When attempting to reach financial goals, individuals frequently seek the advice of those who are already financially successful. One of the most well-known, respected investors of all time is Warren Buffett, and his advice is everlasting. By following Buffett’s investment recommendations, investors may avoid some of the usual pitfalls that harm returns and imperil financial goals.
1. “Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1”- Warren Buffett.
Buffett's message here appears simple, yet it's deceptively sophisticated. Of course, as an investor, you want to make money, but one of the most significant ways to do so is to prevent losing money. An investor that takes a large loss, will mathematically need an even larger gain to get back to even. A few large losses can dramatically reduce your overall portfolio return. According to Buffett's comment, instead of seeking the most significant gains, you should focus on avoiding losses first and then looking for profits.
2. Practice Healthy Money Habits
"Most behavior is habitual, and they say that the chains of habit are too light to be felt until they are too heavy to be broken," Buffett stated in a 2007 speech at the University of Florida. Don't let your underlying poor money habits get the best of you in the long term. Begin now to develop healthy money habits and break the chains of ones hurting your finances. Living within your means and making savings and investments a priority will make a good start.
3. Educate Yourself About Money
Buffett's role as an investor entails reducing exposure and mitigating risk. According to Forbes, Buffett famously remarked, "Risk comes from not knowing what you're doing." The more you understand personal finance, the more security you'll have as you reduce your risk exposure. This Warren Buffett statement teaches us to educate ourselves about personal finance actively. Having even the most basic personal financial skills is one of the most important things you can do to live a comfortable, joyful, and stable life. Your degree of knowledge about budgeting, saving, debt, investing, and more will influence every aspect of your life.
4. View Your Finances as a Long-Term Journey
"Someone is sitting in the shade now because someone planted a tree a long time ago," Buffett famously said. And it is correct. Planting and tending the seeds of financial prosperity now will pay off later in life with shade to enjoy.
Buffett's investing judgments are based on such a long-term perspective on money. People should "invest with a multi-decade vision... Their concentration should stay set on achieving big gains in buying power over their investment lifespan," he wrote in a letter to shareholders in 2014. True wealth and financial stability take years to build, and you'll almost certainly face financial difficulties along the road. However, seeing your money as a lifelong undertaking might help you stay on track in the face of adversity.
5. Avoid Debt
Rather than working to pay interest, as many Americans do, Buffett created his fortune by getting interest to work for him. In a 1991 address at the University of Notre Dame, Buffett remarked, "I've seen more people fail because of liquor and leverage — leverage being borrowed money." "You don't need much leverage in this world. If you're smart, you're going to make a lot of money without borrowing." Buffett is skeptical about credit cards in particular. His suggestion is to stay away from them altogether. Buffett once said, "Interest rates are very high on credit cards." "Sometimes they are 18%. Sometimes they are 20 percent. If I borrowed money at 18% or 20%, I'd be broke."
6. Invest in Yourself
In 2019, Buffett told Yahoo Finance, "By far, the best investment you can make is in yourself." First, “learn to communicate better both in writing and in person.” In a Facebook video from 2018, he stated that honing that talent may enhance your worth by at least 50%. Then, especially while you're young, take care of your body and mind. “If I gave you a car, and it’d be the only car you get the rest of your life, you would take care of it like you can’t believe,” he said. “You get exactly one mind and one body in this world, and you can’t start taking care of it when you’re 50. By that time, you’ll rust it out if you haven’t done anything.”