Warren Buffett is known by many as one of, if not the greatest, investors of all time. At age 8 he said he knew he would be an investor the rest of his life. He's successfully grown his company, Berkshire Hathaway, into a giant success. One share is worth $310,230 as of August 13, 2018.
Quick summary: Here are five Warren Buffett money principles we'll break down below: save first, live below your means, build passive income, invest for the long term, and pursue work you're passionate about.
Read on for five key money tips from billionaire investor Warren Buffett.
1. Save Regularly And Pay Yourself First
As Warren Buffett said, "Do not save what is left after spending, but spend what is left after saving."
Warren is a huge believer that people need to pay themselves first. If not, it's easy to pay everyone else and forget about saving for yourself! Use automatic deductions to make sure you save or invest your money before you pay everyone else.
2. Live Below Your Means
Even though he is worth 70+ billion, Warren Buffett still lives in the same house he bought in Omaha, Nebraska for $31,500 in 1958!
The next time you get a raise or bonus, don't increase your lifestyle; increase your budget. Otherwise, it just offsets your raise. If you start earning more but spending more, you're right back in the same position as before.
Related Video: One of the biggest threats to retirement success isn't the market; it's avoidable planning mistakes. Watch our video on Common Retirement Planning Mistakes to Avoid to learn what can derail even well-intentioned retirement plans.
3. Learn To Make Passive Income
I love this quote from Warren: "If you don't find a way to make money while you sleep, you will work until you die."
It's often said that the average millionaire has seven streams of income. You can't always trade your time for money; you need to establish passive income streams to help you diversify and increase your income.
Here are three easy ways to create passive income:
- Invest in dividend stocks
- Publish a book or an e-book for continued royalties
- Create and sell an online course on something you're knowledgeable about, such as photography, sports, woodworking, or another area of expertise
4. Diversify Your Investments
When it comes to investing in the stock market, Warren's advice to the majority of investors is simple:
Play The Long Game
Warren only invests in stocks that he plans to hold for a long time. He is the definition of investing for the long term and doesn't believe in short-term trading.
Resist Fads
Warren has always resisted fads and short-term investments. His rule is to only invest in companies that he understands how they make money. If you don't understand how a company makes money, skip it or invest in the market with the S&P 500.
Invest In The S&P 500
By choosing to invest in the S&P 500, you are buying a fund that owns all 500 companies. By owning one share you are owning a piece of each company.
As he said in this CNBC interview, "Consistently buy an S&P 500 low-cost index fund. I think it's the thing that makes the most sense practically of all time."
5. Find Your Passion
Warren is a big believer in finding your passion. He said that at eight years old, he knew he wanted to be an investor. Over seven decades later, he is still passionate about what he does every single day.
As he said, "Without passion, you don't have energy. Without energy, you have nothing."
Passion is the reason Warren is 88 years old and still works every day. To him, it doesn't feel like work because he loves what he does and will do it forever.
How This Advice Applies Today
While this article was originally written in 2018, Warren Buffett's principles remain highly relevant. In today's environment of market volatility, inflation concerns, and longer life expectancies, these habits, saving early, investing consistently, and focusing on long-term growth, are even more critical for retirement success.
The challenge isn't knowing these principles. It's knowing how well you're actually applying them to your own retirement plan.
Frequently Asked Questions
What is Warren Buffett's best financial advice?
Warren Buffett emphasizes saving first, investing consistently, living below your means, and focusing on long-term growth rather than short-term market trends.
What does "pay yourself first" mean?
Paying yourself first means automatically saving or investing part of your income before spending on anything else.
Does Warren Buffett recommend index funds?
Yes. Warren Buffett has recommended low-cost S&P 500 index funds as a simple, long-term investment approach for many investors.
How can I apply Warren Buffett's advice to retirement planning?
You can apply Buffett's advice by saving consistently, investing with a long-term mindset, avoiding lifestyle inflation, and building a retirement strategy around income, taxes, market risk, and future goals.
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Investment advice is offered through Bayntree Wealth Advisors, LLC, an SEC-registered investment adviser. Insurance and annuity products are offered separately through Bayntree Wealth Advisors. Bayntree does not provide, and no statement contained herein shall constitute, tax or legal advice. You should consult a tax or legal professional on any such matters. Opinions expressed herein are solely those of Bayntree Wealth Advisors. All content is for informational purposes only and is not intended to provide the basis for any financial decisions.
