BiggerPockets Money Podcast - 486: JL Collins: You Don’t Need to Be Rich to Reach Financial Independence

Episode Date: January 2, 2024

JL Collins is one of the most respected authors in the financial independence community. His book, The Simple Path to Wealth, became the FIRE movement bible, giving clear, concise, easy-to-follow, and often unbelievably simple advice on achieving financial independence and retiring early. One of the most striking lessons from the book? You DON’T need to be rich to retire early or build wealth. Whether you make $40K or $400K per year, you can start building your financial freedom TODAY. Since its publication, The Simple Path to Wealth has inspired millions of people to find financial freedom, and many who have achieved financial independence or are well on their way have been in contact with JL. In his new book “Pathfinders: Extraordinary Stories of People Like You on the Quest for Financial Independence?And How to Join Them,” JL shares stories of the rich, poor, and even bankrupt readers who were able to turn their lives around and find financial freedom, no matter their circumstance. So, if you’ve been telling yourself that you CAN’T retire early because of a low paycheck, dire financial situation, or expensive lifestyle, think again. In this episode, JL will show you EXACTLY why YOU can be rich IF you follow some simple steps on the path to financial independence! In This Episode We Cover The simple, repeatable path to wealth that ANYONE can follow to become rich How to achieve your huge retirement goals even when starting from zero Why financial independence is NOT just for the rich and already wealthy The lifestyle “trap” that will stop you from ever achieving FIRE The problem with the 4% rule and why you CANNOT trust it for a happy retirement How to build wealth when everything (and we mean EVERYTHING) goes wrong And So Much More! Links from the Show BiggerPockets Money Facebook Group Network with Other Investors on The Path to FIRE Through the BiggerPockets Forums Finance Review Guest Onboarding Join BiggerPockets for FREE Mindy on BiggerPockets Listen to All Your Favorite BiggerPockets Podcasts in One Place Apply to Be a Guest on The Money Show Podcast Talent Search! Money Moment Hear Our Past Episodes with JL Episode 20 Episode 116 Episode 285 Learn More from JL How Has The 4% Rule Held Up Since The Tech Bubble And The 2008 Financial Crisis? Click here to check the full show notes: https://www.biggerpockets.com/blog/money-486   Interested in learning more about today's sponsors or becoming a BiggerPockets partner yourself? Email us: [e-mail] Learn more about your ad choices. Visit megaphone.fm/adchoices

Happy New Year, my dear listeners, and welcome to the Bigger Pockets Money podcast. Today, we are talking to the godfather of financial independence and international bestselling author, J.L. Collins. That's right. We're going to be talking about his new book, Pathfinders, which is a sequel or really companion novel to, or companion book to The Simple Path to Wealth. You're going to be hearing about the framework J.L recommends to reach FI after he's collected hundreds of stories to compile in this book. And why are we doing this right now? Well, with the start of the new year, we wanted to bring one of our favorite all-time guests and serial author now to discuss the past of Phi and his new book, share all of these different journeys and hope that that inspires you with your New Year's goals and resolutions around reaching Phi. Hello, hello, hello. My name is Mindy Jensen and with me as always is my finding his own path co-host, Scott Trench. Always a pleasure to navigate the journey to financial independence with you, Mindy. Scott, without further ado, let's bring in J.L. Collins.

J.L., welcome to the Bigger Pockets Money podcast. I am so excited to talk to you today. Well, thank you, Mindy. I'm excited to be here. I appreciate the invitation. Jail, we first spoke to you way, way, way back on episode 20 and then again on episode 116 and 285. But for our new listeners, or just a reminder for our audience, how did you initially get involved in financial independence? Oh, great question. I started writing my blog, J.L. Collins, and dot com in 2011 and and I really had no intention of starting a blog. It was just a way to archive some letters that I'd been writing for my daughter. I'd managed to turn her off to all things financial by pushing it too soon and too hard. And I want to make sure the information was available

to her if and when the time came she was ready to hear it. And even if I wasn't around. and a friend suggested that I put this stuff on a blog. And I thought that's a great way to archive it. I barely knew what a blog was. I never dreamed it would develop an audience. But that was the beginning. And of course, none of my friends and relatives cared about it. But I started developing a readership outside that circle.

I think all bloggers can relate to that. Your friends in real life are like, yeah, we don't care. Oh, sure. I totally read your blog every day. They've never even typed it in. Exactly. You know, you compiled, I think a lot of that work inspired, you know, a classic in a financial independence world in the simple path to wealth, which has been, you know, read millions of

times now. Is that right? Millions? Well, it's sold almost 700,000 copies at this point. So it's probably fair to say it's been read at least a million times because people pass it around and they get it out of the library and that sort of thing. Awesome. So phenomenal.

It's a classic. We recommend it all the time. In fact, we recommend it just the other day to another podcast guest because it's just such timeless classic, awesome advice here. But today we want to talk about a new book that you wrote where I think that's informed by the success of the Simple Path to Wealth, maybe the relationships you form with your audience over time. Can you tell us a little bit about Pathfinders?

Yeah, so Pathfinders is a book that has been in the back of my mind to do within a year of the Simple Path to Wealth coming out because I wrote the Simple Path to Wealth for my daughter, as I alluded to earlier in starting the blog. And so it's very specific. It's, you know, she's an American. She was in college at the time at the beginning of her journey. And within months of the Simple Path to Wealth coming out, I started to hear from people who read it from all over the world and from all different stages of their life.

And they were taking this kind of specific book. and adapting the principles and lessons to their own unique situations. And I just thought that was incredible. It's a collection of just about 100 stories, again, from all over the world, all different kinds of people, different stages of their own journey, talking about how they've applied the lessons from the simple path to wealth and where they are on that path, everywhere from kind of near the beginning to already fully financially independent and,

and, you know. I think a large number of people who discovered the concept of financial independence but aren't really on the path or, you know, are on the path, but just at the beginning, find that it can be a little daunting with these large numbers that need to be invested in order to get to financial independence. How does Pathfinders help? answer this question and potentially allay some of the anxiety about being able to reach these goals? Yeah, that's a great, great point, Mindy, because if you're at the very beginning,

it can look very intimidating. And the first thing I tell people is that it's a journey. It's not an on-off switch. And the moment you start down the path, the moment you start getting rid of your debt if you have it, and saving and investing if you don't or once that debt's blown out, you get a little bit stronger than you were the day before. And so it's not like you have to wait to the end to enjoy the benefits that come from being just on the path. And the stories in Pathfinders really illustrate that because, as I mentioned, there are some people, there are some stories from people that have come to the end of their journey, but the vast majority stories are people that are at some stage of their journey.

and they talk about, you know, what it's meant to them and how they got there and how it's enriched their life. So I think it's for somebody who's contemplating maybe starting down the path to being financially independent, I think it's a pretty inspirational book filled with pretty inspirational stories. In fact, one of the questions I got early on was should people read the simple path to worth, to Simple Path to Wealth first before Pathfinders. And I thought about that. I said, no, I think you can really read either one of them first. But then the more I thought about that question,

the more it occurred to me that actually Pathfinders is probably the better introduction to this. Because, you know, I could not have written Pathfinders, obviously, without the Simple Path to Wealth, I wouldn't have the stories. But Pathfinders really talk. about how accessible this is, no matter where you're starting from, no matter what your initial starting point is. One of my pet peeves is the pushback against the financial independence

community that says, oh, that sounds wonderful, that sounds good, but that's only for people who have very high salaries and have certain kinds of tech jobs or engineering jobs. And that was never my experience as I met people in this community. And when you read through Pathfinders, yeah, there's a couple of stories from people like that. But the vast majority of stories are from people who are not at all like that and who come from very humble beginnings. There's a story in there, for instance, from a guy who was a child migrant laborer, you know, picking asparagus in the field.

You know, there's a story from somebody who says, you know, when I was a kid, the rich people were the ones that had flush toilets. So it doesn't matter how humble your beginnings or your starting point. This is a path that has worked for other people and can work for you. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch. It helps you see exactly where your money is going and more importantly where your tax refund can make the biggest impact. Because the goal isn't just to look backward, it's to actually make progress. Simplify your finances with

Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth, and future planning together in one dashboard on your phone or your laptop. Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money

management simple. Use the code pockets at Monarch.com for half off your first year. That's 50% off at monarch.com code pockets. I love Matt, said no one ever. Nobody starts a business thinking, you know what would make this more fun? Calculating quarterly estimated taxes. But somehow, every small business owner ends up doing it. Your dreams of creating, selling, and growing get replaced by late nights chasing receipts, juggling invoices, and wondering if that bad sushi lunch with Scott counts as a write-off. Change all that with Found. Found is a business banking platform built to take the pain out of managing money.

It automatically tracks expenses, organizes invoices, and even preps you for tax season without you doing the heavy lifting. You can set aside money for business goals, control spending with virtual cards, and find tax write-offs you didn't even know existed. It saves time, money, and probably a few years of life expectancy. Found has over 30,000 five-star reviews from owners who say, Found makes everything easier. Expenses, income, profits, taxes, invoices even. So reclaim your time and your sanity. Open a found account for free at found.com. That's fowundd.com. Found is a financial technology company, not a bank. Bank. Banking services are provided by lead bank, member FDIC. Don't put this one off. Join thousands of small business owners who have streamlined their finances with Found. Audible has been a core part of my routine for more than a decade. I started listening years ago to make better use of drive time and workouts, and it stuck. At this point, I've logged over 200.

129 audiobook completions on Audible alone, and I still regularly re-listen to the highest impact titles. Lately, I've been listening to Bigger Leen or Stronger for Fitness, the Anxious Generation for Parenting Perspective, and several Arthur Brooks' audiobooks that have been excellent for mental well-being. What makes Audible so powerful is its breadth. Beyond audiobooks, you also get Audible Originals, podcasts, and a massive back catalog across business, health, parenting, and more, all accessible in one app. If you're looking to turn everyday moments into real progress, Audible has been indispensable for me over over 10 years. Kickstart your well-being journey with your first audiobook free when you sign up for a free 30-day trial at audible.com slash BP money.

Well, one of the things that I noticed here is not all the stories are people who have completed the journey to financial independence as well. So you have people who start from a variety of different positions and you also have people who are at various points along the journey. And to your point earlier, you've highlighted how the benefits, you don't have to wait until the very end of the journey to get some of those benefits. What were some of the stories that stuck out to you in terms of the life-changing outcomes that even would be just a few years down the path really had on some of those folks? Oh, I mean, it's kind of all of them because most of them are, you know, people that are at some point along the journey. But, you know, the stories that stick, some of them that stick out to me, obviously, the first two I mentioned about the child migrant laborer and the flush toilets. But, you know, there's a story in there from a guy in Ukraine who is not only following the simple path to wealth, but he has a podcast, which, by the way, he was kind enough to invite me to be on. Or other Ukrainians who are following this path.

And, you know, they're countries at war. They've been invaded. So, I mean, I love a story like that because it just illustrates anybody can do it. It almost doesn't matter what your circumstances are. There's a story in there from a guy in the middle of Russia. You know, his country is an international pariah. You know, there are huge economic sanctions against Russia because they invaded Ukraine. It makes it extraordinarily difficult to try to build wealth.

But, you know, he's he's very important. figuring out ways to do it in spite of those obstacles. And again, this speaks to my heart because, you know, one of my pet peeves again is the people say, oh, you know, that this can't be done unless you start from some privileged position. Or, you know, that sounds wonderful, but, you know, I'd have to give up my least luxury cars and my McMansion, and that's just, that's just too hard. And, you know, when you read these stories, you realize, now you can choose now. You can choose not to do it. In fact, I've said, if you read path, there's a risk in reading pathfinders, especially if you're a naysayer, because if you read pathfinders, you will never again be able to look

in the mirror and say this can't be done, because there are just too many great stories of people who are, in fact, doing it. You'll still be able to say, I choose not to do it, but you won't be able to say, I can't do it, do it. One of the things that I've noticed, you know, whenever we're talking to somebody here on the Bigger Pockets Money podcast about their journey with money, there's always a catalyst moment that I'm looking for. Like, what was that moment where, you know, sometimes it's an evolution, a process? Many of the stories, I think, in Pathfinders cite the simple path to wealth as that aha moment for them. But excluding that, what are some of the aha moments that you've seen in those stories? Like, what are the drivers that

prompt the change of behavior and the beginning of the journey down the path to financial independence? Wow, that's a tough one because you're testing my memory. I think, you know, there are situations where, you know, people find themselves in a difficult situation. Maybe they've come across hard times. But, you know, most of them, because they're talking about where they are on the journey, are talking about the results of the benefits of having done this. I mean, there's a story in there of someone. And again, this is someone who's not fully financial. independent, but was hit with some major medical issues and talking about how challenging dealing with those were. And what a tremendous relief it was to not have to worry about money in that context, you know, because if you, if you haven't begun to build a financial suit of armor, so to speak, and you get hit with something like that, well, now you're not only dealing with the health issue that is afflicting you or a family member or whatever, but you have to deal with all the financial ramifications around that.

And so being on a path to building wealth and resources is just incredibly powerful. You know, people talking about how they, there's a guy who's a ski bum, basically. He talks about how, you know, he works in a restaurant. I think he's a server. and how in three months he can not only make enough to live on for the rest of the year, but he's also putting money aside to build his wealth to ultimate financial independence. And of course, the secret is he just lives very cheaply. You can appreciate he house hacks is one of the things, you know,

and he just hasn't got caught up and buying a lot of stuff. So he's got this incredible lifestyle that this approach walking the simple path to wealth is provided. So yeah, just thought everybody who's in Pathfinder, almost by definition, started by reading the simple path to wealth and applying the lessons that are in that book. One of the things I like so much about Pathfinders is that it isn't just, and this is, you know, the stereotypical FI follower is the tech bro who makes a ton of money and then just spends less and invests the rest. And feel kind of hypocritical saying this because we've reached financial independence because my husband is a tech bro who made a lot of money and we didn't spend very much.

But I like that there's so many different stories with different circumstances because, you know, in the beginning of my financial independence media participation, that's all I heard was people who were making like $180,000 and they were saving 50% of their income. Oh, wow, how did you do it? Like that's not really such an impressive story. It's still an impressive story because, you know, in America, you spend everything. So the fact that you're not spending everything and instead are thinking about the future is great. But when you're only spending $60,000 and then of your $180,000 paycheck, wait, that doesn't, that's not right.

Well, whatever. If you're $90,000 of your $180 paycheck and then you're investing $90,000, that's, you're like, well, I only make $45,000. So I guess this isn't for me. you go away. And this is, this book is showing that, hey, you can do it. And, you know, it's not just rich people that can do it. You can be making a whole lot less and still pursue financial independence. And, you know, honestly, you're not going to get there as fast as the guy who's saving $90,000 a year, but you can still get there. And that's, I think it's really encouraging to show people. And, you know, me telling you, hey, you can do it is not nearly as powerful as reading

a real life story of somebody who did it and seeing that, yeah, somebody in my circumstance can do this too. That's, uh, I just, I really love this book, Jim. Well, thank you. I mean, I'm glad it resonates. And I do, you know, now that's been out for, for a while, I'm hearing that kind of feedback. And I absolutely agree with you.

I, as I think I said a little bit earlier, I, well, my pet peeves has always been this concept that, oh, this is only for wealthy engineers and this. F-I path. And that was actually not my experience when I, as I, when I first started writing in this FI community and starting to get to know people, I certainly met people like that and recruiting you and Carl, but I met a lot of people who are not like that. And I think what the naysayers lose sight of or people who become intimidated by this is that achieving financial independence is not just a function of accumulating a certain amount of money. There's not a magic amount of money. It's a balance between how much you have, how much you accumulate, and how much

you need, right? And the less you need, the less you need to accumulate. So for somebody who's making $45,000 a year as an example, you know, to replace that income, they're not going to need as much as the person making $180,000. So they will probably get to what they need at about the same time that the higher income person will get to what they need. It's not like everybody needs $2.5 million, which throws off $100,000. So it's very much a balance between what you have and what you need. And the less you need, the stronger you are financially. Obviously, the more money you have, the stronger you are financially.

But the other side of that equation is the less you need, the stronger you are financially. Going back to that ski bum waiter, you know, he's constructed a life where his financial needs are very minimal. So he only has to work three months out of the year. And not only can he ski the rest of the time, but he's also building wealth. You just said the less you need, the easier this is to accomplish and the faster you can accomplish this. So for somebody who is listening who spends every dime they make, how do you need less? That's a huge challenge. In fact, I'm very grateful that personally I never fell into the trap of lifestyle inflation. And I'm very grateful that my daughter so far has avoided it because it has to be extraordinarily different.

to have constructed a certain kind of expensive lifestyle and then to unwind it. You know, one of the stories that I like to tell around this idea that, you know, only high-income people could achieve financial independence. Because my experience, I've known a lot of people make a lot of money, and they're not all financially independent. And I know a lot of people have made very modest amounts of money who are. And one of my favorite stories along those lines is back in the early 1990s, I was in Chicago having lunch with a friend of mine who was in the financial business. He had just gotten his bonus check for $800,000.

A bonus, you know, in that business is a big part of your income, but it's not all of it. So, I don't know, maybe his income was a million two or something. You know what we talked about at lunch? we talked about how an $800,000 bonus was not enough to make ends meet. Now, I can see Mindy your, you know, your draws on the floor. My draw, frankly, was on the floor. I imagine for a lot of our listeners, they're having the same reaction. A lot of people are probably saying, man, pay me $800 grand for one year and I'm done.

But when I sat at lunch with my friend and he walked through the lifestyle he'd created, you know, the least luxury cars, the multiple houses, the private schools, the exotic vacations. And you start totaling that up. And you realize that he was right. He is actually not making enough money to support the lifestyle he's put together, let alone begin to build financial independence. So you say, how the hell can somebody make it say a million to not already be there? Well, that's how.

It's the lifestyle you create. And he will never be there unless he makes significantly more money and resists spending that extra money. Or he reconstructs his life to bring it back to more reasonable levels of spending. By the same token, I've known people have never made more than $40,000 a year who are financially independent, again, based on that formula of what their needs are. The lesson there is that boating is a rental sport. No, it's just amazing, though. It's about what, you know, and it comes down to spending, your spending, I think, you know, I think Pathfinder is valid you to this for me is it's not always. There's always a factor, right?

It's income, spending, and how you invest. But spending overwhelmingly seems to be the most important variable among the people who actually get to financial independence and have a stable portfolio that they can sleep well at night around. Has that been your experience as well, J.L? I would say that's true. It's certainly been my personal experience. So when I came out of college in 1972, and it took me two years to get my first professional job because the 70s were a very difficult economic time with stagflation and all that kind of stuff.

But I just arbitrarily said, you know, I'm going to save and invest 50% of my income. There was no Internet in those days. there was no, you know, there were no computers for that matter, at least no computers, personal computers. So I didn't have any guidelines for this. I was wandering in the wilderness, making it up as I went along. But I knew that this was an incredibly important thing to me to have financial freedom. And so I arbitrarily decided I was going to say 50%. That savings rate not only got me to FI, but it saved me from some financial mistakes I made along the way because, again, I didn't have any guidelines for how to do this.

I had to learn it all the hard way. And then, you know, my first salary was $10,000 a year. Well, I knew people who were living on $5,000 in those days. and $5,000 a year was a whole lot more than I'd been living on in college because I put myself through college. So this was not deprivation for me at all. This was a big step up. And then when I was making $20,000 a year, you know, I was saving and investing $10. And I was doubling the amount of money I was living on my lifestyle money.

And when I was making $50, you know, $25 and $25 and $100, $50 on up the scale as my career progressed. In fact, I've come to start saying, you know, I have spent every dime that has ever come into my possession, and I've spent it almost the moment I got it, the difference is that I spent half of those dimes on the thing that was most important to me, which was my freedom. And I think everybody does that in their own life. They spend their money on the things that they think are most important to them. in our culture, a lot of times that's fancy cars and big houses and, you know, those kinds of things. And I say now that if anybody listening to us or who reads the simple path to wealth or pathfinders, you know, I don't necessarily hope that they follow the simple path. That's up to them. But I hope that now they know that's an option, that freedom is something you can also.

spend your money on. And that maybe for some people, that's, that's a, we'll become the more important thing. Because if it isn't the, the more important thing, then you're never going to be financially independent. I love it. I think that, that's the most important thing to me. That's what I'm spending my dimes on. And I wish more people would do it. It's just the power that comes with it is so, uh, incredible to direct rest of your life. And yeah, I, at your point, you know, my entire journey has been the same way, right? Where I spent 50% of my, my income or less. And, the entire time. And it feels like I'm spending a ton now, but it's still less, you know, but it's just because it's been ramping up the entire time. I started on such a low base. So yeah, I love that

framework. And I think it's, I think it's super powerful. And that's another benefit of the compounding. It's just the spending piece, the buying freedom, whatever it is, is such a multiplier effect. I think Mr. Money Mustache put it this way. But it's like, the less you spend, the faster you accumulate, and the less your portfolio has to kick off in order to sustain your lifestyle. So it's like a double, it's like a double factor in the equation. It's all after tax. Every dollar you don't spend is after tax accumulation for you. So it's, you know, it's powerful in that regard. And it just totally derricks your situation. If you spend 50% of what you bring in, even if you get fired and have to take a 20% pay cut at another job, you're still saving 30%. So you can, you can, you can,

could be way more aggressive. Yeah. You know, you probably are able to, you know, if you spend 50% of what you earn, here's another one, you accumulate a year of savings in a year. If you save 10% of what you earn, it takes you nine years, the math works, to accumulate one year of saving. So, I mean, that multiplier is so huge on this. And that also extends to how you invest.

A lot of very wealthy people, I think, who earn very high incomes, but have very low savings rate, perhaps like your friend with the $800,000 dollar investment, cannot afford. to set something aside in an all-stock portfolio and wait 30 years for it to go up, a la simple wealth. But if he had spent 50% of his income and had a huge pile of, you know, was it was so confident in the annual cash flows that he had, then he doesn't have to worry about not being able to access the money until financial independence has reached for a very long time horizon.

So it allows him to be more risk, take on more risk, especially with the volatility of that investment. So I rant's over in a complete agreement with you. Absolutely agree with you. Points well taken. Tax season is one of the only times all year when most people actually look at their full financial picture, including income, spending, savings, investments, the whole thing. And if you're like most folks, it can be a little eye-opening. That's why I like Monarch.

It helps you see exactly where your money is going, and more importantly, where your taxed refund can make the biggest impact. Because the goal isn't just to look backward. It's to actually make progress. Simplify your finances with Monarch. Monarch is the all-in-one personal finance tool designed to make your life easier. It brings your entire financial life, including budgeting, accounts and investments, net worth and future planning together in one dashboard on your phone or your laptop.

Feel aware and in control of your finances this tax season and get 50% off your Monarch subscription with the code Pockets. What I personally like is that Monarch keeps you focused on achieving, not just tracking. You can see your budgets, debt payoff, savings goals, and net worth all in one place. So every decision actually moves the needle. Achieve your financial goals for good with Monarch, the all-in-one tool that makes money management simple. Use the code Pock at Monarch.com for half off your first year.

That's 50% off at Monarch.com. code pockets. You just realized your business needed to hire someone yesterday. How can you find amazing candidates fast? Easy. Just use Indeed. When it comes to hiring, Indeed is all you need. That means you can stop struggling to get your job notice on other job sites. Indeed's sponsored jobs helps you stand out and hire the right people quickly. Your job post jumps straight to the top of the page where your ideal candidates are looking. And it works. Sponsored jobs on Indeed get 45% more applications than non-sponsored posts. The best part? No monthly subscriptions or long-term contracts. You only pay for results. And speaking of results, in the minute I've

been talking to you, 23 people just got hired through Indeed worldwide. There's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show will get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash bigger pockets. Just go to Indeed.com slash bigger pockets right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash bigger pockets. Terms and conditions. Apply. Hiring, indeed, is all you need. When you want more, start your business with Northwest Registered Agent and get access to thousands of free guides, tools, and legal forms to help you launch and protect your business

all in one place. Build your complete business identity with Northwest today. Northwest Registered Agent has been helping small business owners and entrepreneurs launch and grow businesses for nearly 30 years. They're the largest registered agent and LLC service in the U.S. with over 1,500 corporate guides, who are real people who know your local laws and can help you and your business every step of the way. Northwest makes life easy for business owners. They don't just help you form your business. They give you the free tools you need after you form it, like operating agreements, meeting minutes, and thousands of how-to guides that explain the complicated ins and outs of running a business. And with Northwest, privacy is automatic.

They never sell your data and all services are handled in-house because privacy by default is their pledge to all customers. Visit Northwest Registeredagent.com slash money-free and start building something amazing. Get more with Northwest Registered Agent. at Northwest Registeredagent.com slash money-free. Where are my gloves? Come on, heat. Any day now?

Winter is hard, but your groceries don't have to be. This winter, stay warm. Tap the banner to order your groceries online at voila.ca. Enjoy in-store prices without leaving your home. You'll find the same regular prices online as in-store. Many promotions are available both in-store and online, though some may vary. I have a new rant, J.L.

Let's talk about the 4% rule. It's actually a question, not a rant, although I can go off on the 4% rule forever because I'm a huge fan, spoiler alert. But Michael Kitsis in his article, how has the 4% rule held up since the tech bubble in the 2008 financial crisis, has this fascinating chart that shows your portfolio has a very real chance of increasing. after 30 years of the 4% withdrawals to two to nine times the starting balance of 30 years ago. How do you balance the saving with the not saving too much?

So the 4% rule is also something I can go off on a rant on as well. So let me start by saying I hate calling it a rule because I think that makes people a little bit crazy and you wind up, you know, I read debates now as, well, it's 4% the right amount or should it be 3.782, you know, it's a terrible rule. It's a wonderful guideline, right? So if you go back to the Trinity study, which came out in the 90s, and you look at, and they looked at 30 years and different withdrawal rates and different portfolios from 100% stocks to 100% bonds, different allocations of those two things, you know, that's where I think the idea of 4% came from because if you withdraw 4% and you adjust it for inflation every year, there is a 96%

chance that that money will last at least 30 years. That sounds like pretty good odds. And so I think that's where the 4% rule came from. But if you really look at those charts, excuse me, if you really look at those charts, what you see is that in the vast majority of times, not only does the money last 30 years, but it grows. And in a certain percentage of those times, to your point, it grows incredibly large. And so what I say to people is anybody, nobody, and I don't think anybody really would, do this, but if you chose a 4% withdrawal rate, adjusted for inflation every year, and just set it on automatic pilot and never paid any more attention to it, that would be a mistake. It would be a

mistake for two reasons. The reason most people focus on is the fact that it does fail 4% of the time. It's not perfect. And so you could wake up one day and find yourself broke. Nobody wants that. So you need to pay attention. And if the wins go against you, you're going to need to adjust so you don't wind up broke. But the bigger reason to pay attention to it is the fact that the far more likely this scenario is if you just let it run at 4% for 30 years, you're going to wake up and have this huge pile of money that you could have been enjoying over those 30 years. So 4% is a wonderful guideline. use it as a guideline.

It's a great way to determine whether or not you're financially independent. If you apply the 4% rule to whatever you have against whatever you need, it's a great formula to make that call, but you're going to have to pay attention. You don't want to run out of money, which is the 4% chance. But you also want to be aware the 96% chance that you probably could have taken more along the way and enjoyed your life a little more than you might otherwise. I think it's really important to note that you have to pay attention. And I'm wondering how many people get themselves to a point of financial independence and early retirement as opposed to traditional retirement and then stop paying attention.

Because I don't know about you, but my husband is obsessed and goes and checks, like his morning routine is sit down at the computer and check every single balance. That's not my morning routine. I don't have to pay attention because he pays attention. And we talk about it all the time. But this is, you know, this is something that I have found most people that I know in the FI space continue to pay attention even after they stop working. It's just like maybe they're not as obsessed as Carl is, but they're still keeping an eye on it. And I was actually talking to Pete a couple of years ago.

And he's like, you're not going to run out of money because if you get. yourself to this position, you're going to keep paying attention. And then when you're paying attention, you'll notice that your balance is starting to go down well before you get to 30 years out and all of a sudden you're like, hey, why do all my checks bounce? You know, you're still going to pay attention to it, I think. Mindy, I think that's a great point and that anybody who who gets into the SIFI community and especially if you follow the simple path to wealth, almost by definition, you're going to pay attention to this. And this is another reason that I find the obsession about whether 4% is the correct withdrawal rate to be kind of absurd.

Because, you know, there's an underlying assumption that people won't be paying attention. You know, anybody who is, who as the wherewithal and the interest in the knowledge to achieve financial independence, or even again working towards it is by definition going to be paying plenty of attention, probably too much attention like maybe your husband does. And it doesn't take that much attention. You just have to look at it maybe once a year and say, gee, you know, where do I stand? I mean, if you had a really bad year like 2022 where the market was down, 22%, well, okay, you know, you might want to think about taking a little less money than the next year.

If you have a great year like we've had so far in 2023, you know, then you look at it differently. But you're right. The kinds of people who would suffer by not paying attention are not the kinds of people who are going to be doing this anyway. So the kinds of people for whom following the 4% rule could actually result in what would still be a very modest risk, they're not the kind of people doing this. So, you know, yeah, I think it's a great guideline and don't, it's nothing to obsess about. The reason it's so obsessed about is because the Phi community, and by definition, is kind of obsessed with enough.

Like, what is enough? Right. And enough is a function of how much you spend or how much you project you want to spend and how much, how many assets you need in order to get to that point. So, you know, the first question is a personal choice. The second question is as closely as we can do it, reasonably benchmarked around this 4% concept. And that's where that comes down to. What I've detected in Pathfinders is the understanding and definition of enough among all the people, really, that the story projects that are on the path. They have that definition in place.

And generally speaking, it's fairly modest. It's not this $1.2 million is not covering my needs. needs situation. It's something much less than that, and a clue definition of what, what, uh, drives happiness. And I think that's, that's what it's all about. And, and then it's an engineering mindset, um, which I think is why it attracts many engineers to back into how many assets do I need to preserve that. I will also say this about the 4% rule. I have never met a person. I've met a person, I've met a person who has the 4% rule and nothing else and calls themselves. and is actually living the fine lifestyle.

It is never, maybe they're out there. You let me know when they're there, but I've never met someone who has that and nothing else. No big cash position, no pension from the military, no blog, no book, no other source of passive income. All of them go well past it. So guideline or rule, wonderful, whatever we, you know, it's in practice not used by people once they actually get to that point.

Yeah, you know, I would agree. I don't think I've ever met anybody like that either. You know, I think the other thing in Pathfinder is, as I'm listening to you, you reflect your observations about it. When we were selecting the stories to go in it, we didn't eliminate a bunch of, so we didn't, we didn't look at stories from high income earners and say, okay, we're not going to include those. We're only going to include stories from people more modest means. I mean, that's, that was not a metric we used.

It's just that was the kind of stories that were pretty much the kind of stories that came to us. And, you know, they were chosen. based on, you know, how cool the story was otherwise. So, you know, there's at least one story in there that I can think of offhand that is sort of that stereotypical model. It was a couple from Ohio that were software engineers. They went to Silicon Valley. They managed to keep their expenses low. They made the big salaries you could make out there.

And then when they accumulated their money, they moved back to Ohio where the living is a lot cheaper, a little bit of geo-arbitrage. And, you know, so there is those, there are those kinds of stories in there. But, yeah, mostly it's people who have a, have their feet pretty solidly on the ground. And they know that spending money is inherently going to make, it's not going to make you happy. Owning a lot of stuff is not going to make you happy. And, but having enough, you know, we all need to have enough and then maybe a little bit extra beyond that. And once you're there, what more do you need?

Jayal, what do some of the folks that you interact with? Like, what lay? Just giving, you know, some listeners a glimpse into the folks who completed the journey. What do their day-to-day lives look like by and large once they've accumulated this enough and left work? What are some of the examples of things that you find most inspiring or neat about those folks? Like the Ohio couple. One of my very, very favorite stories in there is, and I alluded to this one earlier, is from my friend, Tom, And he was also a case study on the blog.

And Tom was a client of mine, which is how I know him back in the 90s when we were both in the, I was in the publishing business. He worked for an ad agency. But in Tom's life, everything went financially wrong. You know, Tom had a couple of expensive divorces. I think he's got five kids from, you know, the two. different marriages. He was a very talented, successful guy, but, you know, in the ad agency business is a business that caters to young people for the most part. So as he got older, he became less and less employable. He ultimately lost his house to foreclosure. He went bankrupt. You know,

he lost his job and was unable to replace it. And at the age of 60, So he's going bankrupt and losing his house to foreclosure at the age of 62, right? 60, 62. So he's kind of an old guy at that point. And so he takes his Social Security at 62, which is not optimal because you don't get your full benefit doing that. But he needed the money to live on. He had a very tiny pension from one of the companies he'd worked for along the way. But then, you know, Tom went out.

And he got a job on the Firestone. I think Firestone does. The Henry Ford Museum has an 18th century working farm where, you know, people who visit the museum can see how farming was done back in those days. And they have people who actually do the farming chores. It's a real operating farm, but who dress up in period costume. And they farm the way it was done in the 1800s. Well, Tom is one of those. And so now in his old age, he's got this great job where he's working outside.

You know, he's physically active. He's a very personal, sociable guy. So he gets to interact with people who come to the museum. He doesn't make a lot of money doing that, but he's got a little bit of money coming from that. He's got a social security. He's got this tiny little pension. Tom's doing fine. Not great, not wealthy.

But Tom has enough. And everything went wrong. And the other thing I will say is that Tom is probably the single happiest human being I know in my life. And everything is financially gone wrong in Tom's life. So when I hear people in our community who are riddled with worry about, you know, is my two and a half million dollars really going to last? I just want to say, yes, it is. And even if it doesn't, you'll probably be okay. you know, things are, if you have the right attitude, and things work out.

J.L., do you have any tips for people who are just getting started on their journey to financial independence today? Well, the first thing I'd say is if you're just getting started in your life and you're, and you're going to start on a path to financial independence, you've discovered it, you have a tremendous advantage because you don't have that like any inflated lifestyle that you need to unwind. So I think the first thing I would say is don't let that happen to you. And probably as Scott was saying, you know, with his savings rate and I was talking about mine,

you know, determine how much of your money you want to spend buying your freedom. And of course, the more you divert to buying your freedom, the sooner you will have your full freedom be fully financially independent. And that's an independent judgment. but just start there. And then you never have to worry about unwinding things. And understand that almost no matter what you make, if you look at half of that,

there are people out there who are probably living successfully on half of whatever that number is. That was certainly my experience. So, yeah, and then if you're in debt, I mean, that's job one, as our friend Mr. Money Mustache likes to say, if you're in debt, your hair's on fire. So, you know, you need to,

and I say, you know, being in debts like being covered with blood-sucking leeches. And it's appalling to me that in the United States, we think this is normal. You know, the idea of carrying consumer debt is considered normal. Well, of course I do. You know, that's how I afford all this stuff I want to own. It's insane. It's like saying, I don't want to spend X number of dollars for this thing.

I want to spend much more than that in the interest payments. And it's, again, it's like being covered with blood-sucking leeches. It's not normal. You got to take your sharpest knife and start scraping the little bloodsuckers off. I completely agree, right? Like why, like consumer debt and these types of things, you have to dig yourself out of the whole and then begin the wealth building journey, which you have to do in America if you want to live a comfortable retirement at any point in your life, earlier or traditional.

So it's an emergency. And, you know, that's not the time to we go out, going out and eating out or whatever. You know, consumer debt that you can pay off. You got to just attack this stuff. Here's a silver lining because that's not. not easy. It's easy for us to say that. It's not easy. But if people organize their life in such a fashion to free up money from their income to divert to paying off that debt, they have created a wonderful discipline. Because once they successfully blow that debt out, all they need to do is

start taking that money that was going to the debt and now channel it to buying their freedom, which, of course, you do by buying assets. So you've already got the discipline in place. You've already created the lifestyle that you need to become wealthy. And you can turn it around. I mean, we all three of us know people who have done that successfully. Well, J.L. where can people find pathfinders? Where can people find out more about you? Well, so I guess I'll start with the more about me question because that leads to both. My blog is J.L. Collins, n.h. at dot com. And if you go to the blog,

you know, you'll see, you'll be easy to find Pathfinders. You'll find a little ad for Simple Path to Wealth. You'll click on that. They'll take you to Amazon. You can buy Pathfinders at Amazon. One of the Pathfinders is my third book. It's the only one I've done with a traditional publisher.

And one of the advantages of that is that they have distribution channels. So my understanding is you should be able to find it in bookstores. maybe even in airports. But if it's not in your bookstore, you can certainly ask them to order it for you. But finding it shouldn't be a problem. Well, thank you so much for coming on today. It's always a pleasure to talk with you and learn from you. Really appreciate it and highly encourage everybody to go and check out Pathfinders

in addition to the simple path to wealth. So thanks for all you do, J.L. And great to have you back for the fourth time here on the Bigger Pockets Money podcast. Thank you for having to be back. I always enjoy hanging out with you guys in our. conversation and I'm happy to come back anytime, whether I've got a new book or not. So anytime you'll have me, I'm up for it. It's always, always my pleasure. Awesome. Well, thank you, Jail. This was so much fun. It's always fun talking to you. And we will talk to you soon. All right, Scott, that was Jail

Collins, and that was fantastic. I'm so excited about this book. I'm so excited to just have somebody sharing these stories with other people because it is so easy to start down the path and think, well, I'm the only person doing this. I'll just stop. I'm the big weirdo. Why would I put myself in this position? But to have the reinforcements of not only can you do it, you can do it at almost any income level. You can do it regardless of how much you're able to save. Here are stories that show you. You can do this. You can become financially independent. I'm just so thankful that J.L. Collins was able to join us and spend some time with us today. What did you think of the show?

I thought it was a great episode and, you know, really enjoyed everything that J.L. had to say. Look, that's what we're about here at Bigger Pockets Money. Financial freedom, we believe, is attainable for anybody no matter when or where you're starting. And that's what Pathfinders is at its core. With that, should we get out of here, Mindy? We should, Scott. That wraps up this episode of the Bigger Pockets Money podcast. Happy New Year 2-hour listeners.

He is Scott Trench. I am Mindy Jensen saying, chow-chow, Willow. If you enjoyed today's episode, please give us a five-star review. on Spotify or Apple. And if you're looking for even more money content, feel free to visit our YouTube channel at YouTube.com slash bigger pockets money. Bigger Pockets Money was created by Mindy Jensen and Scott Trench, produced by Kaelin Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the Bigger Pockets team for making this show possible.