Warren Buffett is an investing genius. He made his first investment purchase when he was just 11 years old, and his fortune is estimated to be at $63 billion.
The Oracle of Omaha is one of the most influential businessmen in the world — and, may actually be the most frugal; the billionaire once complained that “most toys are just a pain in the neck.”
Mr. Buffett has been regaling investors with useful nuggets of advice for decades. Here are our favourite pieces from the world’s most successful investor.
Learn to save.
Buffett shared this bit of insight during a television special last year. “I think the biggest mistake is not learning the habits of saving properly early. Because saving is a habit,” he said. Another big mistake, he added, is trying to get rich quick. “It’s pretty easy to get well-to-do slowly. But it’s not easy to get rich quick.”
If you want to make saving a priority, take a look at how you budget.
“Don’t save what is left after spending; spend what is left after saving”.
This might be financial advice rule number one, but it’s a message a lot of people don’t heed. For example; let’s just say you have enough monthly income to cover your basic daily living needs, and after this you want to start saving. Firstly, you should budget for your requirements and expenses, and then calculate the amount you wish to save. Whatever is left after this is your spending money.
By paying yourself first, you are automatically prioritising your savings goals. Consider your savings and investments as a monthly bill, so that you make this a priority.
3. End the Pay-to-Pay Cycle
When you have bills, mortgage, children, etc it is easier said than done, but Buffett illustrates just how important it is to break the pay-to-pay cycle:
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
When you’re living in a cycle that is pay-to-pay, it can be hard to find the time and resources to take a step back and address your financial issues at their core. Likewise, trying to “patch up” the aftermath of your issues rather than the cause of them can keep the cycle going in a repetitive circle.
Some examples of these desperation “patches” in the pay-to-pay cycle are:
- Using your credit card and not being able to pay it off in full
- Making “hardship withdrawals” from your savings account
On the other hand, what would be considered “changing vessels”? Here’s what we’ve talked about:
- Look for regular expenses you can trim
- Re-evaluate your needs vs. wants
- Downgrade
- Learn some basic skills to deal with emergencies using your actual existing monies, and not credit facilities.
4. When a stock price falls, don’t panic and sell.
Buffett followed his own advice last year when he lost $2 billion in a matter of days after disappointing earnings reports drove down the prices of some of his biggest investments. But as he told CNBC, investors who jump ship when an investment goes down deprive themselves of the opportunity to recover lost funds when the price improves.
Buffett is a keen participant in a bear market, and the more prices drop, the more he likes to buy. But in general, his advice is to buy dependable long-term stocks in companies whose industry and business model you thoroughly understand. “If you told me that the market was going to go down 500 points next week, I would have bought those same businesses and stocks yesterday,” he explained. “I don’t know how to tell what the market’s going to do. I do know how to pick out reasonable businesses to own over a long period of time.”
If you would like to speak to an independent financial adviser for advice on how you can improve your savings, we offer a complimentary first appointment. Please phone our office on (03) 9999 7200 or contact us here to arrange.