Book Extract: Pathfinders

JL Collins is the international bestselling author of The Simple Path to Wealth: Your road map to financial independence and a Rich, Free life. He has been called “The Godfather of FI” in the financial independence community. He launched his eponymous financial blog, jlcollinsnh.com, in June 2011 and is the founder of the legendary Chautauqua financial independence retreats. His Talk at Google has received over 1.4 million views, and he has appeared on dozens of popular finance shows and podcasts.

His first job was selling flyswatters door to door and picking up empty pop bottles from the side of the road for the 2-cent deposit (at the age of eight). His last was working as talk show host and magazine publisher. His work has taken him to most US states as well as Canada, Germany and England. He has also travelled widely in his own time. Pathfinders is his third book.

The manner in which he has divided the sections of the book are very telling. These are: Freedom, Debt, Saving, Lifestyle Inflation, Investing, F-You Money, Staying the Course, Family, and Endgame. Every part begins with a story. It is not clear whether it is a straightforward case study or an amalgamation of cases with the key characteristics highlighted to tell a good story stressing on different financial aspects. Nevertheless, Pathfinders reads like the essays published often in Readers Digest. Easy to read, accessible, communicated complicated ideas and situations simplistically, and most importantly, made readers think about financial literacy. This is precisely what Hasan Minhaj stresses upon in his preface. He says:

Growing up, financial literacy is something we never discussed as a family.  If you talk about money, you’re labeled as being obsessed with it, or you’re blaming a loved one for not having it. Money was always too scary, too touchy, and too real to talk about in our household. Especially the stock market. It was framed as something that only Wall Street bigwigs could figure out, or it was an outright rigged system that turned the layman into a sucker. So I stayed away from it. I spent years in school learning about Mesopotamia and mitosis, but didn’t know the difference between a W-2 and a W-9. I figured I’d stack my bread like a drug dealer and tuck it away in a mattress. That would be my protection.  

But it wasn’t . It was a defense mechanism to avoid dealing with the painful truth of adulthood: You need monty to take care of yourself, your loved ones, and ensure a financially stable future. Money doesn’t solve all your problems, but it sure as hell solves your money problems.  

…

He endorses Pathfinders saying that it is a collection of real stories of people on their path to financial independence. The advice offered in the book is not just about investing, but about empowerment and taking control of one’s financial future. Significantly, it is a set of principles to help you manage the financial fear and uncertainty of adult life.

Hasan Minhaj is right. Pathfinders truly is. JL Collins offers an intergenerational perspective as well by including snippets of conversations with his daughter in the book too.

The extracts taken below are from the preface and the chapter on savings. The sections are: Working hard now to be lazy later, Passing $1m, A fateful question, and Find your budget's rubber band.

Enjoy!

—Jaya Bhattacharji Rose  

PREFACE  

A MAP OF THE BOOK 

WHY

Ever since The Simple Path to Wealth (SPW) was published in 2016, readers have reached out to me with stories of how they have taken the principles in the book and applied them to their unique situations. These tales from the road are endlessly fascinating and highly instructive. They provide not only ideas and guidance as to how following The Path can be done, but proof—given the extraordinarily wide swath of people from all over the world who have done it—it can also be done by you. For years I have wanted to pull together and share these stories as a sequel to SPW, and now you hold it in your hands (or your earbuds).

WHO 

Pathfinders is for anyone who wants to achieve financial independence (FI), or at least consider the possibility. Becoming FI is the process of buying your freedom—the freedom to own your life and spend your time as you choose. Whether you are just starting to consider this as an option, are already on The Path and interested in what your fellow travelers have to say, or are fully FI and looking back on your journey with an interest in how it is unfolding for others, this book is for you.

WHAT 

In these pages are around a hundred of the most compelling of these tales from people of all imaginable backgrounds, at all stages of life and  wealth, and from all over the world. I have found them enlightening, inspiring, entertaining, and educational. Perhaps you will too.

You’ll also find some of my thoughts in the introductions to each section of the book, along with a transcribed interview between me and my daughter—the “little girl who wouldn’t listen” and thus inspired (forced?) me to first articulate, define, and finally to write The Simple Path to Wealth.

But the heart of the book is the collection of these real-life stories from people just like you who have decided to follow The Simple Path—the powerful, simple, low-cost, low-risk, triedand-tested route to financial freedom that I slowly pieced together over my own decades of wandering in the wilderness.

If you have read The Simple Path to Wealth you’ll likely enjoy reading how these travelers have applied its principles. But it isn't necessary to have read SPW in order to enjoy and benefit from this one. It is fine to read Pathfinders first and then pick up SPW if  you feel inspired to do so.

Regardless of the order in which you read them, The Path itself is simple, robust, and has worked for tens of thousands of people around the world at every level of income. It will work for you, if you choose to walk it.

HOW 

Where The Simple Path to Wealth lays out this approach to achieving financial independence, Pathfinders shows you how others are following it. The “how” of their stories can help guide you if:

▪ you’ve heard of FI but wonder if it is too good to be true

▪ you’re wondering if reaching FI is possible for normal people with average resources (spoiler alert: It is. Even with less-than-average resources)

▪ you’re already on The Path but struggling a bit

▪ you’re on The Path and are wondering if there are other approaches or techniques to consider

▪ you’re on The Path and looking for ways to make it more applicable to your unique situation

▪ you’re just curious about this whole business of becoming FI

▪ you’re wondering what it takes, and if it is worth the effort

▪ you’re wondering just how powerful this Path really is

▪ you’re almost there and are wondering what crossing the finish line looks and feels like.

PURSUIT 

Maybe you’ve never really thought about FI at all but are ready to be more intentional about your path in life.

Perhaps you are looking for a better work/life balance. Or you might be considering the possibility of a life change: a new career, living in a new part of the world, travel, or simply a different path than the one you’ve been walking.

FI unlocks all these options and more. But here, as these stories show, is the coolest thing: So does its pursuit.

From the moment you step on The Simple Path you are a bit stronger, a bit freer, and able to be a bit bolder in the choices you make. The further along you go, the more pronounced those advantages become.

Sure, you might give up some material things to start buying your freedom, but this is not about donning a hair shirt and being miserable for a decade, so that you can sit around in a hair shirt   without a job for a few more decades after that.

This is about creating a rich, free life. It is about opening up a whole new world of options and becoming a more robust and independent you.

USE  

This book is organized by theme, in a logical order—starting with getting our final destination in view, then moving through the steps it takes to get there and dealing with the obstacles you might encounter along the way.

You can comfortably read it from cover to cover. But you don’t have to. You can just as easily dip in and out as the spirit moves you. As you’ll see, many of these stories could sit in multiple parts of the book, and each can stand alone.

By opening this book you are stepping into a kind of wayside tavern set in some exotic locale along The Simple Path to Wealth. A place where travelers from all over the world and of every level of experience are pausing for refreshment on their quest for financial independence. The fire is roaring, the drinks are flowing, and there is the intoxicating aroma of something mouth-watering simmering in the huge cast-iron pot resting over the flames.

At each table small groups of pathfinders are laughing, crying, and sharing their tales…

▪ of struggles overcome and the rewards that followed

▪ of enterprising solutions to unexpected problems

▪ of sacrifices made and the kindness of strangers ▪ of the amazing places a few simple steps can take you ▪ of unexpected adventures and friendships.

They are waving you over to join them. You are free to sit wherever you choose and move on to the next table as you please. It is all waiting for you just over the page. Enjoy the journey!

JL COLLINS 

SOME KEY TERMS 

Technical terms are usually explained or easily inferred by context, but if you’re dipping in and out and new to FI you might find this brief glossary useful.

THE SIMPLE PATH 

Spend less than you earn. Avoid debt. Invest the difference in broad-based, low-cost index funds. Hold them forever. The result will be financial independence and the real, permanent freedom it brings.

4% RULE 

This is a concept developed in the 1990s. Basically it says that from a portfolio of at least 50% stocks and the balance in bonds, you can withdraw 4% per year, adjusting for inflation each year. The research indicates that by doing so your money will last at least 30  years 96% of the time. Most times, it will last much longer and in fact grow much larger than your original stake.

Of course, no one should set a 4% withdrawal rate and forget it. You’ll want to monitor it and adjust to what is happening in the real world. Not just to avoid running out of money, but to be able to fully enjoy your money as it grows.

Lots of ink has been spilt debating whether 4% is the right number. Some say, “Too high!” Some say, “Too low!” I say it is a terrible “rule” but a great guideline.

FINANCIAL INDEPENDENCE (FI) 

FI is when your money makes enough money to fund your lifestyle forever.

Here’s the formula using the 4% Rule: Net worth × 4% = annual spending. Also: 25× annual spending = net worth required. Example: You need/want $40,000 to spend each year.

▪ $1,000,000 × 4% = $40,000. ▪ $40,000 × 25 = $1,000,000.

FIRE 

Financially Independent Retire Early.

RETIRE 

This term generates a surprising amount of angst in the FIRE community, at least among its detractors. Most people who achieve FI, quit their job, and “retire,” typically go on to do interesting and productive things. This is kind of the point. Often these activities earn them money.

For some reason this draws the ire of those who have been dubbed “The Internet Retirement Police” and who loudly complain that if you are earning money you are not “retired.” Who cares?

FI is about having options. Retirement, however you define it, is just one of those.

LEAN FIRE 

The money your money earns is enough to fund a very simple lifestyle. Often more than enough, given you will probably earn at least some money in your “retirement”—and especially useful in escaping a soul-crushing job situation.

FAT FIRE 

The money your money earns is enough to fund a very lavish lifestyle.

COAST FIRE 

The money your money earns is enough to reach FIRE at a point in the future without the addition of new investment cash. This is the power of compounding at work.

By calculating this future date and matching it to the time you want to retire, you can stop saving and begin spending all of your current income. Your already invested money will take you to

FI by itself.

VTSAX 

The Vanguard Total Stock Market Index Fund. This is an example of a low-cost, broad-based total stock market index fund, and it is the one I personally hold. With it you own a piece of virtually every publicly traded company in the United States, ~4,000 stocks.

Equally, you can hold a low-cost, broad-based total stock market index fund from investment firms other than Vanguard.

VTI 

This is the ETF (exchange-traded fund) version of VTSAX. They both hold the same portfolio and you can use either. There are some differences, but none that matter to us.

VFIAX AND VOO 

These are Vanguard’s S&P 500 Index Fund and ETF. These own and track the 500 largest publicly traded companies in the United States. While I slightly prefer the broader total stock market options above, these are fine choices as well. As are the equivalents from other investment firms.

401(K)* 

A personal retirement savings account offered by many US employers with certain tax advantages.

403(B)* 

Same as a 401(k) but offered by nonprofit and government employers.

IRA* 

An Individual Retirement Account available in the US. You contribute pre-tax dollars which provides a current tax deduction. Once in the IRA, this money grows tax-free. Upon reaching a certain age, you can withdraw the money penalty free. These withdrawals are then taxed as ordinary income.

ROTH IRA* 

An Individual Retirement Account available in the US. You contribute after-tax dollars, so there is no current tax deduction. Once in the Roth IRA, this money grows tax-free. Upon reaching a certain age, you can withdraw the money penalty free. These  withdrawals are also tax-free.

*There are lots of regulations, such as contribution and income thresholds, that can apply to these. They are covered in more depth in The Simple Path to Wealth. Similar types of accounts are also available in many other countries.

J L Collins Pathfinders: Extraordinary Stories of People Like You on the Quest for Financial Independence and how to join them! Harriman House, an imprint of Pan Macmillan, Hampshire, 2023. Pb. Rs 599