• Intro
Here's Warren Buffett on one of the most dangerous things that people fall for as that appreciation draws in people that really don't know anything about the asset and people start they start being interested in something because it's going up not because they understand anything else but the guy next
door who they know is dumber than they are is getting rich and they aren't and their spouse is saying you know can't you figure it out too and I mean it is so contagious what he's talking about right
there is one of the traps that many people fall into which is they invest in things they don't understand just because they see their friends getting rich from it I want to be rich Warren has tons of nuggets of wisdom from his 90 plus years on Earth about what things people shouldn't be doing because he's basically experienced it all the first thing that we should be avoiding according to him is
1. Borrowing too much
He's always been a big fan of buying something only if you can afford it without going into too much leverage or too much debt for that said item so he famously said this following quote back in 2010 which is that if you don't have leverage you don't get
in trouble that's the only way a smart person can go broke basically and here's the thing is that smart people go broke all the time in fact I personally know a real estate developer that during the 70s and the 80s he was way over leveraged on over 20 different commercial properties he had mortgages on all of them that was actually fine when interest rates were lower but when interest rates started to tick up to their historic all-time highs back in the late
70s and early 80s he basically got wiped out because he was unable to service all of that debt he's a pretty smart guy and is wildly successful these days however it's interesting to note that even smart people can get carried away when they see dollar signs in their eyes as Warren Buffett actually says only when the tide goes out you see who is swimming naked that's an analogous quote on how to judge success because bull markets can make even the
dumbest investors look really good like seriously how many people do you know that were gloating or bragging about their crypto gains back in 2020 to 2021 well they've been pretty silent since then I personally haven't even heard the acronym nft in ages never heard of her but that's besides the point because there are other types of Leverage besides big loans that we are all exposed to especially these days in 2023 one of them that comes to mind are those companies that do buy now or pay
later so those are the companies like after pay a firm or klarna what they do is they basically offer you a short-term loan so that you can go buy Goods like your TVs your clothes or perhaps even a luxury item and the idea is that you're going to pay them back in interest-free installments over time if you start buying everything using these Consumer Debt companies and you fail to pay on time sometimes what they'll do is they'll actually charge you a 25 late fee of the total value of that item a lot of these bnpl or buy now pay later companies know that they're going to make a profit off of you
when you can't make that payment eventually so that's basically what you should be avoiding is avoid buying things that you cannot afford outright another type of Leverage that we should probably avoid as consumers is credit card debt so here's what Warren Buffett has to say about that avoid credit cards just forget about them the American public loves credit cards but if you start revolving debt on credit cards you're going to be paying 18 or 20 percent and you
can't make progress in your financial life going around borrowing money at 18 or 20 percent his point here is that with the average credit card interest rate of 18 no single investment is going to yield that high of a percentage return so that you're probably better off not even putting any money on a credit card because you're not going to be able to out invest that bad interest rate oftentimes you might be able
to get some rewards from credit cards and if you're able to pay that off on time in full every single time that's a great thing but a lot of people can't and they actually end up overspending on credit cards so that's something that we want to avoid now over leveraging yourself is a bad habit to have but it can also be a mistake that's compounded with
2. Not Saving Properly
according to Buffett in a speech to college students he actually noted that the biggest mistake you can make is not learning the habit of saving properly he said that most behavior is Habitual and the chains of habit are too light to be felt until they are too heavy to be broken that's some heavy stuff right there 73 of Millennials these days are living paycheck to paycheck according to a
recent Lending Club report and one of the ways to fix this is just to plan better overall my favorite analogy here for saving more money is to think about what a bodybuilder would do to prepare for the they're weak they have to plan their meals out and actually stick to a certain diet to achieve the massive gains that they're trying to make now not everyone wants tickets to the gun show but everyone wants
tickets to a better personal financial life am I right personal finance is pretty similar to being that bodybuilder if you want to save money you probably just have to plan better and the number one way to plan better is to automate your savings you see when most people get their paycheck it goes into their checking account and then they just spend whatever they have in their checking account and they
don't really think about saving any more money at the end of the day it's a really big Temptation and I'm pretty certain that's why so many people live paycheck to paycheck but think about the following scenario if you or someone you know has contributed to a 401k ever in their life you know that that contribution gets taken out before your paycheck even hits your checking account because you're not
touching that money it's a type of forced savings account and therefore your 401k balance grows and grows and grows for most people in this case they would save more money than they otherwise would have because most people just don't have impulse control so in order order to psychologically hack our way into more savings what we should probably do is to follow that model just with our normal savings account which is to set up an automatic transfer every time we get a
paycheck maybe just five or ten percent goes into a savings account separately if you're able to do that and adapt to the remainder of money that's hitting your checking account then you're probably in a really good spot because you can use that five to ten percent that you're you know siphoning off to save and invest so I think that's going to be one of the greatest ways that you can compound your wealth is if you don't ever have to think about moving
wrong way to compound your wealth however according to Warren Buffett and that's the third thing that we want to avoid
3. Trying To Time The Mark
Which is actually called timing the market let's listen to what Warren Buffett has to say about this I I know what markets are going to do over a long period of time they're going to go up but uh in terms of what's going to happen in a day or week or a
month or a year even I'd never felt that I knew it and I never felt it was important so clearly Warren Buffett wants you to employ a strategy where you're buying and holding your Investments for a long period of time and this specific strategy has really worked out for him with his company Berkshire Hathaway in fact he's produced close to a
20 percent compounded annual average return since 1965. compare that to the S P 500 is 9.9 return the overall gain of Berkshire Hathaway since then has been over 3.7 million percent which is pretty crazy to think about so Warren
acknowledges here that most of us probably fall into the temptation of stock picking I'm sure you've probably thought about picking a hot stock before and seeing it go to the moon but the reality is that that usually doesn't happen instead Warren recommends a strategy to most investors which is to pick a passive fund that tracks the
market and invest most of your money there these are known as index funds and ETFs which I have tons of article about on as well essentially he's saying that we should diversify all of our investment money into many different stocks in case one stock goes bankrupt at least we have hundreds of different other Holdings to kind of keep
our portfolio afloat and he believes in this strategy so much that in 2007 he famously made a bet or a wager as you would call it that the S P 500 would outperform any hedge fund out there over a 10-year period he put up 500 000 of his own money and
challenged anybody in the hedge fund world and he did get one Challenger the man that entered the Challenger Arena was named Ted sides I'm probably saying his name wrong but he actually tried to compete against Warren Buffett here and what actually happened at the end of 10 years can you guess what happened if you
had said that the hedge fund manager lost then you would be correct because in the same amount of time that the money was invested the hedge fund manager would have gained 220 thousand dollars while the S P 500 would have earned
over 854 thousand dollars Warren's suggested strategy here is basically hey you Mr or Mrs Average investor you should just put your money into a passive index fund that tracks the market and basically focus on the things that matter to you in life
rather than trying to find the next hottest stock now some of your friends might actually message you and try to get you to invest in a stock with them in fact a lot of my friends always ping me about different stocks that they want to invest in and say that I should do it with them but giving into peer pressure
4. Trying To Impress Your Friends
And giving into what your friends want you to do and trying to just impress your friends is one of the worst things that you can do according to Warren Buffett Warren Buffett in fact still famously lives in the same house that he bought in 1958 for thirty one thousand dollars now adjusted for inflation that would be worth
approximately three hundred thirty thousand dollars today if you were trying to keep up with his friends over the years he might have tried to upgrade his house a few times perhaps bought a few cars that he didn't need and in general just overspent a lot that probably could have hurt the compounding of his wealth and that's something that we want to generally avoid I think if we're always spending to keep up with other people we could get into debt we would overspend a little bit too much and overall our financial stability and security
is threatened for example you might see a friend of yours maybe driving around in a new BMW and you think to yourself man it would be really nice if I could ball out and also be in a BMW as well you look at the monthly payments and you realize hey I can actually afford this it's only about 450 or 500 a month but here's the thing if you don't actually have the equivalent price in cash sitting in your bank account then I don't think you can actually afford it the problem in America these
days is that monthly payments are actually a lot lower than they should be because car dealers are just basically stretching out the loan terms long enough so that your monthly payment is lower so just because you see your friend rolling around in a BMW that might cost them 450 a month maybe it's matte black maybe it's got 20 inch rims maybe it's got carbon fiber all of that doesn't matter there's only
one thing that should matter which is that your friend can afford that 450 a month payment that's all you really know we don't know if they can fully afford that full car in cash and that's one of the Illusions I think in America is that many people are living above their means but you don't really know it the other problem I see all the time is that people think that their income determines whether or not they are broke or they are rich in my experience I've known people that are making
50k a year that are actually saving more money than someone who makes over six figures a year this is probably evidence with the fact that 51 percent of people making over six figures are actually living paycheck to paycheck according to a recent report so in my opinion at the end of the day it really comes down to how much
money you are keeping and trying to live within your means rather than how much money you are spending so don't try to keep up with others and just focus on your own financial goals now one of the best
5. Not Investing Yourself
Things that you can do according to Warren Buffett is something that he said at a recent shareholder meeting the best thing you can do is to be exceptionally good at something if you're the best team if you're the best doctor in town if you're the best lawyer in town if you're the best whatever it may be
whatever abilities you have can't be taken away from you they can't actually be inflated away from you for the best investment by far as anything that develops yourself self-improvement is a key then to financial stability in his opinion and many people are neglecting to do so in today's world I really like this advice from Warren Buffett he's basically saying that if you
invest in yourself those skills can never be taken away so you can probably earn more money in your average lifetime than someone else who doesn't have those skills a lot of people think that Building Wealth is just a function of investing all the time but I truly believe that if you're able to increase your income and
increase your skills and increase your value in the marketplace that that is probably going to take you more to the wealthy status than investing actually can so I absolutely agree with Warren Buffett here let me know if you guys want to see more Warren Buffett content in the future.
