In the world of investing, Warren Buffett is undoubtedly the most well-known and respected figure ever. Buffett is also well-known for his down-to-earth demeanor and his memorable statements on the subject of investment.
Whenever you’re attempting to reach the summit of a mountain, it’s usually a good idea to closely follow the footprints of people who have already completed the journey successfully before you.
If you study and put into practice Buffett’s finest investing advice, your chances of achieving financial success can grow enormously.
1. Never let your money go to waste
One of the most frequently quoted pieces of Buffett’s advice is as follows: “Rule number one: Never lose any money. Rule No. 2: Never forget the importance of rule No. 1 “If you’re starting from a place of loss, it’s far more difficult to get back to where you were before, let alone to make gains.
2. Get a lot of value for a small amount of money
Buffett mentioned another important notion in a shareholder letter to Berkshire Hathaway shareholders in 2008: “Price is what you pay; value is what you get.” When you pay a price that does not correspond to the value you receive — for example, when you pay high interest on credit card debt or spend money on products that you will rarely use — you may incur a financial loss.
Instead, live modestly like Buffett by seeking ways to acquire greater value at a lower cost.
“Whether it’s socks or equities, I enjoy purchasing high-quality stuff at a discount,” Buffett stated in a letter to shareholders.
3. Develop sound financial habits
Buffett stated in a 2007 speech at the University of Florida, “Most conduct is habitual, and they say that the bonds of habit are too light to be felt until they become too heavy to be broken.”
Work on developing good money habits and breaking bad ones that are detrimental to your financial well-being.
4. Stay away from debt, particularly credit card debt
Buffett amassed his riches by putting interest to work for him, rather than working to pay interest, as many Americans are accustomed to doing.
According to Buffett, who delivered a speech at the University of Notre Dame in 1991, “I’ve seen more individuals fail due of liquor and leverage — leverage meaning borrowed money.”
“In this world, you don’t require much in the way of leverage. It is possible to generate a lot of money without taking out any loans if you are resourceful.”
Buffett is especially leery of credit cards, which he uses seldom. His recommendation is to stay away from them entirely. “Interest rates on credit cards are high,” Buffett has stated on several occasions.
“They can be as high as 18 percent at times. Occasionally, they are as high as 20%. If I borrowed money at an 18 percent or a 20 percent interest rate, “, I’d be out of money.”
5. Always Have Cash on Hand
Another important aspect of ensuring security is to keep cash reserves on hand at all times. As Buffett stated in the 2014 Berkshire Hathaway annual report, “we always hold at least $20 billion — and frequently substantially more — in cash equivalents.”
Businesses and people alike may have a desire to put liquid funds to work through the use of investment opportunities.
“Cash, on the other hand, is to a business what oxygen is to a person: it is never considered when it is present and the one thing on one’s mind when it is absent,” Buffett explained.
“When it comes to paying bills, only cash is accepted as payment. Take it with you when you leave the house.”
6. Make a Financial Investment in Yourself
Buffett, according to Inc.com, stated that “Invest as much of your time and energy as you can into yourself. You are, by far, your own most valuable asset.”
In an interview with CNBC, he expressed similar comments, saying, “Anything you do to better your talents and make yourself more desirable will pay off in the form of appropriate actual purchasing power.”
Those profits are also substantial. About investing in one’s future, Buffett believes that “whatever you put into yourself will return twofold.” “Nobody can take it away from you; nobody can steal it from you,” says the author, in contrast to other possessions and investments.
7. Educate Yourself on Money
Learning more about money management should be included as part of your overall investment in yourself. The majority of Buffett’s responsibilities as an investor are focused on mitigating risk and limiting exposure.
As Buffett himself famously put it, “risk comes from not knowing what you’re doing.” According to Forbes, this is true. The more you understand about personal finance, the more secure you’ll feel as you reduce your exposure to hazards.
Taking away a lesson from this Warren Buffett quotation is to become actively involved in your financial education. As Buffett’s business partner, Charlie Munger, put it, “Go to bed smarter than when you woke up.”
8. Use an index fund with low fees to diversify your portfolio
While most of Buffett’s wisdom and counsel are philosophical, he has also provided some practical suggestions that almost anybody may put into practice. Buffett, for example, advises the average investor to invest in index funds rather than mutual funds.
Berkshire Hathaway shareholders received a letter from Buffett in 2013 instructing them to invest 10% of their cash in short-term government bonds and 90% of their capital in a very low-cost S&P 500 index fund.
Buffett has been offering this counsel for many years. During the 2004 Berkshire Hathaway annual meeting, Buffett stated, “If you invested in a very low-cost index fund — in which you don’t put all of your money in at once, but rather over 10 years — you’ll do better than 90 percent of people who start investing at the same time.”
9. Give Back
As Buffett famously stated, “If you’re in the luckiest 1 percent of humanity, you owe it to the rest of humanity to worry about the other 99 percent,” according to Forbes.
Furthermore, Buffett, who is himself a top member of the one percent, makes it a point to put his money where his mouth is.
Buffett, along with Microsoft co-founder Bill Gates, is a co-founder of The Giving Pledge, which is a vow made by more than 100 billionaires to donate their wealth to charitable organizations.
Even if you are not a billionaire, you may still enrich your life by giving back to the community.
10. Consider money to be a long-term investment
In the words of Buffett, “Someone is sitting in the shade today because someone put a tree in the ground a long time ago.” And it is correct. Now is the time to start sowing and nurturing the seeds of financial success, so that you can reap the benefits later in life.
That shade could include debt-free living, a secure retirement, or the capacity to cover the costs of your children’s college education.
Buffett’s investing judgments are based on a long-term perspective on money that he has developed. In a letter to shareholders in 2014, he advised people to “invest with a multi-decade perspective…
Their concentration should remain set on achieving considerable gains in buying power throughout their investing lifespan.” He cautioned investors not to place too much emphasis on periods of high stock market volatility or economic turmoil.
True wealth and financial security take years to accumulate, and you will almost certainly meet financial difficulties along the way.
However, approaching your finances as a lifelong project might help you stay on track even when things are tough. This provides you with a solid financial foundation that will continue for a long time.