With a fortune estimated around $80bn, Warren Buffett is one of the richest people on the planet. While much of his success may down to his stock-picking abilities, a good portion is also due to his attitude towards money in general. As such, I think anyone concerned with growing their wealth can learn something from the Sage of Omaha.
Here are just three majestic money-management mantras Buffet lives by.
‘Never depend on a single income’
Having multiple sources of income can be a great cushion against life’s little (and not so little) tests. A second stream, perhaps by tutoring others in a skill you have or selling stuff on eBay, probably won’t match your primary wage but it should help keep the wolf from the door if the latter is suddenly taken away.
Buffett’s advice is especially pertinent in 2020. The coronavirus has already caused huge job losses around the world. With the government’s furlough scheme coming to an end in October, unemployment in the UK will surely continue to rise. Those with a second income already set up may find it easier to cope.
As a committed Fool, you won’t be surprised to learn that I think dividends are the greatest second income stream of them all. Owning a stock means you’re entitled to a share of a company’s profits. Assuming it pays these out to holders. Re-investing these cash returns back into the market and taking advantage of compounding can vastly improve your prospects of retiring rich.
‘If you buy things you don’t need, soon you will have to sell things you need’
This billionaire still lives in the same modest house he bought back in 1958. Why? Because Buffett only buys things he thinks will improve his quality of life. A sprawling mansion isn’t one of them.
Unfortunately, the unstoppable rise of online shopping and ‘one-click’ purchasing means it’s harder than ever for some people to avoid splurging on stuff they don’t need. Many will take on debt doing so, creating problems down the line.
One way of keeping your spending in check is to not wait until the end of the month and saving what’s left. Instead, set up a direct debit to transfer cash to your investment account on the day you get paid.
Treating this transfer like a regular bill payment reduces the temptation to splurge your cash on things you don’t need. It can also help develop the habit of regular investing.
‘Someone is sitting in the shade today because someone planted a tree a long time ago’
The final bit of wisdom from Buffett today is arguably the most important. Just as trees don’t grow overnight, nor will your wealth. That’s why it’s vital to start investing as early as possible.
A lot of people fail to heed this advice for fear of making mistakes. Thankfully, there are ways around this. You can employ a professional to invest on your behalf or, as Buffett recommends, buying cheap index trackers that generate the same return as the market. A portfolio containing the latter can be set up in minutes.
Alternatively, simply learn the basics of stock-picking and adapt your strategy as you go. Any errors you do make can usually be rectified if time is on your side. Ironically, the biggest risk comes from not investing at all.
Paul Summers has no position in any of the shares 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.