Arguably one of the greatest investors of our day, Warren Buffett continues to dole out advice to all of us lesser mortals, advice that in most cases is extremely valuable and makes a lot of sense. We’ve put together 5 of his finance tidbits that we consider the best and, since we follow them, we figure that our dear readers should be following them as well. Enjoy.
- Spend your money wisely. While this may sound quite vague, the fact is that most people make purchase decisions with very little forethought. We bow to peer pressure, lifestyle and emotions which cloud our better judgment. Add to that the fact that marketing companies fully understand our human emotions and take advantage of them to the fullest and you end up with a society that has shopped itself into a huge financial hole. From large, major purchases like homes to daily latte purchase every morning, truly examining your purchases and making a wise choice on every single one is necessary to build wealth . The question that every consumer should ask themselves on every purchase is simply this; do I really need this item? If you can’t immediately say yes, you probably don’t.
- Save money for unexpected surprises. Unfortunately, while most people know that saving money and having a retirement account are sound financial ideas, very few put those ideas into play. Worse still, most people don’t even save enough money to get them through even an emergency if it were to arise. Mr. Buffett is an advocate of the “pay yourself first” principle of finances where, rather than planning on how you will spend your money, you plan on how you will save it and use the rest to make payments. His words about this are simple and powerful; Don’t save what is left after spending, spend what is left after saving.
- Patience is a financial virtue. Most people overestimate the amount of money that they can make in a year and also underestimate the amount that they will make in 10 years. Many use these false numbers to try and plan their investments but, as Mr. Buffett will tell you, investing in the long-term is a much smarter idea. A diversified portfolio is one of the best long-term financial solutions and will protect you from the ups and downs of the market. Patience and wisdom to see your investments through these ups and downs will help you to retire much more comfortably.
- Keep borrowing to a minimum. Simply put, it’s impossible to become rich if you’re living on borrowed money. While some borrowing is necessary and manageable, there are millions of examples of situations where someone has borrowed so much that they have become deeply mired in debt. Mr. Buffett advises that an objective assessment of your future cash flow is necessary before any borrowing should start and that living debt-free should be every consumer’s goal. One way to do this is to shift from using credit cards to using debit cards. Another is to purchase a smaller house with a lower mortgage. No matter what you do, having a solid plan in place to pay back your debt is truly vital.
- Reducing your financial risk. And Mr. Buffett’s words, “risk comes from not knowing what you’re doing”. What he’s alluding to is the fact that most people want to make money as quickly as possible and, because of that, will invest in things that promise high returns but then fail to objectively analyze the actual investment. In his opinion, fully understanding the asset classes, financial instruments and investments that you choose is one of the most important things that you can do to protect your money and make sure that it continues to grow. To that end, searching out and getting the advice from professional financial advisors becomes important as well. While the fact is that no investment is without risk, knowing as much as you can about the company or investment that you are planning on making will help to lower your risk substantially.
Much of what you just read was paraphrased from the great one but, paraphrased or not, its still powerful and important information that you can use to plan and prepare yourself financially. If you have questions about anything financial or would like to comment on this blog article, please do and will get back to you ASAP.