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Money advice from Warren Buffett
Warren Buffett is arguably the most successful investor of the 20th century and most of his methods are simple, straightforward, and timeless. Here's some of Buffett's best money advice.
1)Borrow 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." Good debt is a sensible way to invest in your future. It leaves you in a better place, long-term, and should, ideally, not have a negative impact on your finances. Bad debt, on the other hand, drains your finances and has no prospect for future growth. A loan to buy a big screen TV is bad debt. If you're going to borrow money, make sure it's for an investment. 2)Pay Yourself First "Don't save what is left after spending; spend what is left after saving." Paying yourself first is to prioritise setting aside money before you use it on your expenses. Figure out a pre-determined sum you want to put away every month before you start paying your bills and spending it. This money you're putting aside is for investments in your education or to acquire an asset. 3)Don't Underestimate Your Habits "Chains of habit are too light to be felt until they are too heavy to be broken." Much of personal finance is about mindset. Accepting this will help you nip those bad money habits in the bud, before they get out of hand. The best way to change them is to replace them with new, supportive ones. 4)Price and Value are Not the Same Thing "Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down." Being frugal isn't being stingy. Warren Buffett is one of the biggest contributors to charitable organisations in the world today. Frugality is about not paying for something that's overpriced just because it feels good, neither is it about buying something just because it's cheap. He puts it another way: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." The key to making a smart spending decision isn't just price; it's value, too. So when you're getting a "deal," don't forget to calculate value into the equation. 5)Investing is Easier Than You Think "If you invested in a very low cost index fund—where you don't put the money in at one time, but average in over 10 years—you'll do better than 90% of people who start investing at the same time." Learn some basic investing terminology:
Buffett always promotes big picture. He warns to not get caught up in daily valuations. Instead, think long-term. "… If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value." If you've picked your index fund, it might even be best to not check on it every day. A lot of people refer to Buffett's index fund investing strategy as "set it and forget it." If you look at your daily valuations, you might get discouraged and be tempted to sell your stock at the worst time. Sure, you should look in on your investments every now and then to make sure you're still investing properly. Time suggests a semi-annual check-up. But for the most part, Buffett suggests looking at the big picture when it comes to picking your investments. This way, your investing won't require much maintenance. 6)Money Isn't Everything Yep—even the world's most successful investor knows money doesn't buy everything. "Some material things make my life more enjoyable; many, however, would not. I like having an expensive private plane, but owning a half-dozen homes would be a burden. Too often, a vast collection of possessions ends up possessing its owner. The asset I most value, aside from health, is interesting, diverse, and long-standing friends." Money offers a lot of options. But, of course, it's important to remember the things in life that truly matter most.
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