Best Ever Warren Buffet’s 5 Rules for Money 2023

Welcome to by clicking on this article ”Best Ever Warren Buffet’s 5 Rules for Money 2023” – it’s fair to say that you want to learn how to build wealth and not be broke. Thankfully for us, billionaire investor Warren Buffet has provided us with five key principles that will help you start building wealth and avoid being poor.

 These principles are incredibly tangible meaning you can start applying them as soon as this video is over. So make sure to stick around until the end of this video because this advice for Warren Buffett will truly change your life for the better.

 Rule number one for Warren Buffett is to live below your means. Buffett is known for being extremely frugal despite having a net worth of over a hundred billion dollars. Warren is still Let’s just call it Thrifty.

 He lives in the same house that he has lived in for 50 years in a middle class neighborhood in Omaha, Nebraska, and his idea of a fancy dinner is dining at the local steakhouse. His go-to order is 48 according to the online menu, far from Luxury dining buffets car resembles something a retired school teacher would drive rather than one of the richest people on the planet.

 Nice Wheels yeah well so how old is this caddy? I think it’s about five years or so you think the third richest man in the world might have his own chauffeur but not Warren Buffett he prefers being in the driver’s seat as cliche as it sounds Buffett understands that material possessions can’t buy happiness instead he values the independence and freedom that being wealthy provides him and his family.

Even as Buffett’s income has increased throughout the years he still lives below his means being able to live below your means is a wealth building superpower let me explain what I mean so let’s say we have two people John and Michael John and Michael are pretty much the exact same they both went to a good college and got very solid jobs out of college.

Let’s say they both make 75,000 a year right out of college and they both work really hard at their jobs and are able to get annual raises that average five percent a year there is however one big difference between John and Michael John commits to living comfortably below his means Michael on the other hand spends the majority of

the money he earns and only saves a relatively small amount of money compared to his and income Michael earned seventy five thousand dollars in year one but his total expenses are seventy two thousand dollars meaning he only saved three thousand dollars in year one Michael’s income increases by five percent each year however his annual expenses are also increasing at that same five percent rate.

Michael is suffering from something called lifestyle inflation this is whereas someone’s income increases so do their living expenses they get a nicer apartment a luxury car and start going on fancy vacations there’s a saying that people who live far below their means enjoy Freedom that people busy upgrading their Lifestyles cannot fathom you’re about to see that saying play out with Michael and John at the end of Michael’s

40-year career he is able to save 362 thousand dollars while this might seem like a lot. Keep in mind that four years from now 362 thousand dollars isn’t going to be nearly as much money as it is today due to inflation. Take a look at this chart: the blue line is Michael’s income, the orange line is his expenses and the gray line at the bottom is how much he is able to save each year.

Note how Michael’s income increases each and every year. The problem is that his living expenses are also increasing just as much. This is preventing him from being able to save more money and make progress toward Building Wealth. Let’s see if the difference with John John is

committed to living comfortably below his means John also makes 75k a year but decides to only live on 50 000 a year. John gets an annual raise of 5 each year however John is able to resist lifestyle inflation. His annual living expenses only increase by two percent each year

let’s see how different things turn out for John at the end of 40 years John has saved a whopping six million dollars at the end of his career despite making the exact same income as Michael John was able to save nearly 17 times more money purely because John committed to living below his means and fighting lifestyle inflation take a look at John’s chart notice.

How the Orange Line his expenses remain relatively stable throughout his career this causes the Gray Line how much Jon saves each year to increase dramatically this is why being able to live below your means is such an important factor in Building Wealth this is the perfect example of the quote people who live far below their means enjoy a freedom that people busy upgrading their Lifestyles can’t fathom.

John has way more freedom and Independence than Michael John could retire early if he wanted to Michael needs his job to support his lifestyle and this is something Warren Buffett understood at an early age and why he lived. So frugally a little known fact is that Warren Buffett was able to retire from working for someone else when he was only in his mid-20s his Frugal lifestyle made it so that he could take the risk of starting his own hedge fund

at just 26 years old and who knows if Buffett didn’t have the financial independence that his Frugal lifestyle allowed he likely wouldn’t be the legend.

Rule 2 Get To Your First 100k

 He is today, so this leads perfectly into number two on our list. Get to your first one hundred thousand dollars saved and invest as quickly as possible. Listen to what Warren’s business partner Charlie Munger had to say on the topic, yeah, the hard part of the process for most people is the first hundred thousand dollars.

If you have a standing start at zero, getting together for a hundred thousand dollars is a long struggle for most people, and I would argue that people who get their relatively quick help if they’re passionate about being rational, very eager and opportunistic and steadily underspend their income grossly. I think those three factors are very helpful.

Once you hit the 100 000 mark, your money starts to work for you as opposed to you having to work for your money. Here’s what I mean. Let’s say you have a hundred thousand dollars sitting in your investment account. It’s a good year for the stock market and your portfolio generates a 10 return that is ten thousand dollars in investment income. Your money is produced for you the median

household income in America is roughly sixty thousand dollars that works out to about five thousand a month that means it would take the median American household working for two months to generate the ten thousand dollars in income that your one hundred thousand dollar Investment Portfolio generated for you this is what I mean when I say your money is working for you as opposed to you working for your money the other big advantage of hitting this one hundred thousand dollar Milestone as quickly as possible is that you give your money more time to work for you let’s say someone wants to retire at 60 years old if they are able to hit the 100 000 Mark at forty that money can grow for them for 20 years assuming a 10 annual return that one hundred thousand dollars will go to six hundred and seventy three thousand not bad at all

especially considering you didn’t invest another dollar after you hit that one hundred thousand dollar Mark however if this person hits the 100 000 Milestone at 30 years old that portfolio now can grow over a 30-year period as opposed to the 20-year period before that extra 10 years makes a huge difference instead of having 673 thousand dollars this person now has 1.75 million dollars.

Now you understand why hitting this 100 000 Mark as quickly as possible is so important ignoring Warren Buffett’s next piece of advice on the list will prevent you from getting to that 100,000 Mark number three is to avoid credit cards here’s what Warren had to say when he was asked what the best financial advice he could give to someone was I think people should avoid using credit cards as a you know as as a piggy bank to be rated I I had a woman

Come to  me here not long ago and she’d come on some money, and uh not very much, but it was a lot to her. And uh she’s a friend of mine and she uh she said what should I do with it, you know, and I said well put you on your credit card and uh she said well I own X and I said

well what you should do I I don’t know what interest rate she was paying but I think you know maybe I think I asked her and she knew and she was something like 18 or something I said I don’t know how to make 18 you know I mean if I if I owed any money at 18 the first thing I do with any any money I had would be to pay it off it’s going to be way better than any investment idea.

I’ve got having credit card debt is having the power of compound interest work against you let’s say someone has twenty thousand dollars in credit card debt and the interest rate on that debt is 20 that means this person will have four thousand dollars in interest that they have to pay just to prevent the debt from growing if this person doesn’t pay that four thousand dollars gets added to the twenty thousand.

They already owe now they owe twenty four thousand dollars twenty percent of that is four thousand eight hundred dollars if the person still doesn’t pay that 4 800 gets added to the twenty four thousand dollars now that person owes twenty eight thousand eight hundred dollars.

This is compound interest working against you not for you compound interest is extremely powerful and you want to make sure it’s on your side over the long term the U.S stock market has an average annual return of somewhere in the range of seven to ten percent.

The average credit card has an interest rate of around 20 this means that whenever someone pays down their credit card debt they are generating a 20 return on that money this is why Buffett said it’s such a smart financial decision to avoid credit card debt it is virtually impossible to become wealthy when you are borrowing money at a 20 interest rate maintaining a credit card balance is one of the surest ways to keep you poor.

Rule 4 Only Invest in Things You Understand

 Number four on the list is only investing in things that you understand. Warren Buffett refers to this as a circle of competence that is the key. It’s defining what I call your circle of competence and everybody’s got a different circle of confidence. The important thing is not how big the circle is is,e important thing is staying

Inside the circle, and if that circle has only got companies got companies it out of thousands on the big box board board long as you know which sturdy they are. Are,you’re okay and you should know those businesses well enough so that you don’t need to read and do lots of work.

A circle of competence is an area of the world where you have useful knowledge that gives you an edge. Each of us through experience or study has built up useful knowledge in certain areas of the world. Some While someone areas are understood by most of us, some areas require a lot of special

Buffett’s business partner Charlie Munger summed it up perfectly. Here’s what he had to say: I look for things where I have an advantage over other people. I don’t play in a game where the

Other people are wise and I’m stupid. I look for a place where I’m wise and they’re stupid. You have to know the edge of your own competency. The quickest way to lose money is to invest in things you don’t understand. We saw a lot of that over the past couple of years people are

investing in things they had no idea about simply because they thought it was easy money. They saw other people seemingly making money and they wanted in on the action. There’s this

misconception out there that in order to get rich your circle of competence has to be extremely wide that you have to be an expert on everything. Now Buffett would disagree with this notion he

freIt frequently iis the story of Mrs. B tB,e founder of Nebraska Furniture MarMart,e of the companies Berkshire Hathaway owns now. Mrs. B was born in Belarus and came to America when she was 20 years old not even knowing how to speak English. It wasn’t until she was 40 years old when

she opened the Nebraska Furniture Mart in the basement of her husband’s store the business became successful because Mrs. B understood two things very well how to buy furniture at a discount and how to keep expenses low at her business she didn’t understand accounting Finance.

How to invest technology or much of anything else her circle of competence was extremely narrow however that didn’t stop her from becoming incredibly wealthy she sold her business to Buffett for over 100 million dollars in today’s money the richest people seem to have an extremely narrow circle of competence.

They are experts in one area and they stick to that area this is true whether you’re talking about the richest people in the world or the richest people just in the town you live in one of the wealthiest families in my hometown owns the local trash collection company the trash collection business is right in the middle of the owner’s circle of

Competence he’s not trying to go out and open a coffee shop or an e-commerce store he sticks to what he’s great at and it pays very well how exactly do you develop a circle of competence though well that brings us to number five on our list you learning machine it’s a commonly talked about fact that Warren Buffett reads six hours a day while you don’t have to be that extreme by any means a big reason.

Why Warren has been so successful is because he’s a so-called learning machine yeah well of course I’ve watched Warren all these decades and he’s learned a hell of a lot even the last 20 or 30 years those basic principles alone that he knew a long time ago wouldn’t have given him the ability to make the recent investment decisions as well as he’s made them it’s a lifelong game and if you don’t keep learning other people will pass you by the knowledge and skill sites that helped Warren Buffett in his first taste of success is in what caused him to become the greatest investor of all time it was the fact that Warren was obsessed

With bettering himself and improving his skills that made him one of the richest people in the world. When buBufBufficaartedhe was making money bubyuyingiling businesses that were selling for less than the value of everything the company owned. He would buy a business for 10 million dollars that had 30 million dollars worth of cash equipment and real estate because these companies were usually tiny by today’s standards, and that approach could only take Buffett so far.

So he had to change his approach through continuous warningBuffett eventually shifted his approach. He went from buying failing businesses that were incredibly cheap to buying great businesses that were selling for a fair price. 30 year old Warren could have never imagined

that his largest investment ever would be a technology company like apple however Apple has been Buffett’s most successful investment ever with a profit of over a hundred billion dollars so far the Warren Buffett that we know and love today wouldn’t exist had he not been a learning machine this advice still applies to you even if you aren’t a billionaire like Warren Buffett meet Sam Sam Works in sales because he works in sales his income is directly correlated to how much of his company’s products he’s able to sell to customers Sam starts out as an average salesperson meaning his income is also pretty average however let’s say sam watched this investor Center video on Warren Buffett and he saw the importance of being a learning machine Sam then decides to focus on improving his skill set when it comes to sales each year Sam

gets a little bit better as he improves his skill set. He is able to sell more and more and his income increases each year. Sam gets better and better until one day he is the top performing

salesperson in his office, Sam, making more money than he knows what to do with. While this is only an exam example, demonstrate the importance of continuously learning and upgrading your

skill set The more you learn learn, the more you earn. This concept applies whether you’re a salesperson, a plumber, a barber, a waiter or an investor so there you have it. If you mamaket this far in the vidvideo,ke sure to youke this video and subscribe to the channel because it’s my goal to make you a better investor. Also check out this other video here on Charlie muMunnMunger’svicen how to get your first one hundred thousand dollars and why that will change your life as alalways.ankou for watching and talking to yous againoon.

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