Money Management Tips of Warren Buffett
Every one know the Warren Buffet,He is the largest money making through share market and investment.His net net worth is $82.7 billion dollars as of March 29, 2019.He is among the most successful investors of all time. He founded and runs the Berkshire Hathaway company which owns more than 60 companies including Dairy Queen, Geico and Duracell battery.
He started investing at age 11. Warren Buffett is approaching his 90th birthday and is vital and engaged.Despite his unique background, there’s much that savers and investors can learn from Warren Buffett.
1. Use the Power of Saving
Buffett says, “Don’t save what is left after spending; spend what is left after saving.”
By saving first, you eliminate the problem of not having enough money to save, at the end of the month. You also avoid having to budget, one of the most unpopular financial activities.
To implement the Buffett approach to saving, invest a portion of your salary into a 401(k) and a Roth IRA. This not only guarantees that you’ll be saving for the future, but that you won’t be spending all your income.Then, direct another portion of your income into a short-term cash account, like a savings account, earmarked for emergencies.
2. Spend Wisely
You might imagine having an extravagant lifestyle if you were in Buffett’s shoes. Yet, the billionaire has simple tastes. Known for favoring Coke and McDonald’s hamburgers over a $100 meal, there’s a lot to learn from wanting less.
From a man who could buy anything, “I’m not interested in cars and my goal is not to make people envious. Don’t confuse the cost of living with the standard of living.,” Buffett says. He is a champion of living within your means and income.
Think, wait, and evaluate before spending. Consider, as you rip out your Visa card whether the $95 pair of shoes or new headphones today are worth sacrificing $950 at retirement?
Here’s how investing, instead of spending works:
- Invest $95 today in a diversified stock market index mutual fund S&P 500
- Assume an annualized return of 9% per year.
- Wait 27 years, until retirement.
- The investment will be worth approximately $950.
That’s the power of compound returns!
Every time you spend money on something that doesn’t give you a return, you’re sacrificing your tomorrow. A simple rule of thumb is to multiply the cost of your spending by 10. And that’s an approximation of how much money you could have in retirement, if you invested the money instead of spending it.
3. Save For the Unexpected
Warren Buffett keeps billions of dollars on hand, just in case.If an outstanding investment opportunity arises, he has the money to act.For you and me, having extra cash on hand means that if the stock market falls, we have cash on hand to buy good stocks at bargain prices.
Then there’s the day-to-day financial surprises. Emergencies happens to everyone. Recently, we had a small fender bender. This set us back $1,000 for the auto insurance deductible, and our premium went up a few hundred bucks.
4. Use Debt Carefully and Limit What You Borrow
When buying a home or a car, you may need to borrow money. Realize that too much debt limits your chance to save money and become financially wealthy. Every dollar you put towards interest payments is one dollar that is not invested and growing your wealth.Just like money invested, compounds and grows for the future. Borrowed money compounds and increases the initial price paid for an item.
Bufffett doesn’t hate debt, but recommends using it wisely.
“I’ve seen more people fail because of liquor and leverage—leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing,” he says. Although that quote refers to borrowing money to invest, the principle applies to other types of debt as well.
5. Think Long Term
The self-discipline the children illustrated in the marshmallow test is akin to the patience and ability to delay gratification that Warren Buffett demonstrates through his lifestyle and investing practice.He’s known to say that the appropriate time length for holding an investment is, forever.
For many, it’s easy to become consumed with the day to day concerns. Yet, if you avoid saving and planning for the future, you’re likely to have a stressful retirement.
Money saving tips from Warren Buffett reminds us that money doesn’t grow overnight but takes a long time to build up.Waiting to spend money along with waiting for investments to grow, will yield great outcomes.Be patient and understand that the magic of compounding takes time. Invest for the long term.Start investing a small amount every pay period and over the long term, the money will grow exponentially.
6. Invest Savings the Warren Buffett Way
Buy an S&P 500 index fund and hold it for the long term. In fact, that is exactly what Buffett instructed his attorney to do with the inheritance that he’s leaving to his wife!
If you’re age 25 and begin investing $10,000 per year, then at age 50 you will have roughly $732,000 dollars. (Assumes a 7% annualized return.)
This isn’t as difficult as it sounds. If you’re working for an employer who contributes to your 401(k) retirement account, then you might invest $500 and if your employer kicks in $333 per month, you’ve met your $10,000 annual investment goal.With compound interest, the money that you earn is added to the existing amount and grows exponentially.