Personal finance revolves around managing and planning individual finance activities. That includes investing, budgeting, financial planning, and spending. The goal of personal finance is to help individuals meet their personal financial goals. Successful personal finance involves an individual’s ability to develop personal finance strategies that enable them to pay a debt, use credit cards with sobriety, save for retirement, and have emergency funds, to mention a few.
Being disciplined is one of the ways you can achieve successful personal finance. Lessons from entrepreneurs, investors, and other people who have proved to make sound personal finance decisions, is yet another way you can improve personal finance.
Here are some valuable personal finance lessons from Warren Buffet.
- When it comes to personal finance, think in the long term
When thinking of long-term financial plans, you are talking about early retirement, retirement funds, having multiple streams of income or passive income, savings for education, being loan-free, and so on. One of the greatest Buffet’s personal finance lessons is thinking in the long-term by saving and investing.
Failure to save or invest will force an individual to have to get more money within a short time. For a person to save a total of $2 million by age 65, they are better of starting saving earlier. With this, they will save a smaller amount of money every month or year to achieve the $2 million. For a person beginning to save much later, he or she will have to set aside more money every month or year to achieve the same $2 million at the age of 65.
- Spend wisely
One of the biggest challenges that people face in personal finance is spending money. Warren sensitizes the importance of spending wisely for personal finance success, and he lives as an example.
Spending money wisely starts when an individual no longer spends to impress other people. Spending wisely also involves tracking finances, assessing the drawbacks and benefits of making certain purchases, and quitting habits that drain your finances. Warren, for instance, still lives in the apartment he bought 55 years ago. Despite having all the money he has, he considers the purchase of another house unnecessary, as the one available meets his housing needs.
- Stop avoiding risk
The one thing that stops people from growing their finances is the fear of risk. Warren Buffet advises investors to avoid fear or risk. This should not stop you from making investments as there are different investment types, some of which are low risk, such as stocks.
- Make investments with your interests in mind
Warren says that no one cares about your money more than you do. That is why you should always put your interests first when making any investments. Do not work with your friends or money markets experts’ investment plans because they are only interested in what will work best for them. While making your investments. Keep this in mind, and you will go for investments that work in your best interest.
- Do your homework before making investments
Don’t run to invest in a given company because everyone is rushing there. It is worth taking the time to do your homework before you decide that you are going to invest somewhere. The significance of doing homework is establishing whether a company is of high quality and if it is worthy of your investment. Fundamental analysis is one of the essential tools you can use to determine whether a company is of high quality.
- Do not have all your money in the form of cash
Warren Buffet considers cash a bad investment and encourages people not to have all their wealth in the form of cash. Idle cash will not do much for your personal finance. Instead of having liquid cash as an investment, you can invest it in banks where it can be lent out to people and grow through interest. There is no time value of money, and idle cash will reduce in worth as time goes by, so you are better off having it being productive.
- Avoid over diversification
While investors are advised to have a diversified investment portfolio, over diversifying is not suitable for your investment health. While you might think you are protecting yourself from risk, you deny yourself the ability to track your investments. With that, you might be unable to tell which assets are doing well and the ones you need to reconsider.
While there are so many finance courses and books, it is always good to observe people who have been there. In this case, that would turn us into successful entrepreneurs and investors. The seven lessons above will go a long way in helping you make better investment and personal finance decisions. Spending wisely, thinking in the long term, taking calculated risks, and doing your homework before investing will go a long way.
