There is a man who is instantly recognisable across the globe; whether a glimpse of his face is caught, the merest whisper of his name, or that Nebraskan twang.
Warren Buffett is the chairman, CEO and largest shareholder of Berkshire Hathaway – the multinational conglomerate holding company headquartered in his home town of Omaha.
He is consistently ranked as one of the world’s wealthiest people. In 2012, Time magazine named Buffett as one of the most influential people alive.
Mr Buffet is considered one the shrewdest investors in the world, famous for his ability to make terrific returns and is most definitely someone who understands the value of money. Multi-Millionaire and Penny Pincher are both descriptions given to the man who famously said that he has two rules for money. The first is don’t lose it and the second is don’t forget rule number one.
We can all learn a lot from Mr Buffett. I came across him recently. He was giving advice that was directed at children through a show called the Secret Millionaires Club where afterwards he spoke about the importance of financial education (a man after my own heart) and some of his insights were worth noting and reflecting on. I want to share them with you.
Tip 1: The best investment you can make is an investment in yourself.
He said that one of the best ways you can earn money is to develop a marketable skill. And what you learn and how you develop your own skills will ultimately have the biggest impact on the amount you earn each year.
That amount isn’t what your company pay’s everyone else. You will be paid a salary based on how important and valuable you are to them. How can you become more valuable? What do you need to do to earn more money?
We are always told that the biggest asset we have is our home. In fact, it is our biggest liability as it probably accounts for the biggest amount debited from our account each month. Why, as a nation, we are obsessed with home ownership?
One lesson from the recent recession is that our skills set has a direct correlation with our earning power and that is undoubtedly our greatest asset. If financial security is required there is a constant need to work at it.
Tip 2: The more you learn the more you earn.
This universal piece of advice doesn’t simply apply to learning in the schools or workplaces, it also equally applies to what you can learn about money. Knowledge and understanding of money will provide you with advantage and assistance in making better financial decisions and conversely poor knowledge and little understanding will hold you back.
Tip 3: Spend less than you earn
This is fundamental because if you don’t create a surplus each month that can be used to pay down debt, invest and so on you are going nowhere financially. For many, it is challenging because they may have lost a job, had their overtime reduced or faced an other financial difficulty. You have to get your basics right. That is recording, monitoring and tracking what you spend your money on each month – this is vital – a pain in the ass? Yes. Yet so important, because what you do here has a direct impact on all aspects of your financial life.
If the term earn more than you spend helps you to view this differently then, great, whatever works and sometimes a play on words, that have exactly the same meaning and outcome can be interpreted and used more positively.
Tip 4: Save for the unexpected.
US financial guru Dave Ramsey, puts this another way, he says: “Save for a rainy day because it will rain.”
We really don’t know what is going to happen next, perhaps a job loss, a reduction in income, an accident or even a death. All terrible things but whatever the set back is, even if it is just the car breaking down, saving for setbacks and having an emergency fund in place is the best way to be prepared.
When you have no money to fall back on, financial setbacks turn into things that become much worse – you have to borrow money from family members, friends or worse still moneylenders.
Building up that emergency fund is more important than paying down debt, saving for retirement or saving for your children’s future education – don’t start any of these until you have your emergency or rainy day fund in place. Having some level of savings that you can fall back on will give you that peace of mind and protection you will need.
Tip 5: Learn from your mistakes and the mistakes of others.
We all made mistakes in relation to what we did with our money. The important thing is to learn from these mistakes and not to repeat them again. We come across people all the time who invested in something where they lost some or all of their money or bought a property abroad that was never completed or ever started. As hard as it is, the only positives you can take from some of these setbacks is that you vow that it will never ever happen to you again. You are going to be smarter and wiser next time around. And if nothing terrible has ever happened to you financially then great, however just remember you are not infallible so learn and take heed from the mistakes of others.
Reading about the things others have been through and getting advice from people you trust can only protect you from making a decision that you will later regret – don’t ever hear yourself say: “Had I known then what I know now.”
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