Perfect, now you have an image of a butler making you breakfast, 7 fancy cars in the driveway of your multi-million dollar mansion! Now forget it, none of those things will help you save money. I want you to live like the world famous investor billionaire Warren Buffett. There are a lot of lessons to take from him. First he is a genius investor who has built an empire and become one of the richest men in the world. Secondly and what we will focus on today, he is frugal. Buffett doesn’t waste money. In fact, his number 1 rule is never lose money, rule 2 is remember rule 1. If you want to save money you should steal his methods.
The biggest lesson we can take from Buffett is, we need to develop healthy spending habits. The habits we have create recurring spending. The one time splurge for a $4 coffee drink at Starbucks is rather inconsequential. But if you get that drink everyday Monday thru Friday for a year, it’s over a $1,000. This is an unhealthy spending habit that someone who struggles to save money should avoid. Buffett is known to drive himself to work and grab breakfast at McDonald’s for about $3. When the markets are down he will only spend $2.50. When the markets are doing well he might splurge and drop $3.50. People must eat to live, so spending money on breakfast is not optional. Spending money on the drink of the day at Starbucks is optional. Let’s look at three places typical people waste money and how you can avoid it.
Save Money on Your House
The house Buffett lives in is the same house he bought in 1958 for $31,500. In today’s money that would be $270,000. By no means is this a cheap house, but is affordable. Don’t over extent yourself and buy the biggest house you can afford. Buy a house you can live in and be comfortable. Buy a house that meets your needs. Putting all your money toward a mortgage payment leaves little room for saving, investing and upkeep on the house. Remember the top 3 rules of real estate, location, location, location. Live close to the places you need and want to travel to. If you can save $2 per day on gas driving to work that is over $500 per year you can put toward your investments and your future. Buffett lives only 5 minutes from his office in Omaha.
Save Money on Your Car
Cars are expensive and depreciate quickly. Don’t buy a new car, ever. It is a waste of money. Buffett likes to buy reduced price cars. One of his favorite finds is a car repaired after hail damage. The car looks and drives fine once it is fixed but sells at a lower price than one that was not damaged by hail. Drive a reliable car that will last beyond their payments. If you have a $300 per month car payment that’s fine. When you pay the car off keep driving it, you now have $3,600 per year you can invest. Buffett loves driving his Honda Accords for years on end, putting about 3,500 miles per year on them.
Save Money on Your Hobbies
Don’t start expensive habits. If you already have them you need to stop. Buffett’s favorite hobby is playing bridge. He once joked during an interview that he would be happy in jail as long as he had the right 3 cellmates. The cost of playing bridge is under $5, the cost of a deck of cards. I like to run, I spend about $120 twice a year on a good pair of running shoes. Compared to Buffett, I am a big spender on my hobbies. For perspective, a round of golf with a cart costs an average of $36. Play once a week and you will spend over $1,800 over the course of a year. This cost does not include clubs, balls and the stylish pants.
Your Priorities, Your Choice
The truth is, saving money is not without some pain. If you want to have your cake and eat it, too, you will have a hard time getting ahead. Prioritize what you want out of life and make sure you’re working toward it. If your priority is driving new cars and play golf that is just fine. If your priority is preparing for the future for you and your family, you need to save money. In order to save money, you must prioritize saving over other things in your life. It is a simple concept that can be difficult to swallow.
Today you have an assignment. Decide what you want in your life, what is important to you. Everyone will have a different answer and there are no wrong answers. If you have decided that coffee, cars and golf are your priorities, great! You can prioritize your spending toward those things. If your priority is to retire one day, take control of your finances and build a healthy, fulfilling life for you and your family, then start putting your money toward your priorities. This likely means you must take money away from things that are not a priority.
Anything worth having will not come easy. Develop healthy spending habits and put your money to work for you. Even if the idea of the stock market and cryptocurrencies are too scary for you I hope you can take a lesson from Warren Buffett and live frugally.