Chapter I
Introduction
This book grew out of my blog, www.jlcollinsnh.com. The blog, in turn, grew out of a series of letters I had begun to write to my then teenage daughter. These letters concerned various things—mostly about money and investing—she was not yet quite ready to hear.
Since money is the single most powerful tool we have for navigating this complex world we’ve created, understanding it is critical. If you choose to master it, money becomes a wonderful servant. If you don’t, it will surely master you.
“But Dad,” my little girl once said to me, “I know money is important. I just don’t want to spend my life thinking about it.”
For me this was eye-opening. I love this stuff. But most people have better things to do with their precious time than think about money. They have bridges to build, diseases to cure, treaties to negotiate, mountains to climb, technologies to create, children to teach, businesses to open and build.
Unfortunately this benign neglect of things financial leaves you open to the charlatans of the financial world. The people who make investing endlessly complex, because if it can be made complex it becomes more profitable for them, more expensive for us, and we are forced into their waiting arms.
Here’s an important truth: Complex investments exist only to profit those who create and sell them. Further, not only are they more costly to the investor, they are less effective.
Here are a few key guidelines to consider:
Spend less than you earn—invest the surplus—avoid debt.
Do simply this and you’ll wind up rich. Not just in money.
Carrying debt is as appealing as being covered with leeches and has much the same effect.
Take out your sharpest knife and start scraping the little bloodsuckers off.
If your lifestyle matches—or god forbid exceeds—your income, you are no more than a gilded slave.
Avoid fiscally irresponsible people. Never marry one or otherwise give him or her access to your money.
Avoid investment advisors. Too many have only their own interests at heart. By the time you know enough to pick a good one, you know enough to handle your finances yourself. It’s your money and no one will care for it better than you.
You own the things you own and they in turn own you.
Money can buy many things, but nothing more valuable than your freedom.
Life choices are not always about the money, but you should always be clear about the financial impact of the choices you make.
Sound investing is not complicated.
Save a portion of every dollar you earn or that otherwise comes your way.
The greater the percent of your income you save and invest, the sooner you’ll have F-You Money.
Try saving and investing 50% of your income. With no debt, this is perfectly doable.
The beauty of a high savings rate is twofold: You learn to live on less even as you have more to invest.
The stock market is a powerful wealth-building tool and you should be investing in it. But realize the market and the value of your shares will sometimes drop dramatically. This is absolutely normal and to be expected. When it happens, ignore the drops and buy more shares.
This will be much, much harder than you think. People all around you will panic. The news media will be screaming Sell, Sell, Sell!
Nobody can predict when these drops will happen, even though the media is filled with those who claim they can. They are delusional, trying to sell you something or both. Ignore them.
When you can live on 4% of your investments per year, you are financially independent.
What is so simple and clear now I personally had to learn the hard way, and it took decades. Those initial letters to my daughter, then www.jlcollinsnh.com and now this book are all my efforts to share with her what works, where the minefields lie and how simple it all can and should be. My hope is that with it her path will be smoother, her missteps fewer and her own financial freedom will come sooner and with fewer tears.
Now that you’ve picked up this book, my hope is the same for you.
We’ll discuss all those bullet points above and more. So let’s get started together. We’ll begin with a parable.