The Myth Of Saving Money Warren Buffett Way
The other day I read an article online on frugal living tips. Most of these ideas are highly generalized and are relevant to a limited number of individuals and circumstances in life.
The other day, I read an article titled 34 Frugal Living Tips That Really Work: Warren Buffett’s Saving Money Habits by Steve Burns.1
This article is one of those articles that keep popping up in one’s smart-mobile phone prompted by the search engine AI, depending on one’s past searches. I might have searched and read a few articles on finance, saving, or personal investments in the past, which is not uncommon. And, now, similar articles keep popping up on my notification, but most are junk.
Most often, I do not waste my time reading these articles. But Warren Buffett is a name that attracts eyeballs, and I clicked the link to read the piece on my way to work one day.
Warren Buffett is well known not because of being a successful investor and one of the richest in the world to boot but also because of his unorthodox views about money, investment, and ways of living. Despite being one of the wealthiest people in the world, his ideas on money, saving, investment, and spending are very middle-class and a far cry from how the super-rich behave. If you are a wealthy celebrity, people will listen to you. But if you are a super-rich celebrity but talk and conduct yourself like an ordinary man-on-the street, you become a cult personality. Warren Buffett has achieved that cult status because of his unorthodox, middle-class views about most things that matter.
But this article is not about Warren Buffett. Neither is about the author of the article on Buffett, Steve Burns. I have no bones to pick with Steve. This article is about the article I recently read and other similar articles available on the internet, and what has been regularly peddled by the authors to the readers as the philosophy of Warren Buffett. Numerous clever sayings often are erroneously attributed to diverse and famous personalities like Shakespeare and Mark Twain or other prominent celebrities to gain traction and authenticity in social media. And I shall not be surprised if similar things are being done regarding financial wisdom with Warren Buffett. This article merely happens to be the one I picked.
This article claims to give
34 actionable frugal living tips rooted in Buffett’s financial principles, teachings, lifestyle, and quotes, helping you transform your financial habits, save money and wealth over time.
Some of the advice in the article is good, fundamental, and standard wisdom that does not require Warren Buffett to make one understand. And I realized a few fundamental flaws and assumptions far from real-life situations. Most of these ideas are highly generalized and are relevant to a limited number of individuals and circumstances in life.
Following is my take on the pieces of advice mentioned in the article.
Advice# 1: Live Below Your Means.
Do we, not know this? Have our parents not tried to grill this wisdom into us since childhood?
This is sound advice to those who have the means to go overboard. The basic assumption here is that one has enough means to maintain a lavish standard of living and is warned not to go beyond the threshold.
While we all accept that consumerism is flawed, can we altogether ignore it? The whole edifice of capitalism is grounded on consumerism.
Also, a vast majority of the population, and the numbers are increasing, do not consistently earn enough. Their means are so meagre that this advice does not hold water. By no means can they live beyond their means. And when they are forced to spend beyond their means, it is for some basic requirements. When the vast majority, especially in the global south, can not have a squire meal a day, the advice of living below the means is laughable.
Advice# 2: Invest in Yourself.
This similarly is very sound advice. But again, this is partially true for those who earn enough to spare some resources and time to invest in themselves. At the risk of sounding hackneyed, I have to say that when one does not have the means for the necessities of livelihood, one cannot invest in oneself.
I must agree that the middle and affluent class, who have the means, sadly do not invest in themselves. They spend time, effort, and money on acquiring luxuries of life but not on their mental and physical health.
Advice# 3: Understand The Value Of Money.
This is a million dollars advice. But what Warren Buffett has got to do with it? The value of money, or for that matter, most things in our lives, are supposed to be imparted to us as a part of a good education. But our education system is such that it is geared to produce degree holders, not educated individuals.
Most of us do not understand that the price is what one pays for, and it is the value one gets when one pays that price.
Advice# 4: Never Lose Money
Who wants to lose money? No one I know of.
The structure of the modern capitalist economic system is based on calculated gambling. The financial system rewards those who have the appetite to take calculated risks. Despite being unwilling to lose money, most have lost money in their lifetime. The more pertinent point is how much money one can afford to lose yet stay afloat.
Advice# 5: Don’t Get Into Debt
Is it probable to live a respectable social life without debt in the present economic context? I wonder.
On the other hand, when credit is readily available and with reasonable interest rates, it always makes sense to borrow money to buy tangible assets and hold on to the cash. Also, whoever ever purchased real estate without borrowing?
The point is, in modern life, debt is good, but as long as it is for a specific period and a worthy cause. Also, one must be careful to service the debt, or else there is the danger of falling into a debt trap.
Advice# 6: Save Before You Spend
This is a piece of sound advice. The idea is to consider saving as an essential expense head. Saving should be regarded as fundamental as paying one’s monthly bills. The amount saved is not relevant. It is the regularity that is important.
Advice# 7: Avoid Credit Card Dues
This is a repetition of point number 5. But there is no harm in mentioning here that credit card debts come with exorbitantly high-interest rates and can make a big hole in your finance. So ideally, one should stay away from credit card debts as much as possible. And even if one has to take it, one must get rid of it as soon as possible.
But, in modern economic times, it is easier said than done.
Advice# 8: Stick To Your Budget
It is a very significant point. However one may try, life has its way of unfolding. So, even with the best intentions, one may be forced to go beyond one’s budget a few times.
But I am sure Warren knows that. What he meant was not to go into impulsive spending. All the expenditures must be well thought out and planned out well in advance.
Advice# 9: Buy Quality Items That Lasts
Again common wisdom stretching to be passed on in the name of Warren Buffett. Do we not know that good quality products last longer? Good quality products might seem expensive, but they are value for money.
Advice# 10: Don’t Follow Trends; Stick to Classics
This is the first advice relevant to investing, and a sound one too. Most investors know that dubious investments tend to give immediate short-term high returns. But these investments are risky. Investing in good, time-tested financial instruments will yield long-term value to one’s portfolio and add to one’s capital.
But the lure of immediate gain is too much for most investors. Hence the warning.
Advice# 11: Be Patient With Your Frugal Spending
But again, this is an old wisdom. Coming from a person like Warren, this is very valuable. Warren has always walked the talk, and this is his brand equity. To grow wealth long-term, one must avoid unnecessary spending and adhere to a pragmatic lifestyle.
Advice# 12: Treat Your Savings As An Expense
This is a repetition of Advice# 6. Hence, do not require further explanation.
Advice# 13: Prioritize Value Over Price
This is again a repetition of Advice#3, where the value of money has been discussed.
Advice# 14: Don’t Buy Things You Don’t Need.
Again very sound advice. But it is too a pearl of age-old wisdom. Warren has nothing to do with this.
Advice# 15: Understand The Difference Between Price And Value
This advice we have dealt with in Advice#3 and Advice #13. It is the same advice in different wording.
Advice# 16: Save A Percentage Of Each Paycheck
Is not it a repetition of Advice# 6?
Advice# 17: Invest In Things You Understand
If one follows this advice to the tee, no one in the modern world will be able to invest. Modern business is a complex process. For most investors, understanding various businesses worth investing in is difficult. But then this is why one should invest time, effort, and resources to learn continuously.
Advice# 18: Don’t Take Unnecessary Financial Risks
This is sound advice. Buying a car or a real estate property beyond what one can afford is foolishness. But this is common wisdom, and people routinely do not follow this advice due to folly or self-vanity.
Advice# 19: Don’t Try To Keep Up With The Joneses
This is a repetition of Advice# 10. Though this advice is worth following, this also happens to be one of the worst vile of modern consumerist society. We most frequently get influenced by our friends, relatives, and neighbours and buy things we do not require. This habit develops early in our life. And unless we can curb the urge, we spend our hard-earned money. This is traditional wisdom, and Warren Buffett has nothing to do with it.
Advice# 20: Limit Dinning out; Cook At Home Instead
The basic point is to be frugal. Warren has no reason to practice thriftiness, yet he does. And that is why he has become a cult personality.
Advice# 21: Maintain A Simple Lifestyle
How many times and in how many ways does one need to say the same thing? Is it not stretching things a bit too much?
Advice# 22: Reinvest Your Profit
This is sound advice for all investors. Money gets compounded over time. So the more one invests, more one the more money grows.
Advice# 23: Do Your Research Before Buying
This is a continuation of Advice# 17. The advice is not to invest in whims. Know what you are getting into. Suffice it to say all long-time investors follow this rule.
Advice# 24: Don’t Waste Money On Non-Essential Items
A differently worded version of Advice# 14. Why only Warren Buffett? All prudent people hate wasting money. The best way to avoid this pitfall is to curb the urge of impulsive purchases.
Advice# 25: Make Frugality Habit, Not A Hardship
Who does not know the mandate of Simple Living, High Thinking? But how many internalize and follow this wisdom? Warren Buffett leads a frugal lifestyle, and so he is revered. The most super-rich does not practice frugality.
Advice# 26: Avoid Luxury Items You Can’t Afford
If you have followed me so far, you must have noticed that this advice was also given earlier. It does not make sense to repeat a point just for the sake of it.
Advice# 27: Learn Basic DIY Skills
This is not everyone’s cup of tea. Yes, DIY can save one some money, but if one does not have the knack for it, it will cause more trouble than benefit.
Advice# 28: Focus On Long Financial Goals
This is a piece of sound advice. Most want to make quick money and get rich. But Warren insists on long-term value investing.
Advice# 29: Practice Conscious Consumption
This is advice similar to Advice# 26, only worded differently.
Advice# 30: Don’t Let Fear Or Greed Drive Your Financial Decisions
Translated, it means that do not be impulsive while making financial decisions.
Advice# 31: Understand That Time Is Money
True. And this is one of the golden rules to build wealth, and it should have been mentioned as one of the top advice. Investments grow over time. The longer one can hold on to the asset, the more it will grow through compounding. So it is prudent to start early, as early as possible, enabling the investment to remain invested for a prolonged period.
Advice# 32: Use Cash Instead Of Credit Card
Easier said than done in the present financial world. In Advice# 7, the same point was discussed in different words.
Advice# 33: Never Rely On A Single Income Source
This is a sound piece of advice. Most of us are accustomed to getting our income from a single source, especially those in service.
Advice# 34: Build An Emergency Fund
Life is long, with a lot of unexpected twists and turns. Most of life’s troubles can be overcome and become bearable if one has saved some. Creating an emergency fund is, hence, essential. Again, this is common wisdom, and no need to invoke Warren Buffett.
To Conclude
All the above advice is sound and essential for healthy financial independence but by no standards enough to create serious wealth. No matter what these and other similar articles advise, wealth can only be made with continuous efforts. A lot of factors are beyond one’s control. Whether we accept it or not, building serious wealth depends mostly on luck. Hard work is essential, but equally important is consistency in income generation. A lot depends on the overall economic outlook of the country one is resident of, as well as the condition of the society.
There is no quick, get-rich formula.