JL Collins | Finding Your Path to Financial Independence

The Godfather of Financial Independence talks "The Simple Path to Wealth," "Pathfinders," and what people need to do to break free from debt.

It’s a new year, and people everywhere are making resolutions to better themselves. One of the top goals at the start of a new year is saving money and/or reducing/eliminating debt. Roughly 62 percent of Americans live paycheck to paycheck, per a December 2023 Lending Club report, and that number has a tendency to fluctuate as time goes on.

One of the names that has become popular within the last decade is JL Collins, the international bestselling author of “The Simple Path to Wealth” and his newest book, “Pathfinders.” Collins has held a variety of jobs throughout the years, including business to business magazine publishing, which is what he says he “drifted into.” But he’s always been passionate about investing and paying off debt after buying his first stocks in 1975.

“I wanted, as soon as possible, to not be dependent on trading my labor for money and my time for money. My father was a very successful guy, but he was a cigarette smoker. His cigarettes debilitated his health and his ability to earn. So, our family fortune went from being very comfortable to very uncomfortable. That was a lesson learned and a scarring moment. I wanted to make sure I wasn’t solely dependent on my own ability to trade my time for money.”

Collins left his last professional job in 2011 and began to write down what he knew about investing as a keepsake for his daughter to remember. Collins said he understood the importance of wealth-building and investing, and he wanted to make sure his daughter did, too.

“I managed to push it too hard and too fast on her too much at too young of an aged, and I turned her off to everything financial. And it’s so critically important, because if you get your money right, your life is much easier and the range of options that life provides you if you have the money and the freedom of time to take advantage of them is just much broader.”

Since the publication of “The Simple Path to Wealth” in 2016, the Florida-based Collins has had people reach out to him from all over the world, saying they started applying the strategies he discusses, and it has bettered their lives. What initially started as a blog for his daughter, who was in college at the time, has also influenced people in their 40s and 50s who are still trying to figure out their investments.

“I never dreamed I would develop the audience I’ve developed. It’s been amazing and humbling for me to see how people have taken this guidebook for my daughter and applied it to their own unique circumstances.”

As people focus on where their money goes, one of the questions becomes whether they should be investing while simultaneously paying off the debt. Collins said people must look and see what types of debts they have and focus on the ones that have a higher interest rate.

“The mathematically optimal way to do it is to start throwing money at the highest interest rate debt first, because that’s where your biggest return is. Whenever you pay down the debt, you are essentially getting a guaranteed return of whatever that interest rate is. So, if you’re carrying credit card debt at 18 percent and you start paying that down, you’re getting an 18 percent return on your money, which is incredible. It’s not good to have debt, but there’s no place else you can get a guaranteed 18 percent return over time.”

But if your percentage is less than four, Collins says it may be a better option for people to use the extra cash they would use and invest it.

“That’s really cheap money, and you’re probably better off paying whatever the minimum is on that and then investing the money you would have used to pay it down, because your investments over time will probably do considerable better than three or four percent, certainly better than one or two percent.”

On the other hand, anything higher than six percent does give people the best, guaranteed return. But Collins also notes that once people enter that territory for interest rate levels, it becomes more of a burden for most people to handle. The best approach, Collins suggests, is to do away with the debt entirely and not continue to carry it.

“Debt at that kind of interest rate level is just this incredible albatross around your neck. You’re dragging a ball and chain around, and you’re never going to be financially free dragging that around. Mid-range, between three to six percent, is a little more of a judgement call and how you feel about it. I personally abhor it, so I would be inclined to pull the trigger paying it off at lower interest rates than even six percent just to get rid of it and move on with my life.”

While people are paying off debt and trying to become financially independent, there can be many factors that may bring about fear in their lives. Market volatility tends to be a recurring news story, when it comes to events such as the crash of 2007/2008 or even the most recent, brief crash of 2020 during the COVID pandemic. But Collins says that, while the media will induce unnecessary panic during certain situations, the volatility of the market is something people need to investigate and understand more when they are investing.

“When you’ve blown out your debt, at least your higher interest debt, and you’re turning your attention to building your wealth and putting money in the stock market, that’s when you need to think about what the volatility of the market really means. I think what people need to understand is that market volatility, which means these periodic drops, are a perfectly natural part of the process. They’re nothing to panic about, and they’re nothing to do anything about.”

Collins added the worst thing people can do when the market is going down is to sell.

“You need to tie yourself to the mast. Market declines are like hurricanes in Florida or blizzards in New England. They’re scary. They can be dangerous, especially if you panic and run out in the middle of them. But they never last forever. They’re a perfectly natural part of living in that part of the world, and they always blow over and the sun comes out again. That’s exactly the same thing with the stock market.”

Market declines can be a good thing for those building wealth, Collins added.

“Let’s say you’re putting $1,000 a month into your investments. When the market drops, that $1,000 buys more shares. You are buying more of the assets that you want at bargain level prices. If anything, you should look at them as a gift. When stocks go on sale, it’s the only thing we don’t flock to buy. If iPhones went on that kind of sale, people would be lining outside the Apple stores to buy the things.”

Throughout history, the stock market has had its ups and downs. As people examine certain events from a distance and not in the immediate moment, they come off as more “minor blips” than anything, Collins added. There will certainly be another stock market crash. And when that happens, Collins advises people to reassess their budget and see if they can afford any stocks.

“The truth is, whether or not stocks make you wealthy, doesn’t depend so much on what you’re doing when they’re going up. Obviously, that rising tide is lifting all votes. Whether stocks make you wealthy or not depends on what you do when they fall.”

The advice Collins lays out in “The Simple Path to Wealth” has some elements that can now be considered out of date, such as the investment amount limits for 401Ks and IRAs. But, as Collins noted, that is something that changes each year. The basic principles behind the investment strategy, however, will remain the same for generations to come.

“I don’t see them ever changing as long as the United States remains a free, capitalist country where we are allowed to accumulate wealth and companies that trade on the stock market. The basic investment approach I’ve outlined is not going to change.”

One common feeling most people have is they are not being paid enough. Collins admits to having felt similarly when he worked in the corporate world. But he adds that there is hope for everyone from all different income brackets.

“Companies are always going to pay as little as possible to get the talent they need. If you don’t think you’re being paid enough, you can try to negotiate something higher or you can get another job. But no matter how much you’re being paid, I can promise you, if you read ‘Pathfinders,’ you will read stories of people who had very humble beginnings, even very humble incomes at the moment, who are able to achieve financial independence because they’ve figured out how to organize their life, to live on less than they earn, no matter how much the amount they’re earning.”

Teachers are amongst the most successful groups of people to become financially independent, even though the profession is not a high-income earning one. As Collins mentioned, financial independence is not a specific dollar amount. It’s more based on how much you have and how much you are spending.

“If those two things are in balance, you’re going to be financially independent. If you’re spending $40,000 a year and you’re going to pull out four percent a year, which is an accepted and safe withdrawal rate, you’re going to need $1,000,000 invested. If you draw out $100,000 a year and you have $1,000,000 invested, you don’t have enough. If you say, ‘I know I need to spend a certain amount of money a year,’ you multiply that number by 25. 40,000 multiplied by 25 equals 1,000,000. It has nothing to do with a certain income level or a certain amount of money invested. It’s that balance between the two.”

One of the concepts Collins talks about is having what he deems “F-You money.” Certainly, when one hears that term, many high-profile business people come to mind such as Elon Musk, Jeff Bezos, and Mark Zuckerberg. Many people view them as being financially independent because of the amount of wealth they have accumulated. But Collins views it differently, he said.

“I choose to see them as two separate things. F-You money is the amount of money you have along the way until you get to full financial independence. If you’re starting from zero or even starting with some debt, it can be daunting to think, ‘How the hell do I get to $1,000,000?’ It’s important to understand that it’s not an on/off switch. It’s not like you start and then nothing happens until you hit that magic number. The moment you start, it’s like going to the gym. You get a little bit stronger financially and then a little bit stronger the next day. The moment you start investing, you get progressively stronger and stronger, and that’s your F-You money.”

One example Collins lays out is if one were to save double of what is their current income, and something were to happen to them at their company. This includes a layoff, full operational cease, or if they decide to walk away.

“If something happens at your company that makes working there a miserable experience, you’ve got two years’ worth of income. The advice I’d give is you’re better off finding that next job while you’re still employed. But if it’s soul-crushing, and I’ve met people who’ve told me that, then that’s one of the reasons you’ve accumulated F-You money. It’s so you don’t have to tolerate that, and you’ve bought yourself some breathing room to make a bolder decision than you might have otherwise.”

Collins has continued to write on his blog ever since the publication of “The Simple Path to Wealth,” which is also where the same information from the book was originally published. Collins said both the book and the blog have the same advice and information, but the book version is, admittedly, more organized and polished.

“I wrote the book mainly because I’d always wanted to write a book, and, suddenly, I had this body of work that I could condense into a book, and ‘The Simple Path to Wealth’ is there. The blog has continued to evolve, but everything you need is in ‘The Simple Path to Wealth.’”

Collins’ advice has even made an impact on those living outside of America. Some of those stories that have been shared with him are now a part of his latest book, “Pathfinders,” which is a collection of people’s experiences with applying Collins’ advice to their life. While not all countries have the same retirement plans that America has, Collins said people have been able to take his advice and apply it to their way of living and whatever is available to them.

“A lot of people in a lot of countries outside of the U.S., who don’t have IRAs and 401Ks, don’t get bogged down by what I have to say about IRAs. They’re able to say, ‘Oh, OK. I get what kind of account that is, and here’s the equivalent in my country.’ Or, maybe there isn’t, so they have to figure out something else that fits their profile.”

To learn more about J.L. Collins, you can visit his official website. Collins’ books, “The Simple Path to Wealth” and “Pathfinders,” are available for purchase on Amazon, Barnes & Noble, and wherever books are sold.

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