The “Oracle of Omaha” has created an impressive following of people and his investing results have proven the test of time. Below are some simple bits of wisdom that I believe are timeless.
- Never lose money. Buffet’s rule # 1 is to not lose money. And his rule #2 is to remember rule #1. Keep in mind if you lose 50% of your investment, then it takes 100% return to get back to even.
- Get high value for low price. What he means is value is what you pay for. Make sure that you are paying the right price for the value in the product, business or investment that you are buying.
- Build healthy money habits. Habits are what drive our behavior. It’s been said that finance is 80% behavior and 20% math. If we don’t change poor behaviors with our wallet then we can’t expect to find success with money or building a business.
- Avoid debt and, more specifically, avoid credit card debt. Credit card interest rates can be as high as 18% and more. If you have to roll over your credit card balance regularly, then you can’t afford spending on it. In effect, you are trading your future for your present satisfaction.
- Keep cash on hand. Come up with what your minimum cash balance needs to be. Is it 3 months or 6 months of expenses? “Cash is to a business as oxygen is to an individual: Never think about it when it is present, the only thing in mind when it is absent,” said Buffet.
- Invest in yourself. Your biggest income producing asset is yourself. Improve your skills to make yourself more valuable to the market. Unlike other assets and investments, “Nobody can tax it away and they can’t steal it away,” said Buffet.
- Learn about how to manage money as a part of the investment in yourself. Not everyone enjoys this subject, however, there are simple methods to follow that help you win with money. Spend less than you make. . . save 15% into a low cost index mutual fund. . . it’s not how much you make, it’s how much you decide to spend.
- Trust a low-cost index fund. Expenses matter when it comes to returns on your investments. Consistently adding to your investments each month or quarter exercises an important “money muscle.”
- Give back on a regular basis. Giving of our “time, talents, and treasure” to our community and nonprofits is a natural law of human nature where we want to help others in need. Giving produces psychic benefits for the giver and it helps society move forward.
- Invest for the long term. Investing not only with dollars but in ourselves is a long term game. Building true financial security takes time. As Buffet said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
Together these pieces of advice can help take us on the journey to financial security. The advice is simple and timeless.
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