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The 3 rules Warren Buffett followed to make a million

With a total fortune of just under $85bn, Warren Buffett is the world’s third richest man, and he is also widely considered to be the greatest investor of all time.

Buffett didn’t build his fortune overnight. It took him many decades to acquire wealth and invest it in a way that has yielded tremendous results. 

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What’s more, the billionaire never used any secret tricks to build his fortune. He used several critical financial strategies that are available to all investors. Here are the three steps Buffett has used to grow his wealth over the years. 

Save, save, save 

The first step he used to help him on his quest becoming one of the worlds wealthiest people was to save. Even at the very young age of 10, he understood the importance of saving. Throughout his life, he’s always prioritised sensible spending, rather than going out and buying a massive house (he’s lived in the same property practically all of his life) or a fancy car. 

Instead of spending on big-ticket items, Buffett has kept his spending to a minimum and reinvested all of his excess capital. Spending less than you earn, and putting away a little bit every month is a highly achievable goal for most people and is a great place to start if you want to build wealth.

Don’t waste your savings 

The next step is to achieve the best returns on your savings without losing your hard-earned money. The best way to do this is to invest in shares, although you need to make sure that you do your research before committing yourself. 

Investing in only the highest quality businesses, with the best brands and record of achieving returns for investors, is a surefire way to make sure that you can grow your wealth without having to foot the bill for substantial losses at that wipe out a percentage of your savings.

Compound to grow 

If you’re saving and investing your money sensibly, the next step is to let compounding do its work. 

Compound interest is the most powerful tool that investors have, and once again it’s something that Warren Buffett has been well aware of since he first began saving money all those years ago.

The best way to show the power of compound interest is to use an example. If you had invested £5,000 in the FTSE All Share Index in 1986 and taken out any income produced from this investment, by the end of 2016, your portfolio would have grown in size to £28,357. However, if you had reinvested the income received, the overall total would have been an amazing £88,396 for the same period with no extra effort on your part.

The bottom line 

So overall, by following the three Warren Buffett steps above, you should be able to greatly improve your financial position, and maybe even make a million. 

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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