5 Tips From Warren Buffet On Your Finances
Here are 5 of his tips on how to best handle your finances.
Live under your means.
Living modestly seems like great advice, but most people don’t fully understand what it means. When we compare ourselves to others, we generally look toward our peers. Compared to them, we’re all living somewhat modestly. However, this is not what Buffet means. Rather, he means that we should live as though we were comparing ourselves to peers of a lower income bracket. This is why Buffet lives in a modest home he bought over a half century ago and still drives his own car.
Think long term.
Every time you decide whether to buy a stock, the main question should be if you want to hold that stock indefinitely. Buffet’s method involves finding a strong company that will succeed well into the future, then wait until its stock price is undervalued. Then you should buy with the understanding that you intend to will that stock to your children decades from now.
Save before spending.
One of Buffet’s favorite aphorisms is: “Do not save what is left after spending, but spend what is left after saving.” By this he means that we should precommit to our savings goals before we even have access to each paycheck, then follow through on those commitments by saving what we intend to save first, and only then going on to spend whatever might be left over.
Be optimistic during crashes.
If you’re serious about finding great undervalued stock, then crashes are an excellent purchasing opportunity. You should know which companies are fundamentally secure ahead of time, so that when a crash comes and their stock price falls beneath its value threshold, you can be ready to purchase that undervalued stock with an eye to how much it will improve over the long term.
Unlike most investment advisors, Buffet doesn’t believe in diversity. For Buffet, it makes more sense to really get to know 10-15 companies well, and invest only in them. If you’ve done your homework, then not only are they fundamentally strong companies for the long term, but you’ll have bought them at a significantly undervalued price. It takes less effort to just buy an index fund, but owning fewer higher quality stocks will give a better return with only a moderate amount of extra effort.
For more on how to make optimal financial decisions, check the contact information for Fisher Investments. There, you can learn about more tips from the other great investors of our time.