Famous businessman and investor Warren Buffett is one of the best people to turn to when you need financial advice. “The Oracle of Omaha” grew Berkshire Hathaway to over $1 trillion and is often ranked among the top 10 richest people in the world.
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Here are his best tips for getting your finances on track.
Put simply, to improve your financial health, you shouldn’t spend more than you earn. Buffett has famously repeated the mantra, “Do not save what is left after spending, but spend what is left after saving.”
Buffett’s advice here is to save first. Many personal finance advisors agree, encouraging people to create a paycheck routine. When your employer deposits money into your bank account, automate transfers so a percentage gets transferred to your savings and retirement accounts. You can then plan to spend the money you’re left with guilt free since you’ve already hit your monthly savings goal.
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Credit cards offer an easy way to borrow quickly when you don’t have money to spend. However, this convenience comes with a big catch. Credit cards have extremely high interest rates that can reach more than 23%. With the compounding effect that borrowers have to pay, credit card balances can quickly spiral out of control.
In a speech Buffett gave at the University of Nebraska, he advised the audience to avoid credit cards, saying, “Sometimes they are 18%. Sometimes they are 20%. If I borrowed money at 18% or 20%, I’d be broke.”
Credit cards can be useful tools for boosting your credit score if you’re able to pay off the balance every month before the interest kicks in. However, if you’re not sure you can pay the balance, it’s better not to use a credit card.
Wealthy individuals don’t like to lose money, and Buffett is no different. One of his most famous quotes is, “The first rule of an investment is don’t lose. And the second rule of investment is don’t forget the first rule.” This quote has changed over time to, “Don’t lose money,” which is simple but great financial advice.
At its essence, this quote is about making sound financial decisions. If you’re going to invest, it’s important to take time to research what you’re putting your money into. Making a rash or emotional decision can quickly lead you to financial loss. Buffett relates this idea to baseball, saying, “In the securities business, you sit there, and they throw U.S. Steel at $25, and they throw General Motors at $68. You don’t have to swing at any of them. They may be wonderful pitches to swing at, but if you don’t know enough, you don’t have to swing.” By keeping Buffett’s advice in mind, you’ll pay more attention to managing your risks.
