Warren Buffett’s 8 Tips for Not Going Broke
Written by
Caitlyn Moorhead
Edited by
Katie Wudel
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Warren Buffett is known as one of the best investors of all time due to his financial prudence and long-term decisions. As one of the world’s wealthiest individuals, with an estimated net worth of around $149 billion, Buffett’s investing success, strategies and wisdom are followed by millions worldwide.
With that in mind, here’s a look at some of Buffett’s time-tested advice for preserving wealth and ensuring that you don’t end up broke.
Live Below Your Means
One of Buffett’s most famous traits, and the subject of many letters to Berkshire Hathaway shareholders, is frugality — living below your means. Despite his wealth, he still lives in a modest house he bought in the 1950s. He also avoids extravagant spending and uses coupons that may shave a few dollars off a grocery bill here and there.
Though Buffett’s investment strategy is essentially a guidebook for how to make money, he also advises against spending money on things you don’t need, as this behavior can quickly erode savings. Avoiding impulse purchases and focus on cutting out unnecessary expenses. This will help you live below your means.
Buffett is known for assessing value before making any purchase, big or small. By considering if something is truly worth its price and if it’s necessary, you can steer clear of buying things you don’t need. This will help you save money in the long run.
Save Before You Spend
One of Buffett’s golden rules is to prioritize saving. Instead of saving whatever is left after monthly expenditures, set aside a specific portion of your income as soon as you receive it. Then, budget and spend what’s left. While Buffett’s world involves multi-billion-dollar deals, he often talks about liquidity.
For the average person, this highlights the importance of having an emergency fund. The fund acts as a financial buffer in tough times, ensuring unexpected expenses don’t plunge you into debt. Think about it like not having to lose money on expenses you can’t cover without your expected income.
Understand What You Invest In
Whether it’s S&P 500 index funds or another stock market option, Buffett firmly believes in thoroughly understanding a business before investing in it. He said, “Never invest in a business you cannot understand.” Make sure to research and have a clear understanding of where you’re putting your money, be it stocks, real estate or any other form of investment.
For example, if you’re knowledgeable about real estate but know little about the tech industry, it might be prudent to invest in the former as that’s where you have a competitive advantage. Venturing into unknown territories can expose you to unforeseen risks.
Avoid High-Interest Debt
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks,” Buffett wrote. This is sound advice if you’re drowning in high-interest debt.
Before thinking about saving or investing, prioritize paying off high-interest loans or bills with high interest rates such as credit cards. They can rapidly erode your finances if left unchecked.
Focus on Long-Term Investments
Many people approach stock market investments as a game of chance, but Buffett advises against this mindset. He emphasizes long-term investments over short-term speculation.
He suggests thinking of stock purchases as buying a piece of a business. Patience and a long-term view often result in better financial outcomes.
Reinvest Your Profits
When you do start earning profits from your investments or business ventures, Buffett suggests reinvesting them instead of spending. By channeling profits back into your investments, you benefit from the power of compounding, accelerating the growth of your wealth.
Guard Against Inflation
While this might not seem immediately relevant to daily financial decisions, Buffett warns of the eroding power of inflation. Keeping all your money in low-interest accounts can result in a loss of purchasing power over time. Diversifying investments and staying informed can guard against this subtle wealth destroyer.
Invest in Yourself
Buffett believes in self-improvement. Whether it’s learning a new skill, taking a course or reading books, investing in yourself ensures you’re continually improving and adapting. This not only opens more opportunities but also helps you make better financial decisions.
Overall, Buffett emphasizes living within your means, investing wisely, continually learning and being patient. Following these timeless guidelines might not make you a billionaire overnight, but they can certainly help you avoid going broke.
More From GOBankingRates
