There are a lot of seasoned investors out there who have made a lot of money on things like the stock market over the years. They've researched, made choices they believe in, and were rewarded handsomely. Any one of these people would be worth listening to, especially if you're concerned about not just the present state of your finances but how things will play out in the future.
Then, there's Warren Buffett.
Warren Buffett is one of those rare people who not only transcends what they became initially known for but has also done so in a way that puts them in a league all their own. Buffett is known as the "Oracle of Omaha" because of the incredible level of success that he has enjoyed. By simply paying attention to investment trends and defying them when necessary, Buffett has built a personal fortune above $60 billion - making him one of the wealthiest people on the planet.
While building personal wealth through investing requires a certain amount of luck, most of it comes down to skill. Buffett developed a plan for himself regarding finances, and he acted on that plan meticulously over the years. Even if your personal goal isn't to become a billionaire (and it shouldn't be), there's still a lot to be learned from Warren Buffett that you can put to good use moving forward.
Tip #1: It's All About Value
One of the biggest misconceptions about Warren Buffett and his long-term financial strategy is that he's always on the lookout for the biggest payday possible. It would be nice to make vast amounts of money in one or two strategic moves, but this is only sometimes realistic.
Therefore, Buffett takes a different approach. He focuses on getting high value at the lowest possible price. As he has famously said in the past, "price is what you pay. Value is what you get."
In other words, always focus on value, especially if you're making moves to help accomplish your longer-term personal finance goals. Only pay a price that is the amount of value that you're getting in return.
Tip #2: Start Building Those Positive Money Habits
Another tip people can learn from Buffett - and one that far too many people ignore until it's too late - is establishing solid financial habits as early as possible. Buffett has always believed that most human behaviors are habitual. Once you repeat a process or a series of steps over and over again, it soon becomes second nature. Not long after, those "chains" of a new habit are far too strong to be broken. Or, as the old saying goes, "you can't teach an old dog new tricks."
This is a fundamental concept in the world of personal finance. If you develop poor money management habits at an early age, you'll probably carry them with you for the rest of your life. At the same time, if you develop positive habits, they, too, will serve you well for years to come.
But you can only get to that point with the right personal financial plan in place to begin with. This is a step that you need to take as early on in the process as possible.
Tip #3: If You Can, Avoid Debt
One critical Warren Buffett personal finance tip involves many people's misconceptions about debt. Many assume that debt is just a natural part of life. It's a "cost of doing business," so to speak. It's hard to function in life without a credit card, and eventually, you'll need to take out loans to go to school, buy a house, and more.
While having a certain amount of debt is probably a foregone conclusion, Buffett insists that people must avoid it as much as possible. To use the example of credit card debt, it doesn't make sense to put $100 on a credit card at a 20% interest rate for an item you'll barely end up using. At that point, you need to work harder to pay off the item. You're working hard to pay off the interest.
Warren Buffett has dramatically expanded his fortune over the years by eschewing borrowing whenever he could. He insists that this is something that ordinary people can embrace, too.
Tip #4: Embrace the Power of Cash on Hand
One of the great certainties in life is that it is, in fact, uncertain. You truly never know what is right around the corner. Sometimes, as is valid with your average economic downturn, we can see things coming. However, nobody could have predicted the long-lasting impact that something like an unprecedented global pandemic would bring with it, but here we are.
Indeed, the COVID-19 pandemic is a perfect example of why another one of Buffett's tips is so important. He believes that one of the core elements of guaranteeing financial security involves always keeping cash reserves on hand.
In his situation, he says that Berkshire Hathaway always keeps at least $20 billion in cash reserves - and typically more. This is because he wants to be prepared for a situation when those reserves may mean the difference between success and utter failure. No, your average person can't maintain cash reserves that high. But by staying liquid and keeping cash reserves, you can put yourself in the best possible position to fend off whatever life throws at you.
Tip #5: Educate Yourself
One of the biggest mistakes that Warren Buffett has always seen people make involves a need for more understanding of what personal finance even is, to begin with. Many assume that "everything will work out in the end if I work hard and save money." Instead, successful planning for your goals takes a decidedly more hands-on approach. To be able to do that and achieve the outcomes that you're looking for, you need to be prepared to educate yourself whenever possible.
That is to say, people need to learn more about how money works. What steps can a person take to limit their exposure? How does one go about mitigating risk? What happens when the Federal Reserve raises interest rates? All of these are questions that people need answers to if they're going to be successful in the world of personal finance.
However, they're not going to come easy. Do your research or take a class at a community college if you need to. The more you understand how personal finance works, the more you'll be able to put these concepts to work.
Tip #6: Don't Forget to Invest in the Most Important Asset of All - Yourself
Finally, Warren Buffett has always done what he could to underline the importance of planning for a sound financial future before it's too late. If you want to make sure that you have enough money to live the lifestyle you've always wanted in retirement, for example, you're not going to get to that point if you start saving just five years before the big day.
It would help if you started today. Right now. That requires you to develop (likely with the help of a financial professional) a plan to make accomplishing those goals a foregone conclusion.
Once you've taken the time to do that, you need to have the confidence to stick with it. You know where you want to go and where you're starting - you have to believe in the road map you've drawn that will help get you there. That means believing in yourself every step of the way. It doesn't matter how conditions may change or what is going on with the market now. If you've followed advice like everything outlined above and developed the right, organic plan to meet your needs, you'll accomplish your goals and exceed your expectations.
That is a stimulating position to be in from a personal finance perspective, and it's one that few are lucky enough to enjoy.
Always Looking Forward
In the end, few people will enjoy the level of success that Warren Buffett has when it comes to his finances - this much is true. Even though we'd all like to become one, it's rare for anyone to achieve billionaire status, let alone do it the way he has.
But that's okay because there is still an incredible amount to be learned from his long-term approach. By consistently maintaining a diversified portfolio, emphasizing value investing, and keeping one eye firmly fixed on the future, it's clear that this is one situation where the phrase "slow and steady wins the race" very much applies. By paying attention to tips like those outlined above, you too can carve out a bright financial future for yourself - which is precisely how it should be.