'Tie yourself to the mast': Godfather of financial independence JL Collins tells Hasan Minhaj how to build wealth

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Is achieving financial freedom something anyone can do, regardless of their income?

If you’ve read JL Collins’ book, The Simple Path to Wealth, you know he believes the answer to that question is yes.

Known in the FIRE (Financial Independence, Retire Early) community as the “Godfather of FI” — Collins' New York Times Best Seller has shed light on all things personal finance since its release in 2016. Recently, Collins appeared on comedian Hasan Minhaj’s podcast, Hasan Minhaj Doesn’t Know, to discuss his three rules for financial success (1).

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Minhaj was candid about his complete lack of knowledge about money when he was breaking into the comedy scene, mentioning that his first roommate in LA was concerned that he kept all his money in a box in cash.

“I had about $3,200 to my name, and he's like, ‘Are you selling drugs?’ And I go, ‘I promise I'm not selling drugs. I'm serious. I am a comedian. I'm not selling drugs out of this apartment,’” Minhaj said.

“And he goes, ‘Do you have a checking account?’ … ‘Do you have a 401k? Do you have a Roth IRA? Do you have a retirement account?’ He's using all these terms, but it started my Google journey into buying this book.”

Minhaj then laid out the rules Collins explains in the book — spend less than you earn, invest the surplus in an index fund and avoid debt.

Spend less than you earn

He asked Collins about the first rule — spend less than you earn. “So, you're saying be cheap?” Minhaj joked.

The FIRE movement initially gained a reputation for followers living as frugally as possible (2), but that has changed in recent years, according to the New York Times (3).

“One of the things that I push back on is this idea of being cheap or that this path is one of deprivation, right?” Collins replied.

“I don't see it that way. I never felt that I was depriving myself when I took money that I saved and invested it. What I was doing was spending my money on the single most important thing to me, which was my financial freedom.”

Collins detailed the importance of building up “f--k you money” — enough saved up to quit a bad job or take extended time off without going into debt — on the path to FIRE, and how that became his driving force.

“For me, there was nothing money could buy that was more important than my financial freedom, than having what I thought of at the time as ‘FU money,’ which gave me the freedom to make bolder choices in my life,” he said.

Spending less than you earn gives you a consistent stream of money to invest, which is his next rule.

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Invest the surplus

Collins' advice to everyone is to invest their surplus income in VTSAX, a simple, all-in-one, low-cost index fund by Vanguard.

Minhaj pressed him on choosing VTSAX over tech stocks that have accounted for much of the gains in recent years.

“You want me to be happy with a measly 12% on average return when I need to come up now?” Minhaj joked. “If I was dumb and I invested in VTSAX, I get 12% — but look, if 10 years ago, I go all in on the real stuff that makes the world turn — all I do is I hold FAANG plus Nvidia, I would have gone up 713%, 873%, 633%, 1268%.

“Had I put my $3,000 into Nvidia, I would have gone up 26,209% in 10 years.”

Collins pointed out that while FAANG has been successful over the past decade, no one knew which stocks would take off and which would fail, as many of their peers did.

“You don't know which horse is going to win, but I do know that VTSAX will reliably make me wealthy,” Collins said. “And 12% a year, compounded over time — 8% a year, let's be much more conservative — compounded over time is an extraordinarily powerful thing.”

Minhaj then asked him about a recent headline:

“Bank of America says growth stocks are in a bubble exceeding the dot-com and Nifty 50 eras and warns they could take the S&P 500 down 40%,” Minhaj read.

Collins then detailed the crashes he’s been through over the past 50 years.

“Crashes like that are a perfectly normal part of the process — they are to be expected. Since I've been investing, there have been three of them that have gone down more than 50%,” he said, noting significant crashes in 1974 - 1975, 2000 - 2002 and 2008 - 2009.

He reiterated that during each of these periods, everyone thought the world was ending, and yet, the market always rebounded and continued to climb.

His advice? Be like Warren Buffett and capitalize on the discount.

“You have to tie yourself to the mast and use the opportunity while you have it to acquire shares at bargain prices,” Collins said.

“You know, Warren Buffett said that every now and again, there's going to be really dark clouds out there, and it's going to begin raining gold, and you want to be out there filling your buckets because that's the opportunity to buy at the best possible prices.”

Avoid debt

Finally, Collins pointed out the significant importance of avoiding debt — be it a mortgage, car loan or credit card debt — so you can instead use that extra income to invest.

“I wouldn't lease a car. I also wouldn't take a car payment — I've never had a car payment,” Collins said.

He explained how his father bought a new car every five years in cash, and he did this by starting with the cheapest car possible, and then making a car payment to his bank account each month for the future car he wanted. After five years, he had enough cash to buy the new car, minus any debt.

When it comes to mortgages, his feelings are similar.

“You shouldn't think of your house as an investment,” Collins said. “Sometimes it works out, goes up in value, but it's a place to live. It's a lifestyle choice, so you need to separate in your mind what an investment is and what a house is.”

Money management tools for beginners

If you’re just starting out on your investing and financial independence journey, there are some tools that can make it easier to find your path.

Starting small can make a big difference — those who invest early and often, even if it’s just a small amount, reap the rewards thanks to the power of compounding.

Acorns can help you start investing automatically, by rounding up the price of your purchases to the nearest dollar and placing the difference into an investment portfolio.

Your next coffee purchase could be your next investment toward financial freedom. That morning $3.50 ritual will be rounded up to $4.00, and the 50-cent difference will automatically be invested every time. Depending on your coffee habit, that can add up to a significant amount of money invested each month with zero effort on your part.

Plus, if you sign up now, you can get a $20 bonus investment when you set up a $5 recurring monthly contribution for your portfolio.

Learning how to accurately budget is crucial as you start your journey to financial independence. Once you know exactly how much you’re giving to Uber Eats each month, you’ll be motivated to reduce that number so you can invest more.

If you’re looking to manage your investments on your own, there are tools to help you keep up with what’s happening in the market every day.

One option is Moby, a cutting-edge platform that allows you to make smarter financial decisions by providing personalized insights and data-driven strategies.

Each week, Moby’s team of financial experts put together three curated stock picks every week for your consideration. What happens next, to invest or not invest, is entirely under your control. This can help you navigate complex investment markets with ease and confidence.

Even better, Moby offers a 30-day money-back guarantee so you can try before you buy, and make sure that their recommendations, analysis and financial planning assistance align with your own goals.

Don’t be afraid to ask for help

Finally, if you’re unsure where to start, an advisor can help you make a long-term plan. Vanguard reports (4) that those who work with a financial advisor experience a 3% increase in net returns compared to those who don’t, so it can also impact how fast your investments grow.

If you’re looking for a qualified advisor, check out Advisor.com. Just answer a few quick questions, and you’ll be matched with a selection of the best advisors for your needs.

Book a no-obligation call today to find the right advisor for you.

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Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

@Hasan Minhaj (1); Mr. Money Mustache (2); The New York Times (3); Vanguard (4)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.