Everyone in the finance industry, and most people in the business world, know (or have heard of) the legacy of Warren Buffett. Buffet, reportedly worth 72.3 billion USD, has remained one of the richest people in the world for many years.
He made his fortune in the stock market by following economist and investor Benjamin Graham. “It’s no secret that the so-called Oracle of Omaha is a big fan of the value investor Benjamin Graham, a mentor and one of his instructors at Columbia University. In his 2003 letter, he called Graham’s ‘The Intelligent Investor’ his favorite book on investing. ‘Picking up that book was one of the luckiest moments of my life,’ he wrote in the 2011 letter.'” (MarketWatch)
Let me summarize essential personal finance lessons I have learned by following the insights and life wisdom of Warren Buffett.
Warren Buffet on Earning
“Don’t rely on a single source of income.”
You never know when you will lose your primary source of revenue. Most entrepreneurs make a serious financial mistake by becoming dependent on a single business or revenue stream. Always create multiple streams of income so you can rely on cash flow in bad economic times.
Warren Buffet on Saving
“Don’t save what you left after spending, but spend what you left after savings.”
The message is crisp and clear. Save before you spend. Human nature acts in the opposite way. We spend even before money appears in our bank account. Credit cards make it worst and can spoil our saving and spending habits.
Warren Buffet on Spending
“If you buy things you don’t need, you will soon sell things you need.”
Don’t buy something based on discounts. Spend money when you actually need something. There is no fun in filling up your garage when you don’t really need something. Also, learn 21 lessons of financial management before making an important financial decision.
Warren Buffet on Investing
“Do not put all your eggs in one basket.”
Diversify your portfolio based on your risk appetite. Do not put all your savings in fixed deposits because it is safe. At the same time, do not put all your savings in stocks because you expect major returns. Build your portfolio in fixed deposits, mutual funds, gold, property, and assets.
Warren Buffet on Borrowing
“Limit what you borrow.”
You can never be rich by living on borrowed money. Only your banker will be rich if you keep on increasing your loans and credit cards. Borrow only when it is absolutely necessary or when you are sure that you will make more money than the payable interest on borrowed money. It is good to borrow for a business that can help you earn 20% with money borrowed at 10% interest. At the same time, it is bad to borrow for your smartphone that will lose half of its value in just one year.
Warren Buffet on Business
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
He said the above quote in the context of stock, but it’s applicable for doing business too. Do business at a fair price, but do not compromise on quality just because of the cheap price. You may gain less in the short-term, but it will pay you back in the long-term. You customers will be happy with an excellent, quality product, thus give you big business down the road.
Warren Buffet on Living Life
“I think you are out of your mind if you keep taking jobs that you don’t like because you think it will look good on your resume. Isn’t that a little like saving up sex for your old age?”
Don’t waste your life in fulfilling other’s dreams. Live it. The greatest luxury in life is doing what you love. Smart people do not depend on someone for their happiness. Also, invest your time in your health and relationships. Do not take a risk with your health for earning few more bucks. Money gives you pleasure only when you have good health.
This article has been edited and condensed.
Pardeep Goyal left his job to pursue his passion in startups and is the creator of personal finance blog Cashoverflow. Goyal is also a former founder of two startups, and spends most of his time writing, marketing and reading finance resources. Connect with @pardeepg on @cashoflow Twitter.