Wave Magazine – 8 Warren Buffett Budget Habits You Can Own
The primary message the securities industry has taught investors is to buy and hold, no matter what. Such a strategy can work when you don’t need the money or you don’t have to take Required Minimum Distributions from traditional retirement accounts. Once you pass age 72 under current tax laws, you must start taking withdrawals and those withdrawal ratios increase for the rest of your life. When you expect or are require to take money out of your account you are now in unprecedented territory. For life. In the past 40 years we have discovered savvy investors hate losses more than they love gains. So, the money management work flips from growth and income to income and growth. Once your account experiences drawdown of 50%, for example, which may indeed be your exact experience in 2008 after market losses and a modest withdrawal, you need no less than 100% gain to get back to even. Now you need a hail-Mary pass to get back in the game. On the other hand, if losses and withdrawals had been limited to 20%, for example, your account needs to see a 25% to get back to your high water mark. Suddenly, limiting losses becomes crucial, as opposed to staying on that wild roller coaster ride.
On May 1, the Oracle of Omaha addressed investors in the Berkshire Hathaway livestreamed annual meeting. As we teach our children, ‘You make your habits and then your habits make you.’ We adults can be good role models to our progeny who aren’t listening to much we have to say, but are paying close attention to what we do. In fact, the children often unconsciously mimic exactly what they see adults do.
To my way of thinking, it’s always a good idea to learn from the best and brightest. Otherwise we simply follow an old Belgian proverb; Experience is the comb that nature gives us. Before I go bald I prefer to learn from other people’s experience, to include what to do as well as what not to do.
Buffett knows all about success. The 90 year old Berkshire Hathaway chairman and CEO is the sixth-richest man in the world and arguably the best investor of all time, with an estimated net worth exceeding $103 billion USD, according to cnbc.com
Here are 8 ways Buffett’s frugality can help you develop and keep good save and spend wisely habits:
- Instead of moving up every chance he gets, Buffett lives in the same home purchased in 1958.
As Yahoo finance reports, Buffett paid $31,500 for his Omaha, Nebraska home, which is approximately $288,700 in 2020 dollars, where he has lived for over 60 years. Thanks to the improvements and renovations, the home is about 6,570 square feet, five bedrooms, with lots of security cameras, and a good homeowner’s insurance policy, valued at about $1 million today. In a 2010 letter to Berkshire Hathaway’s shareholders, Buffett called it “the third best investment I ever made.”
- He only takes out loans when appropriate
The only loan Buffett took out was for his Laguna Beach home in 1971 that cost $150,000. That home was sold in 2018 for $7.5 million or $7.35 million more than he paid for it, per The LA Times. It’s the same house that was listed early 2017 for $11 million. Instead of buying another home, Buffett used the ‘extra cash’ to buy shares of Berkshire Hathaway, the same company that put billions in his pocket.
- He buys breakfast cheap
Unlike the rich and famous who hire personal chefs to prepare gourmet meals, he prefers to get breakfast from McDonald’s on his way to work. He dresses every work day in a suit and tie so he can spend a lot of time reading about things, long before he puts his money anywhere. One of his best quotes is, “Risk comes from not knowing what you’re doing.” Buffett usually spends $3.17 on breakfast when he said, “When I’m not feeling quite so prosperous, I might go with the $2.61, which is two sausage patties, and then I put them together and pour myself a Coke” in Becoming Warren Buffett, an HBO documentary. Notice that he knows exactly how much things cost. Now would be a good time for you and me to make meals at home and skip the expense as well as the ‘experience’ at the most expensive coffee houses in town.
- He buys cars cheaply
In a BBC documentary, Buffett said he drives all of 3,500 miles per year, so there’s no need for a fancy car. For years he drove a 1979 Ford F-150 or a Subaru Baja. He stepped up to a 2006 Cadillac DTS that he drove for 10 years. Forbes reported that it was GM CEO, Mary Bara who convinced Buffett to move up to a 2014 Cadillac XTS. Retailing for $44,000 and $69.095, that’s pretty economical for a billionaire. He donated his old Caddy to Girls, Inc., a nonprofit organization that was able to auction if for $122,500, as stated by motorbiscuit.com.
- He continues to clip coupons
While some of us consider using coupons to be a sign of poverty, Buffett relishes the habit. Bill Gates wrote in a 2017 annual letter that Melinda found a photo of the two while in Hong Kong, where Buffett treated his fellow billionaire buddy to lunch at his favorite fast-food restaurant with coupons. The money you save, might be your own.
- Brand names are unnecessary
Instead of blowing money on big purchases, Buffett believes in, “Do not save what is left after spending, but spend what is left after saving.” Pay yourself first every month. Repeat, for life. Practice spending less than you earn. Buffett passes on designer suits and he depended on his $20 flip-phone for years before swapping it out for an Apple smartphone in 2020. He also passes on the i-phone’s fancier functions, observes Yahoo finance.
- He has no interest in borrowed money
Buffett said he learned from his experience of borrowing 25% of his net wealth to buy shares. As he said to Notre Dame students in 1991, “I’ve never borrowed a significant amount of money in my life. Never. Never will. I’ve got no interest in it.” Now you can put apps to use to invest your spare change or employ automated investment firms.
- Cash, not credit
In the old days, you never left the house without your check book. And you balanced your account with every purchase, every time. These days it’s so easy to be completely unconscious with spending thanks to credit and debit cards, where you never see how much money you have. Buffett uses hard cash. As he said to Yahoo finance in 2019 that he uses cash “98% of the time. If I’m in a restaurant, I’ll always pay cash. It’s just easier.” This time easier is also being more conscious. You always know how much money you have.
John Grace owns Investor’s Advantage, a personal finance planning firm in Westlake Village.
Investor’s Advantage strives to support our community in their struggles to overcome the fear of finance, so we’ve developed and continually add to an extensive library of financial, education content. Join our newsletter to receive weekly Investor’s Intelligence, where we cover the latest in market trends and all things finance to give all Investors an Advantage.
More Investor’s Intelligence
Securities offered through Securities America, Inc. (SAI), Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Investors Advantage and SAI are separate entities.
Important Information from FINRA to consider before transferring your account. Trading instructions sent via email may not be honored. Please contact my office at (805) 495-2077 or Securities America, Inc. at 800‐747‐6111 for all buy/sell orders. Please be advised that communications regarding trades in your account are for informational purposes only. You should continue to rely on confirmations and statements received from the custodian(s) of your assets. The text of this communication is confidential and use by any person who is not the intended recipient is prohibited. Any person who receives this communication in error is requested to immediately destroy the text of this communication without copying or further dissemination. Your cooperation is appreciated.