Do you want to be smarter with your money and better at
building wealth next year than you were this year? There's no one better to
turn to for advice than Warren Buffett. The Oracle of Omaha has built his own
personal fortune to more than $72 billion, making him the third richest person
in the world. Not only that, he's offered a lot of common-sense advice on
building wealth that absolutely anyone can follow, whether they know anything
about investing or not. The personal finance site GOBankingRates recently
compiled the best pieces of finance advice Buffett has ever given. Here are
some of the best. You can see the full list here.
1. Never lose money. "Rule No.
1: Never lose money. Rule No. 2: Never forget rule No. 1," Buffett has
said. Of course, this is kind of a no-brainer--I don't know anyone who thinks
losing money is a good idea. But get beyond that obviousness, and this is
practical advice that is very wise: avoid risk whenever you can. In
particular, he says, to be happy and successful, never risk something you
need to get something you just want--even if the odds are a thousand to one in
your favor. With this rule in mind, Buffett himself has refrained from making
many risky investments over the years, and passed up what could have been big
gains, for instance in technology. Over time, though, this risk-averse strategy
has paid off spectacularly well.
2. Get high value at a low price.
"Price is what you pay, value is what you get," Buffett has written
to Berkshire Hathaway shareholders. So you can lose money (and violate Rule No.
1) if you wind up paying more for something than its value is worth. This can
happen, for example, when you use a credit card and wind up adding a lot of
interest to the price of what you've bought. Or when you buy anything--from a
share of stock to a piece of real estate--when everyone else is buying and the
market is overpriced.
3. Get into healthy financial habits.
We all have habits we'd like to break, and others we'd like to form. Among
the latter, Buffett says, the most important is saving money. "The biggest
mistake is not learning the habit of saving properly," he says. Consider
using automatic deductions from your paycheck or automatic transfers from your
checking account into a savings or investment account to make forming this good
habit as painless as possible. When you're building a budget, the first thing
to look at is non-essentials you can cut. Music, movies, books, apps and other
bits of entertainment often fall into that category. However, you might not
want to give them up.The good news is that you don't have to. You can get all of
these things for free if you know where to look. Learn how to get these
for free, and more tech purchases you might be making that you don't have to.
4. Have lots of cash available.Buffett
says that Berkshire Hathaway always has at least $20 billion--and usually a lot
more--in cash equivalents, ready to be drawn on in case of need. Once again,
this is a very risk-averse strategy that means sacrificing the larger gains he
could have gotten by investing that money. But, he says, it kept the company
out of trouble during the 2008 financial downturn when so many others struggled
or failed. Don't have $20 billion to hide in your mattress? Having a decent portion of your money in cash or money market accounts, or such items as U.S. Treasury bills or short-term CDs, is still a very good idea. This is especially important if you're an entrepreneur and may have an uncertain income.
5. Invest in yourself. Buffett has often said that you should invest in
yourself as much as you can, and in every way you can, from taking care of
your body, to finding work you love, to education. Those returns will come back 10-fold, he
notes, and unlike other assets, your abilities and skills can't be taken away
from you. That may mean going to school, or it could mean taking a training
position, starting your own business, or even taking a volunteer position if it
will teach you some skills you didn't have before. Whatever makes you smarter
makes you richer.
6. Set long-term goals. The mistake
most people make is they try to catch whatever wave of rising prices and rapid
returns they think they see in the short term, Buffett says. That kind of
thinking almost always gets people in trouble. Instead, he advises,
"invest with a multi-decade horizon." Instead of trying to make a
quick buck, he says, you should be focused on increasing your purchasing power
over your entire lifetime. That sounds like a very sane approach to me.
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