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What I’ve Learned From Warren Buffett About Wealth

What I’ve Learned From Warren Buffett About Wealth

Warren Buffett is one of the richest men in the world, but his reputation for folksy wisdom, frugality and simplicity make him seem like just a regular guy, like he might be the billionaire next door.  Fortunately, Buffett’s commentary about his investment decisions provide us with valuable study materials in the school of investing. Here are some of Buffett’s biggest lessons that we can learn from him.

1. Focus on long-term success

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” – Warren Buffett

You need a strategy for long-term success in the market. Buffett is always concentrated on finding a company to invest in that he feels will produce long-term results. He is not interested in the latest IPO, or the trendiest stock everyone else is interested in. Buffett possesses a mindset that many investors don’t have – thinking long term.

Find the businesses that you believe have long-term growth potential. It’ll change your mindset, and your success rate.

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2. Invest in quality companies

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffett

Buffett is only focused on discovering worthy companies for investment. He always evaluates the whole company when buying stocks. That make the investment more personal  and will lead you to assess the company on a much deeper level. It’s by trying to shift your mindset from that of an ambiguous stockholder to that of a sole owner of the business that’ll help you find truly quality companies.

3. Get in when others are getting out

“Be fearful when others are greedy and greedy when others are fearful.” – Warren Buffett

Whenever there’s a recession you’ll get lots of news about Warren Buffett. In 2008, Buffett invested $25 billion into the market when the rest of the world was getting out. Buffett always believes that a recession is the perfect time to find quality companies whose stock is cheap. He took advantage of this fact in 2008, and profited by nearly $10 billion!

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4. Start investing today

“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett

Buffett started at a young age, and this was the main factor that lead him to achieve more success later in life. At age 11, he used to take a paper route, sold chewing gum door-to-door, and even bought his first shares of stock. Starting young allowed him to find his own way to success. Don’t wait for the right time to invest or to get your personal finances in order. It’ll influence your financial success later in life. Don’t procrastinate, start investing today!

5. Invest in what you know

“The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch.” – Warren Buffett

The most important thing about investment is that you will find thousands of companies to invest in, and different strategies that can all be successful. But, remember don’t use someone else’s investment strategy, or invest in a stock simply because someone else is doing it. Develop your own strategy that fits your personal financial goals, and always look for the companies whose business model you’re already familiar with.

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6. Challenge yourself to be better

“It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.” – Warren Buffett

You can never find success financially, personally or professionally if you don’t challenge yourself and hold yourself accountable. The best way to do this is to associate with smarter and more successful people than yourself. As the saying goes, you’re the sum of the five people you hang around the most – so try to make those five smart people!

7. Do your homework and be disciplined

“Only when you combine sound intellect with emotional discipline do you get rational behavior.” – Warren Buffett

Investors need these two ingredients the most in the investment game. You’ll get sound intellect after doing your homework, your research and an investigation of a company’s value. Discipline, on the other hand, will come with your ability to wait for the best time to enter. Practice both of these and you’ll take your investment to the next level.

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8. Be passionate

“Without passion, you don’t have energy. Without energy, you have nothing.” – Warren Buffett

Be passionate about your work and chase what you are passionate about. Passion will enable you to go to the ends of the earth to fulfill your dream. That will be your fuel in your journey to success. It will make you unstoppable. It will make you strong when times get tough, and ultimately it will make life so worth living.

Featured photo credit: BorsheimsJewelry via flickr.com

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Tayyab Babar

Tayyab is a PR/Marketing consultant. He writes about work, productivity and tech tips at Lifehack.

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Last Updated on September 2, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

    Reference

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