going to need and how much we’re going to be able to afford, and we’re able to buy a brand-new vehicle just with straight cash and allowing their savings to grow. Once again, allowed compound interest to work for them, versus having the car payment and having the interest work against them. As JL said, it’s a simple concept, but it’s not something that everybody pulls off.
Jenny
Yeah. And then in regards to the debt point, one of the other things he really pushes is this idea around, you know, in the United States, a lot of these financial advisors, they’re pushing, you have to buy a house. You have to buy a house in order to grow your wealth. You have to do this. And JL Collins actually says, no, you don’t.
He actually says that it’s not necessarily the best way to build wealth. He goes, if you want to buy a house because you want a yard or because you want, to live in a certain neighborhood, or because you maybe you just want a little bit more of that space. Go ahead and buy the house. But don’t buy it thinking that this is the only way that I can build my… not portfolio, but my…
Seth
Yeah , your overall net worth.
Jenny
Yes. Your overall net worth. Because back to his simple rules. It’s like: spend less than you earn, invest the extra in an index fund, and avoid debt. And so, one of the biggest ways you can avoid debt is not buying a house. He actually even shares that his own daughter is doing just that. She’s renting and then putting the money into an index fund.
Jenny
And that’s it. Yeah.
Seth
It’s interesting. I don’t want to get too controversial here, but houses can be safe [and] good investments, I don’t know what word I want to use there. But when interest rates are low, that feels better. A lot of us younger folks lived in worlds where interest rates were relatively low, and so it didn’t seem as costly to own a house and once again, compound interest working against you or for you if compound interest is working against you.
But it’s only 1 or 2 or 3%, maybe it’s not as painful or scary, but if it’s 5 or 6 or 7%, then maybe those headwinds really pick up for you and maybe investing the excess. I think his point is especially true for people who are disciplined to save the extra. So, if you’re renting and you have additional income that you would have been spending on a mortgage payment and you’re disciplined to invest that and grow it, then it might be a better option.
If you’re not investing it and spending it and doing other things, but, you know, buying a more expensive car or whatever. A lot of times a house is a forced savings account for people.
Jenny
Oh, that is true.
Seth
And that’s why it helps people grow their wealth. It’s actually making you save.
Jenny
Yeah, exactly. Versus the extra… You kind of mentioned a little bit there about the mindset. And one of the first examples he tells readers in the book is about: think about a crisp $100 bill and what that means to you. You might be thinking that you could buy a nice dinner, or a tank of gas, or something off your Amazon wish list, but then other people might look at the $100 and say, “I’m going to invest this money. And then years later, after compounding interest and all that, then I’m going to spend it.”
And so, I think to a lot of his point is that you really have to change some of that mindset of looking at your money and going, what am I going to do with this? How can I make this money work best for me?
Seth
Yeah. There’s another, personal finance writer who talks about your dollars being employees that are working for you. And that’s one way I really like to think about, like, every $100 bill you have, if you’re investing it, it is going to make you 3 or 4 or 5 or $6 every year. And so, if you set that aside and you invest it in any different types of investments, that the amount may vary year to year as well.
But that is working for you. And having that shift in idea, of your mind of that’s what the money’s for, it maybe isn’t for spending, it’s for safety or it’s for additional freedom down the road can really help change how you see that money when it hits your bank account or when you when you get your paycheck.
Jenny
Yeah, for sure. And then so like we mentioned, like this book originally came out in 2015, then they did a rerelease of the book in 2025 and added some more like calculators and resources and all kinds of things from insurance advice and advice for teens and retirees.
And Seth, I was going to ask you is someone who reads a lot about personal finance. What did you find most helpful?
Seth
I mean, I think one of the reasons the author probably did that was because it’s really common to say like, well, things are different now or things aren’t the same as they were in your situation. I think part of what he was trying to get at with that is like, these are meant to be simple rules that can be applicable over a long period of time.
And I think one of the things that that JL Collins is best known for is really advocating low-cost index funds as an investment. Keep your investments simple. I know sometimes I have to really go back to that principle, because I maybe get in my own head or think about like, am I diversified, right, or you know, inflation’s really high and there’s Treasury inflation protection bonds or whatever.
You know, I start to think about all of these different options. And that’s okay. If that’s how I want to spend my time. But that’s not usually how I want to spend my time. Right? You know, I want to be doing other things. I want to be out running or gardening or whatever those things are. And so, once again, coming back to those simple principles, and I know we’ve talked about this a ton on the podcast before, but it’s one of the good things usually about employer provided retirement plans is that they usually have pretty straightforward, simple investments because of the work of JL Collins and people like that who have really been focused on, let’s find investments that are low cost, that people don’t have to be involved with as much.
And that’s certainly the philosophy of the Deferred Compensation Program having a lot of low cost, mostly passive index options. So, we could go into a whole nother episode. I think we probably have episodes about that already, but that’s always one of my takeaways.
When somebody brings up JL Collins or The Simple Path of Wealth, they’re usually talking about low-cost S&P 500 sort of index funds as their primary investment option.
Jenny
Yeah.
Seth
What other takeaways did you have from reading the book Jenny, since it was a newer read for you?
Jenny
I mean, kind of like what you were talking about, just kind of the simplicity of it all, looking at different ways to think about things like house payments and car payments. I think even gives the example of what his dad would do when he would buy a used car in cash, and then he would start making payments towards himself, like, you know, whatever it is, $200 a month to then save up for the next five years to then use that money to buy a car in another five years.
So, you’re keeping the money within yourself, like you said, maybe even taking that compound interest and still being able to buy another car when it’s time to do that, when your old car hits the, you know, it goes out. But just different ways of thinking about how to set aside that money.
Seth
I like the way that he oftentimes thinks about things differently, or maybe differently than the culture at large, or give you an opportunity to think about what other options you might have. Another personal finance personality who was talking about cars specifically, but it was a very similar idea where you shouldn’t get a new car until you know your tow truck driver, until you until your car has been towed at least twice.
And like that would make a lot of people really uncomfortable. And I think that’s reasonable to be uncomfortable in that, you know, people or have the possibility of losing their job because they’re going to be late to work if they have kids that they’re relying on. If you have to get to medical appointments, there are all sorts of reasons. But it is also worth thinking about: how can you do things differently that have a pretty significant cost savings for you?
And, you know, one of my primary ways to save money is to drive as little as possible. Like, I build my life around being able to walk to work. And in previous places where we live, being able to walk to grocery stores or other places. It has made me a cultural outlier when it comes to gas prices.
I have no idea, like when gas prices go up or down. And I also then don’t stress about when I have to [fill up]. I fill up my truck with gas a couple times a year. If gas prices are a dollar higher, it doesn’t have that big of an impact. But that’s because I made an intentional decision to do that.
And also, I have had the opportunity, I have the good fortune of being healthy and being able to use my body to get to work and do other things. But thinking about: how can you do things, maybe a little bit outside the norm and save money?
I think we’ve had some other guests that have talked about this with cooking more, or there’s a term called house hacking, where having different living sort of arrangements. I think Catherine was on and has talked about renting out a room in her house, or people living with a multi-generational household or family, something like that.
So, there are different ways to think about saving. And this goes back to one of JL’s key points about spending less than you earn, really thinking about how to grow that gap, because that gap is then what you can turn around and invest and have that additional freedom.
Jenny
Yeah. And the other thing I’ll say too, is just this idea of index funds versus individual stock market bonds.
Seth
Yeah.
Jenny
Kind of growing up, I heard my dad talk a lot about the stock market, and so I knew it was important, but I didn’t really know the minutia of how or, you know, the specifics like index funds versus individual stocks. And then so when I started looking into stuff online and following different financial folks, on Instagram and whatnot, it was that first idea of like, oh, okay, here’s this index fund.
And this is what JL Collins talks about in his book. It’s sort of this grocery basket of all these stocks, you know, from a particular group of stocks that are working together to grow. And so if one of the stocks kind of tanks, then, you know, another one comes in and takes its place is basically the way that I understand it.
Seth
Yeah.
Jenny
And so really, the idea of not having to worry about, “oh, am I going to invest in this tech stock or this energy stock?” and just saying, “okay, I’m just going to buy index funds. They have this whole portfolio. It’s relatively safe.” You know, all of these things that again simplifies your life. And if you want to go in and buy all these individual stocks, you know, and yeah, whatever it is company that you want to support or invest in, you can do that.
But just that this idea of index funds as a good reoccurring way of growing your wealth with the stock market.
Seth
Yeah. One of the things I appreciated about hearing JL Collins talk about his book and about his life story, is that he freely acknowledges that he was a stock picker initially and that he didn’t follow this path initially, for whatever reason, you know, his upbringing or his biases and preferences. Initially, he was focused on picking individual stocks, and it was something he enjoyed.
But I think has now recognized he would say that that’s not how he wants to spend his time. And so yeah, it’s easier. I’ve watched a number of YouTube videos and interviews with him. He describes this really well in that these index funds that cover large parts of the stock market or the entire stock market, he describes them as self cleansing.
So, if an individual stock does really poorly, it falls out of the index. And then there’s no. And then if a if a stock is coming up, it joins the index. And if it’s doing really gangbusters it pulls the whole index up. And I would encourage listeners, if you’re not interested in reading the book, JL has a number of really great, YouTube interviews.
He did one at Google that got a lot of attention because he basically just got up there and told a bunch of tech workers, like, just keep it really simple. Like, you don’t need to invest in your own company. You can just invest in the broad stock market. And kind of similar to the book, he just said it over and over and over again.
Jenny
Anything else Seth? Final thoughts?
Seth
It is really a foundational book. If people are interested in taking a deeper dive in the ideas of financial independence or financial freedom. One of the things at the Department of Retirement Systems, we’ve been trying to…think about retirement more broadly and the term. Sometimes people think, you know, “retirement is only when I’m 70 years old, and the only thing I can do in retirement is, is golf or sit on a beach or whatever.”
And I think for a lot of people that can be uninspiring. And so, it’s one of the things I really appreciate about the, work that JL Collins has done in this book of helping people kind of take control of their own financial situation. So, I think it’s a great book, no matter if you’re 18 or 88.
Jenny
I think that’s perfect. Yet again, the book is “The Simple Path to Wealth” by JL Collins. And if folks have other book recommendations or questions, feel free to email us at drs.podcasts@drs.wa.gov. Well thank you Seth.
Seth
All right. Thanks Jenny.
[music outro]
Disclaimer
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