Turning 90 this year, Warren Buffett continues to make crucial investment decisions for the firm he founded, Berkshire Hathaway, which is an umbrella corporation for more than 60 companies. He has authored books and inspired countless investors to work out winning strategies through his speeches and interviews.
The eighth wealthiest man on the planet, Buffet has accumulated a fortune upwards of $108.2 billion. But what sets him apart from the billions he’s made is that Buffet is a man who walks the talk by leading a simple and modest lifestyle. He is one of the biggest champions of saving big and living within one’s means. Here we list out five core principles that form the crux of the Buffett code of wealth building.
Keep your spending below your earning
Warren has spoken about how people confuse the cost of living with the standard of living. By maintaining discipline in what you desire and keeping simple tastes, you can secure your future. Making a quick evaluation of what you’re spending on is essential to creating wealth according to Buffett.
It’s imperative to think of every expense as an investment in yourself rather than a means to create an impression of being wealthier than you actually are. If what you spend on does not yield a return, you are essentially sacrificing your future financial freedom. So, think before you spend.
Make savings your top priority
Most people make the mistake of saving whatever they have left of their income after all needs are met. If wealth creation is your goal, creating the habit of saving needs to be top priority. As Buffett says, “Don’t save what is left after spending, spend what is left after saving.”
However, he also asks people to use common sense when making decisions regarding how much to save. “You don’t save by not going to a movie. There is a lot to be said about saving money by denying yourself enjoyment. Delayed gratification is not necessarily an all-qualified reason,” Buffett once said to a 17-year old. Instead, he advises prioritizing financial security and not going “overboard” with delayed gratification.
Invest savings in yourself
Use your savings to invest in yourself, to develop the best version of yourself. It could be an educational degree or diploma that would give your profile a boost or even grow your personality. Or, it could be learning a new language to help you interact more effectively with a potential client base.
Warren talks about how he paid a hundred dollars for a Dale Carnegie course in public speaking to combat his fear of speaking. He has on many occasions stated how it was the best investment he ever made in himself, especially since it even helped him to propose to his wife!
Never invest with money that’s not yours to lose
There’s one mistake that Mr. Buffett talks about regretting and that’s about borrowing money. Once, Buffet borrowed 25 percent of his net wealth to acquire some shares. To this date, he continues to warn new investors against investing with borrowed money. “I’ve never borrowed a significant amount of money in my life. Never will. I’ve got no interest in it” he said when talking to some students at Notre Dame.
Beware of credit card debts
It seems so much easier to just zip out your credit card to buy things that you need every day. But credit card debts can add up quite quickly. One of Buffet’s friends once came to acquire a lot of money and asked him for advice. The first thing Buffet asked his friend was whether she had any credit card debts in her name. He came to know that his friend had such debts which came with an interest rate of 18 percent.
“If I owed any money at 18%, the first thing I’d do with any money I had would be to pay it off… It’s going to be way better than any investment idea I’ve got… You can’t go through life borrowing money at those rates and be better off,” Buffet said to her.
Rather than running the risk of falling back on paying your credit card dues and damaging your credit score, it’s so much worthwhile to use money from your account for daily needs.