《Buffett： The Making of an American Capitalist》by Roger Lowenstein
《Buffett： The Making of an American Capitalist》by Roger Lowenstein
“Successful people make a habit of what unsuccessful people don’t like to do.” Warren Buffett told Bloomberg that everyone lives by their habits. Some of them affect our health or personal life, but there are also those that directly affect our wallet. More often than not, people don’t even notice negative financial habits which time and again deprive us of any chance of getting rich. Warren Buffett believes that we can’t get rid of bad money habits, but we can easily replace them with good ones, this is the only way to increase the amount of money in our lives.
Millonaire Warren Buffett is no ordinary billionaire; he’s worth about $106 billion but he lives rather modestly. He still lives in a house he bought for $31000 in 1957, prefers regular transport to a private business jet and plays bridge instead of throwing parties. It is the unexpected combination of immense wealth and a simple life that draws the world’s interest.
Ever since he was a child, Warren Buffett began his journey to becoming considerably rich. At a young age, he was selling coke, newspapers magazines and gum by going door to door to his neighbors. “I like being my own boss, and that’s what attracted me to print delivery. I chose my own way, and no one bothered me at 5 or 6 in the morning.” He delivered 5000 newspapaers a day getting a penny each.
Also, as one of the planet’s top billionaires had always loved to read. His aunt gave him the
“When it comes to making money, the most important thing is timing. You don’t have to be very smart; you just have to have patience.” says Warren Buffett. Many people know Warren Buffett as a guru of the investment world, though in fact he made most of his fortune following the right financial lifestyle. Warren is rightly called a billionaire who clearly understands the value of every dollar. In this article I want to draw your attention to the money habits which Buffett actively uses as he said in his interview. I’m sure some people will let this information slip past their ears, but Warren says that a healthy money habit can easily become the foundation of our wealth even if our wallet is empty right now.
Rule 1: Smart spending. At first glance, this habit may seem trivial, but according to statistics, more than 65% of people do not know how to spend money properly. Warren Buffett has said it more than once: “People tend to think about where to spend the money they haven’t earned yet.” In this case, Warren advises us to evaluate future purchases not in terms of money, but in the number of hours we spend earning that money. We should ask ourselves, “How many hours a month do we work?” and “How much money do we earn for it?” Then, calculate “how much one hour of our work is worth” and compare that calculation to the price of the thing we want. If we make $4,000 a month but want to buy a brand new Tesla for at least $40,000, we should consider whether it’s worth it. Perhaps before we start saving up for it, it’s better to look for additional sources of income. Additionally, it’s important to note that Buffett encourages people to plan for all incomes and expenses, regardless of how much we earn and spend. “The problem with a million dollars is that it’s a lot of money. You have to keep track of it, or it will just disappear, and you won’t even know where,” says Buffett.
Rule 2: Only money works. To make extra money work, rather than just letting it lie in a piggy bank, we need to understand how the investment mechanism works. If we simply keep our savings, they diminish as inflation reduces their real purchasing power. To prevent this from happening, the money should at least be transferred to a savings account, the interest on which outpaces inflation, but this is not a tool for earning money. To make money, we need to invest it, but to do this, we have to consider different options for investing and figure out how to not lose our savings. “You don’t have to invest your money in stocks tomorrow. Start by beginning to understand the mechanism of investing itself,” says Buffett. Take the time to learn the basics of investing regularly. We can start by watching the news on the topic every day. Instead of scrolling through Facebook or TikTok in the morning, set aside 10 to 20 minutes for some useful reading, and analyze what happens to stocks every day. (By the way, the stock returns of American tech giants like Google and Nvidia are 40% a year.) Isn’t it great that social networks can not only eat up our time but also bring in a lot of money?
Rule 3: Work in unusual conditions. This advice from Buffett may seem rather strange. Although the billionaire himself is an avid fan of assessing global market situations while sitting in McDonald’s rather than in his office chair. “I always associate money with big problems, which in turn need to be solved. To do that, you always have to be able to look at things from a different angle,” says Buffett. A good confirmation of his words is the story connected with Albert Einstein. In 1905, Einstein published four scientific papers that changed the foundations of modern physics and our understanding of space, time, and matter. Curiously, he wrote them not in a physics laboratory or his office, but in the Swiss patent office. Working in such an environment allowed him not to get hung up on laboratory methods. When our working conditions are different from most people in our field, we can draw unexpected conclusions, combine ideas from different fields. If we read what everyone else reads, we will think like everyone else, and if we think like everyone else, we will not be able to come up with anything new or unique. Be curious, seek out obscure sources; study what no one else has studied, then our work will be truly valuable to others.
Rule 4: Saving money properly. “Don’t save what’s left over after you’ve spent it, spend it after you’ve saved it,” says Warren Buffett. To make this painless for you, it’s best to set up an automatic deduction of a small amount from each of our paychecks and use programs that show us the percentage of our monthly spending on different product categories.
Rule 5: Never lose money. “Rule number one, never lose money; Rule number two, never forget rule number one,” is a strange recommendation. After all, there’s hardly anyone who thinks losing money is a good idea, but it is not that simple. It is very wise and practical advice to avoid risk as much as possible. “To be successful and live happily, never risk what you need for what you want,” says Warren Buffett. He always followed this rule and never made risky investments. He said, “The difference between successful people and the truly successful is that the truly successful say no to almost everything.”
Rule 6: Keep some money in cash. Don’t keep all of our money in an account; keep some in cash. Another unexpected suggestion considering that Buffett’s fortune is estimated to be $116 billion as of 2023; his company Berkshire Hathaway always has about $20 billion in cash ready to be given away at any time. This seems unreasonable and goes against the general principle of finance, which urges to invest money and not keep it under the pillow. He loses a lot if that money isn’t invested in some project and doesn’t make a profit. But that’s what saved Warren’s company during the 2008 crisis. As Buffett says, “Cash to a business is like oxygen to the body; you never think about it when you have it, and you only think about it when you don’t have it.” Dollars are somehow more trustworthy than checks; it’s especially important for those with inconsistent income to follow this rule.
Rule 7: Think in terms of a decade, not a month. Most people make the same mistake of trying to make the most of the present moment. “Don’t chase the quick buck; concentrate on building your strength and confidence gradually over a lifetime,” Warren Buffett advised. Successful investing requires time, discipline, and patience. It doesn’t matter how talented we are or how hard we work. Some things just take time; we can’t have a baby in a month by impregnating a woman. Think in terms of decades, gradually accumulating what’s needed for our children’s education or our retirement.
Rule 8: Read all you can about finances. Go to bed at night smarter than you woke up in the morning. Buffett said, “A big part of his job as an investor is to minimize risk and cut costs. And what is the risk to an average person, not a financier? It’s when you don’t know what you’re doing.” The more we learn about money and the laws of money, the greater our financial literacy, the better we can manage our money and know how to make the most of it, no matter how much we have.
Rule 9: Money isn’t everything. Some material things have made our life happier, but if we get a lot of them, it will do the opposite. Warren Buffett says he wouldn’t give up a plane, but having a dozen houses is a problem. In his opinion, it often happens that a large number of possessions begin to own the owner himself. Therefore, do not forget about other no less important values. For example, health. Without it, success is impossible. And according to Buffett, the same is true for friends. The billionaire considers his friends to be the most important thing after health.
Rule 10: Be brave. In 1951, when Warren Buffett was not even 21 years old, he took a train to Washington DC and knocked on the door of the headquarters of Geico insurance company where Benjamin Graham, his future mentor, worked. Buffett’s bold appearance in Graham’s office led to Graham giving this young man a 4-hour lecture on the insurance industry. Graham would go on to become the CEO of Geico, and Buffett would remain associated with the company for years to come. Today, Berkshire owns Geico, and Berkshire’s insurance interests are what Buffett calls one of the company’s crown jewels. If Buffett hadn’t dared to show up at Geico that day 72 years ago, none of this would have happened, but boldness pays off.
Warren Buffett is known for his simple yet profound financial wisdom. He believes that people often spend their money on absolutely stupid and unnecessary things, thus blocking their path to wealth. By eliminating the following most common financial mistakes, we can dramatically change everything and finally get rich.
Mistake 1: Neglecting personal development. Poor people often neglect personal development. Buffett believes that the best investment we can make today is to invest in ourselves. Upgrading our skills, getting a quality education —— these are the things that can significantly increase our income. Employers are looking for people with knowledge; often they do not have time to train. They want to find that person who already knows what to do, and such a person is willing to pay good money. And if we want to be self-employed, competence in business and its processes will never be superfluous in creating our own business. Our knowledge and skills are assets that no one can ever take away from us. Try to gather as many of them as we can.
Mistake 2: Using credit cards. Sure, credit cards can be convenient and useful, especially when there is a desire to buy something and our own funds are not yet sufficient, but the interest rates on credit cards absolutely overshadow any benefits if we forget to pay our debts on time. Just sit down and calculate how much we can actually spend in a year to pay off all our credit card debts; I’m sure we’ll be surprised. Warren Buffett recommends cutting out this part of our spending. First, we will stop spending more than we earn; second, we will save a nice amount of money that we can spend on our education, for example. “I have seen many people fail because of alcohol, but I’ve also seen just as many people go bankrupt because of an excessive craving for credit. If you’re smart, you can make money without credit.”
Mistake 3: The search for the latest technology. New gadgets are always nice; marketing tricks of the modern world know how to make people want a fresh product. But if we have definitely decided to take the path of enrichment, let’s start by assessing our capabilities and the need for a new gadget. It is quite possible that our old gadget is still working perfectly well and does not need to be replaced, so there is no point in spending money on it. Warren Buffett, for example, prefers functional technology. If he sees that the product is practically no different from what he already has, the richest man in the world will not buy it.
Mistake 4: Visiting bars, restaurants, and pubs. Everybody does it, especially poor people. Spending on eating and drinking out is one of the most problematic areas for a person. If we have decided to become rich, we should forget about this kind of luxury, especially at the stage when we are moving towards financial freedom. Since we are all human beings, socializing and having fun are important parts of our social life. Replace going out with socializing at home; our emotional well-being won’t suffer, but the financial part will be saved.
Mistake 5: Splurging on clothes. Have you noticed how the richest people in the world dress? Most of them prefer simplicity in their wardrobe, including Warren Buffett. This is especially true for those who want to escape poverty. Forget about flashy, inexpensive brands; we often pay too much just to have a famous name on our T-shirt. They are just clothes; the stores are full of alternatives that are often just as good as the brand names.
Mistake 6: Buying new cars. According to Warren Buffett, buying a new car is a serious expense to avoid. Cars are notorious for wearing out quickly. The billionaire recommends looking for used brands and keeping them as long as possible. Don’t forget that any car needs constant inspection and repair. If we are planning to make such a serious purchase, think about how we will maintain our car in the future. Before we do, think carefully about whether we need it at all. Given our financial situation, it is not uncommon for people to buy such a luxury item because we want to be comfortable and equal to other people. However, in fact, for some of us, our financial situation does not allow for such an expense.
Mistake 7: Gambling. Although it may seem like a shortcut to increasing wealth, Warren Buffett stresses the importance of understanding the odds of success in gambling. The billionaire encourages people to make financial decisions that will benefit our life in the long run, rather than focusing on short-term wealth options. Many people get burned doing just that; we tend to blow large sums of money, hoping to get lucky, and this process can happen over and over again. It is good to be able to stop, but there are also those who get completely caught up in the excitement. Know that a long-term perspective with thoughtful steps is much more important than making money here and now.
The road to financial success for every wealthy person is paved before they go to sleep. Virtually all poor people will not do this. It is about planning. Every night before we go to bed, write down a list of the most important things that need to be done in the morning to get closer to our desired heights. Every evening, analyze the way we have done for the day, draw conclusions, adjust our direction, write down the tasks, go to bed, and in the morning in our head, we will have a road map, a ready-made plan fulfilling which we are waiting for indestructible success. All above is what I’ve learned from Warren Buffett.
