Warren Buffett is one of the world’s wealthiest people and is considered to be one of the best investors of all time.
He didn’t get to where he is today by accident. Throughout his life, Buffett has followed several core financial principles that have become the foundations of his wealth. By following these three tips, you too could achieve financial independence.
Stay out of debt
“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.” — Warren Buffett
Buffett has famously boasted that he’s never borrowed a significant amount of money in his life because he wants to avoid debt at all costs, and he advises others to do the same.
The big problem with debt is that you have to pay it back. It might seem like a good idea to make that big purchase on a credit card today, but you will have to pay it off at a later date. What’s more, if you have to borrow to make the purchase in the first place, it’s more than likely that you are spending more than you can afford.
In other words, with debt, you’re effectively borrowing from yourself in the future. By borrowing today, you’re committing to repayments going forward (with or without interest) impacting your ability to save. If you’re not saving, it’s almost impossible to become financially independent. This brings me on to Buffett’s second tip.
Save, save, save
“Don’t save what is left after spending; spend what is left after saving.” — Warren Buffett
To be able to achieve financial independence, you need to be saving money. Even if it is just a few pounds a week. Buffett believes investors and savers should budget around saving, rather than spending.
For example, if your target is to save £200 a month from a monthly income of £2,000 a month, using Buffett’s principle, you should stash £200 a way, leaving £1,800 in spending money.
Paying yourself first is an automatic way to prioritise your savings, and should reduce the risk of overspending. By following this rule, and staying out of debt, it shouldn’t be long before you start to build a sizable savings pot that just keeps growing.
Slow and steady wins the race
“Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.” — Warren Buffett
Finally, Buffett has never been in a rush to make money. He never takes excessive risks and is prepared to wait for years for the right opportunity to come along.
Unless you win the lottery, you are not going to achieve financial independence overnight. It takes time and effort. If you try and rush wealth creation, you could end up taking unnecessary risks. More often than not, that get-rich-quick scheme everyone is talking about will only cost you money. Just one or two large setbacks could eliminate your chances of ever being able to achieve financial independence.
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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.