The Three-Step Philosophy of Financial Freedom

Most investment books are boring, dull, and uninspiring. They’re filled with fluff, trying to hype you up with the promise of showing you how to make millions of dollars. Others that claim to be more serious are packed with overly vague technical terms from the world of finance.

Blah.

That’s way too complicated if you ask me.

We want something more practical that we can apply right away. J.L. Collins is going to help us out. He’s the author of The Simple Path to Wealth, a book about, you guessed it, the easiest, no BS, simple path to wealth.

Collins’s main point is that investing shouldn’t be complicated. The whole point of it is to obtain passive income, not to be doing a ton of hard work. All of your investing should be targeted at simplicity and long term gains.

In light of that, he breaks down the simple path to wealth as a three-step philosophy.

(1) Spend less than you earn

Spending less than you earn is the foundation of all wealth-building strategies. Doing so is not meant to restrict you, but rather to buy your freedom in the long term.

Many people fall into the trap of spending beyond their means. Buying a house that’s bigger than what they need, an expensive sports car, or a Starbucks coffee every morning. They buy these things not realizing what they’re giving up by doing so.

Let’s take the example of buying a big house. I’ve been to friends’ houses that had a swimming pool, two dining rooms, two living rooms, 2 TVs, and all-leather furniture… for a family of three who all work 9 to 5 during the day. They’re barely even using all of that space!

Such living arrangements are not uncommon either. Most people take out a mortgage to buy their dream house, with many putting minimal down payments in the 5% to 20% range. They do this as opposed to the alternative of getting a smaller place with a 50% down payment, not realizing that that difference of 30% down payment will cost them tens of thousands of dollars in interest payments of the years. They’re giving the bank extra money, all to say that they have the most awesome house… because everyone needs 2 dining rooms and 2 TVs… for some reason…

When you buy a $40,000 car, you’re not just paying the $40,000. You’re also paying an opportunity cost. What if, instead of buying that car, you put that money into a high-interest savings account that earns you 2% interest per year. You’d be getting paid $800 on top of keeping the $40,000. So really, the total cost of the car ends up being $40,000 + $800 per year, since you’ve given up that opportunity for earning the interest or otherwise investing the money. Investing the money in real estate or the stock market can earn you a lot more than 2% too.

Understand, money spent does not only remove the cost of the purchased item from your pocket. It also takes away the opportunity to invest that money.

(2) Invest the surplus

So you’re spending less than you earn. Beautiful! You’re well on your way to financial freedom.

But now, we’ve got an even more special treat, a way to get you to your financial freedom even faster! All of that money you saved by spending less than you earn is going to be invested.

Saving money is a great start no doubt. But saving your way to a million dollars, or perhaps more if you live in an expensive city is going to take an incredibly long period of time. To make your savings really worth it, you’re going to invest them.

The purpose of investing your money is to make it do some of the work for you, to make even more money. If your money is sitting in a chequing account as just cash, then it’s actually losing value due to inflation. The only way to maintain or increase the value of your money is to invest it

Collins specifically advocates investing in the stock market. Investing in stocks will earn you two kinds of income: dividends — which are straight-up cash, and the growth in the value of your stock. If you bought your stock at $100 and it’s now trading for $200, voila, you’ve made $100 without lifting a finger (except for clicking “buy” in your trading account).

The beauty of investing in the stock market is that it is a form of passive income. You don’t have to go into an office from 9 to 5 every day to earn the money. It doesn’t demand much of your time at all. Once you buy the stock you can turn off your computer, wait a couple of decades, and you’ll probably wake up rich.

(3) Avoid debt

Debt is literally the plague. Seriously, it will kill you — far more slowly and painfully than the plague, unfortunately.

There are two really bad ways in which debt hurts you.

First, the financial part.

Most people buy a car on a payment plan. The price of the vehicle is divided up over 48 to 60 months (4 to 5 years) to make it (supposedly) more affordable for the consumer. These payment plans are a trap, with nasty interest payments attached to them. The average auto loan interest rate in the US for a 60-month payment plan is 5.27%. That can mean thousands of extra dollars spent on the car.

The worst part is that the extra interest payments aren’t as noticeable when spread out over a payment plan, so people often overlook them. If I told you that you had to pay an extra $100 a month for your car, you might dismiss it — $100 seems small enough. But if I told you that right now, the car will cost you an extra $6000, a lot of red flags are going to be raised.

Far more important than the finances are the restrictions that debt will inevitably place on your life. According to Time Magazine, student debt in the U.S now totals more than $1.5 Trillion — many people get degrees in the hopes of securing a high-paying job. Once you’re working and looking to buy your own home, it’s pretty much the norm now to take out a mortgage.

These loans are a trap.

If you can’t pay up, the bank can seize your home or any other assets to cover the payments. And don’t think for a second you can escape from under these. Even if you move to a new country, try coming back after not making student loans or mortgage payments and see how friendly the bank is.

If you’re currently able to scrape by on the payments from your work paychecks, you may be slightly ahead, but not for long. What happens if there’s a threat of a layoff? You’ll be working some hard overtime hours to ensure it’s not you that gets the ax — you’ve got payments to make. You’re pinned down, at the mercy of your employer’s paycheck.

Avoiding debt frees you from all of these problems. You’re not paying any additional interest which saves you money. When you buy your car for $20,000 upfront, it’s $20,000 that comes out of your pocket (aside from gas, maintenance, etc), without those extra interest payments. If you fully pay off your home, no one has the right to seize it or bang on your door forcing you to pay up. You have the option to walk away from any job you don’t like since your monthly payments are minimized.

Understand, getting loans, and taking on debt gets you quick access to things like education and housing. But it comes at the severe cost of your financial and personal freedom. If you can find a way to avoid it, it’ll be a big step towards your financial freedom.


Financial freedom shouldn’t be complicated. The simple path sure isn’t — spend less than you earn, invest the surplus, and avoid debt. These three simple steps will put you well on your way to a lifetime of wealth.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions

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