7 Personal Finance Tips From Warren Buffett

Warren Buffett is generally considered to be the best long-term investor of all time, so it’s no wonder many people like to listen closely to Buffett’s words of wisdom, in order to apply them to their own lives. With that in mind, here are seven of the best personal finance lessons I’ve learned from Warren Buffett over the years.

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1. “Someone’s sitting in the shade today because someone planted a tree a long time ago”

The lesson here is to be a forward thinker when it comes to personal finance, whether you’re talking about investing, saving, or spending. When you’re deciding whether to put some more money aside for emergencies, think of a financial emergency actually happening and how much easier your life will be if you have enough money set aside.

Similarly, few people get rich quick by investing, and most people who try end up going broke. The most certain path to wealth (and the one Buffett took) is to build your portfolio one step at a time, and keep your focus on the long run.

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2. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”

In addition to this, one of my all-time favorite Warren Buffett quotes is “our favorite holding period is forever,” which is also one of the most misunderstood things he says. The point isn’t that Buffett only invests in stocks he’s going to buy and forget about — after all, Buffett’s company Berkshire Hathaway sells stocks regularly, and for a variety of reasons. Rather, what Buffett is saying is to invest in stable, established businesses that have durable competitive advantages. That is, approach your investments with the long term in mind, but keep an eye on them to make sure your original reasons for buying still apply.

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3. “Price is what you pay; value is what you get”

When you’re buying an investment (or anything else for that matter), the price you pay and the value you receive are often two very different things. In other words, you should buy a stock if you believe its share price is less than the intrinsic value of the business — not simply because you think the price is low.

For example, if a market correction hit tomorrow and a certain stock were to fall by 10% along with the overall market, would the business inherently be worth 10% less than it is today? Probably not. Similarly, if a stock rose rapidly, it wouldn’t necessarily mean that the value of the underlying business had risen as well. Be sure you consider value and price separately when making investing decisions.

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4. “Cash … is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent”

One of the reasons Berkshire Hathaway not only survives recessions and crashes, but tends to come out of them even better than it went in, is that Warren Buffett understands the value of keeping an “emergency fund.” In fact, when the market was crashing in 2008, Berkshire had enough cash on hand to make several lucrative investments, such as its purchase of Goldman Sachs warrants.

Granted, Berkshire Hathaway’s rainy-day fund is probably a bit bigger than yours; Buffett insists on keeping a minimum of $20 billion in cash at all times, and the current total is around $85 billion. However, the same applies to your own financial health. If you have a decent stockpile of cash on the sidelines, you’ll be much better equipped to deal with whatever financial challenges and opportunities life throws at you.

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5. “Risk comes from not knowing what you’re doing”

In Buffett’s mind, one of the best investments you can make is in yourself and the knowledge you have. This is why Buffett spends hours of every day reading, and has done so for most of his life. The better educated you are on a topic, whether it’s investing or anything else, the better equipped you’ll be to make wise decisions and avoid unnecessary risks. As Buffett’s partner Charlie Munger has advised: “Go to bed smarter than when you woke up.”

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6. Most people should avoid individual stocks

This may seem like strange advice coming from Warren Buffett, since he’s widely regarded as one of the best stock-pickers of all time.

However, Buffett has said on several occasions that the best investment for most people is a basic, low-cost S&P 500 index fund, like the one he is using in a bet to outperform a basket of hedge funds. The idea is that investing in the S&P 500 is simply a bet on American business as a whole, which is almost certain to be a winner over time.

To be clear, Buffett isn’t against buying individual stocks if you have the time, knowledge, and desire to do it right. He’s said that if you have six to eight hours per week to dedicate to investing, individual stocks can be a smart idea. If not, you should probably stick with low-cost index funds.

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7. Remember to give back

Warren Buffett is a co-founder of and participant in The Giving Pledge, which encourages billionaires to give their fortunes away. Buffett plans to give virtually all of his money to charity, and since he signed the pledge, he has given away billions of dollars’ worth of his Berkshire shares to benefit various charitable organizations.

Buffett once said, “If you’re in the luckiest one percent of humanity, you owe it to the rest of humanity to think about the other 99 percent.” And even if you’re not a member of the 1%, it’s still important to find ways to give back.

 

 

 

Written By: Matthew Frankel
Source: The Motley Fool

The Holidays Are About the Fa La La, Not the Moo La La

This year, we’ll collectively fork out $465 billion on holiday spending. Of all that cash, about 43% is spent on travel, and another 41% on gifts. Saving in those two areas alone can really help make a difference in your wallet.

A few things the airlines don’t want you to know

When you figure that Americans will spend more than $6 million on air travel during the holiday season, the costs can seem unavoidable. But if you follow a few simple rules, you could save hundreds.

  • Avoid buying a ticket for the Friday before Christmas
  • Fly on Tuesdays, Wednesdays, or Sundays on off-peak hours
  • Search tickets for one passenger at a time—airlines tend to jack up the prices when you buy for more than one.
  • Clear your browser history, or search incognito. The more airlines learn about you, the more they learn about where your spending habits are and the more they can skew the prices based on what they know about you.

Online hacks that’ll help save your wallet

It’s a digital world. And that makes shopping a whole lot easier, but it also opens up the opportunity for huge savings.

  • Take Honey for example. It’s a Google Chrome extension that tests every coupon code available, so you don’t have to.
  • Amazon Prime is only $99/yr, and it currently gives you free shipping on a ton of things listed on the site—which has some of the most competitive prices already.
  • Deal Squad is a site that checks to make sure you’re getting the best price available—you just cut and paste the URL of the item you’re watching.

Go for thoughtful, not pricey

Putting more thought into a gift means you can spend a little less. Say your coworker loves elephants—buy him the elephant socks you know he’d never buy for himself. Same goes with magazine subscriptions. If your dad loves boating, get him a boating magazine—it’s a gift that keeps giving, year-round. Or you can gift what you’re good at—get crafty. Yeah, pecan pie bakers, we’re looking at you. Even if you’ve never tried out a DIY, it’s worth a visit to Pinterest for some inspiration. Sometimes a meaningful gift goes a lot further than one with a high price tag.

Charities need your time, not just your cash

You can give charity a hand without breaking the bank—just give some of your time. And it’s a great way to spend time with your friends and family too. You could volunteer as a group at a food shelter or soup kitchen—or you can look for local opportunities on Volunteermatch.

 

 

 

 

 

Source: Ally Bank