2 Savings Tips Warren Buffett Swears By That Actually Work
Warren Buffett, former CEO of Berkshire Hathaway, knows a thing or two about money. Famously touted for his exceptional track record in long-term, value-based investing, Buffett is frequently cited by banking experts when counseling clients or young professionals.
Less front and center — but no less exemplary — is Buffett's advice on saving money. Robert Johnson, CFA and professor of finance at Creighton University, swears by two of Buffett's savings tips in particular.
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Budget for Savings
Buffett once said, "If you want to make savings a priority, take a look at how you budget. Do not save what is left after spending; instead, spend what is left after saving."
According to Johnson, this is spot on. Individuals should not only be budgeting for expenses; they should be budgeting for savings. In other words, literally make it a line item.
"We accomplish what we prioritize," Johnson said. "Prioritize savings and invest those savings." Aim to save 10% to 20% of your income. To put this into practice, build a system: Automate savings or invest a fixed amount every month.
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Don't Play a Loser's Game
Johnson explained that saving money can be just as much about mitigating risk as it can be about earmarking funds.
When it comes to the stock market, returns are typically driven by a small percentage of big wins. Which is why, according to Buffett, trying to "pick the winners" is a loser's game. Johnson agrees that a defensive, disciplined strategy that focuses on consistency and avoiding major setbacks, as opposed to actively trying to time the market, ultimately leads to better results over time. So don't chase hot stocks or IPO's; remain patient and hold stocks for the long-term. You'll save more money remaining vigilant than trying to be a cowboy.
In fact, Johnson cited Buffett's instructions for his wife's trustee after he passes away: "Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's). I believe the trust's long-term results from this policy will be superior to those attained by most investors."
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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