I liked the book, The Simple Path to Wealth, by JL Collins. The book is slim, with less than 170 pages. That is because the message it gives is a simple one. Its basic theme is:
- Avoid debt.
- Save maximum.
- Invest what you don’t spend.
Some of the ideas from the book:
- Treat money as your tool to use in creating the life you want.
- Treat money as your servant.
- Don’t be so obsessed with money that it becomes your master.
- Aim to become financially independent.
- If you live salary to salary, you will not be financially free.
- Avoid getting into debt.
- If you already have debts, first do everything to pay off those.
- Build up a reserve fund for emergencies.
- The reserve fund should be at least equal to 6 months’ earnings.
- Limit your spending to increase savings.
- Deploy the savings to increase your investments.
- Prefer index funds over stocks or mutual funds, for your investments.
- Index funds are simpler and more effective at creating long term wealth.
- A portion of your investments can go into top grade bonds.
- Bonds are less volatile and makes your total portfolio grow smoothly.
- As you get older and older, reduce investments in index funds and increase in bonds.
- (We in India can also go for Govt's savings schemes and FDs in banks or in PSUs, in place of bonds.)
- Stay away from stocks and complex financial products.
- Plan your finances in such a way that you can withdraw 4 to 7% annually for your post-retirement life.
- When you plan your finances in a simple, least complicated way, you can focus more on enriching your life.
In short, to have a financially independent life:
Avoid debts, spend less than you earn, and invest the difference.
That’s it. Simple and straight-forward. Very practical and sane advice.
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