Around my 30th birthday (in 1998), my father asked me a tough question. He said: “If you’re so smart, why aren’t you rich?” I immediately grasped what my dad was getting at. I’d been working since 1987 (and full-time since 1991) and earned a good wage. I worked in the financial sector, so I knew quite a bit about the art of investing. Yet at that time, I was very far from being rich. My dad’s question hit home hard, so I changed my ways. Within a decade, I could call myself well-off, if not full-on wealthy. And I got there with some ideas from mega-billionaire investment guru Warren Buffett. Here’s how the Oracle of Omaha helped me to build wealth.
Warren Buffett on budgeting
Buffett once remarked: “Do not save what is left after spending, but spend what is left after saving.” I used to earn good wages, but I spent far too much on living large. To free up more money to invest, I started ‘paying myself first’. In other words, I withdrew a fair chunk of my wage on payday to put aside for my future. Then I was free to spend the remainder, having deducted my savings upfront. Of all the good habits I came to learn, this was the most powerful by far.
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Warren Buffett on cash savings
Another lesson that Warren Buffett taught me is that cash savings wouldn’t make me decent returns over time. Over decades, falling interest rates and inflation (rising prices) have combined to dramatically reduce returns from cash savings. Indeed, Uncle Warren once said: “The one thing I will tell you is the worst investment you can have is cash. Cash is going to become worth less over time.” Hence, after building up a reasonable cash emergency fund (a few months’ expenses), I invested all of my spare money into shares.