Money Makes the World Go Round
A man who understands this well is Warren Buffett. Buffett, one of the most successful investors of all time, has a reputation for frugality and mindful spending in his personal life. According to him, here are ten things that poor people do that keep them poor.
Gambling
In a 2007 Berkshire Hathaway shareholders meeting, Buffett reportedly called gambling a “tax on ignorance” (meaning only ignorant people would gamble). This strong opinion is based on the fact that when you gamble, the odds are almost always against you. Winning big money at the casino is extremely rare.
Buying New Cars
New cars lose about 20% of their value in the first year of use. They are one of the most depreciating assets you can buy. Instead of buying new cars, Buffett (who only drives about 3,500 miles a year) prefers to buy used ones.
Spending Without a Plan
Buffett used a $20 flip phone for many years, upgrading to an iPhone only in 2020. His famously frugal nature is a model for us to live by. Spend only what is left after you’ve put money towards savings, and spend it only on what’s necessary.
Putting Everything on a Credit Card
Buffett has admitted to using cash 98% of the time. Putting small purchases on a credit card is something he never did. Credit card debt can rack up faster than you think, so he recommends using cash as much as possible.
Low-Yield Investments
No, the $80 custom Labubu is not an investment, nor is a $10,000 Birkin bag. As a general rule, any investment that gives a return lower than the rate of inflation isn’t worth it. Funnily enough, according to Mr. Buffett, one of the best investments you can make is in yourself.
Having a Lavish Lifestyle
Buffett tells us to learn to differentiate between a want and a need. While ‘need’ expenses are a required cost of living, ‘want’ expenses only inflate your standard of living. Having a standard of living not in line with your income is a fool’s errand.
Going Out (semi) Regularly
Yes, sometimes you need to go out for a nice dinner or a night out on the town. But making it a habit can drain your pocket. Buffett prefers to eat the same meals at home every day, and recommends that we do so too.
Preferring Quantity Over Quality
In investing, Buffett prefers to buy “a wonderful company at a fair price than a fair company at a wonderful price”. This holds true even in everyday purchases. It’s far better to have an $80 shirt that lasts for decades than having ten $5 T-shirts that’ll wear out in a year.
Paying “full Price”
If billionaire Warren Buffett can buy fast food using coupons, so can you. There is no shame in chasing a good deal and no honour in paying “full price”. It once again comes down to being mindful of how much you’re willing and able to spend.
Wasting Time
There is no “right age” to start earning and investing. Buffett himself used to earn money in his youth delivering newspapers, selling used golf balls, and buffing cars. He then invested his money in stocks. Starting young gives you a long time to make full use of the powers of compound interest.
