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"Never depend on single income. Make investment to create a second source." - Warren Buffett
Warren Buffett is arguably the best-known, most-respected investor of all time and keep advocating Sustainable Income. When you're aiming to reach the top of the mountain, it's usually wise to closely follow the footprints of those who have successfully made the climb before you. Your odds of investing success can increase exponentially if you learn and apply Buffett's best money management and investing tips.
“If I have seen further it is by standing on the shoulders of Giants.” - Isaac Newton
10 commandments of Sustainable Income
Let's read them one by one…
1. Never Lose Money (HODL)
One of the most popular pieces of Buffett advice is as follows: "Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1." If you're working from a loss, it's much harder to get back to where you started, let alone to earn gains. That's why term HODL (HOld till Dear Life) is popular in crypto communities. It means you have extra saving to hold at the time of loss and you invest only that money which cannot affect your emotions.
Recently in his annual shareholder meeting one of his quote is "Sometimes the stock market is quite investment-oriented, and other times it's almost totally a casino, a gambling parlor — and that existed to an extraordinary degree in the last couple of years, encouraged by Wall Street." He also added that Wall Street makes money by "catching the crumbs that fall off the table of capitalism."
2. Understand Value vs Price
In the 2008 Berkshire Hathaway shareholder letter, Buffett shared another key principle: "Price is what you pay; value is what you get." Losing money can happen when you pay a price that doesn't match the value you get -- such as when you pay high interest on credit card debt or spend on items you'll rarely use.
Instead, live modestly like Buffett by looking for opportunities to get more value at a lower price called Buying the Dip. "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down," Buffett wrote.
3. Form Healthy Money Habits
In a 2007 address at the University of Florida, Buffett said, "Most behaviour is habitual, and they say that the chains of habit are too light to be felt until they are too heavy to be broken." Work on building positive money habits, and breaking those that hurt your wallet.
4. Avoid Debt, Especially Credit Card Debt
Buffett built his wealth by getting interest to work for him -- instead of working to pay interest, as many Americans do. "I've seen more people fail because of liquor and leverage -- leverage being borrowed money," Buffett said in a 1991 speech at the University of Notre Dame. "You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing."
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't. - Albert Einstein
Buffett is especially wary of credit cards. His advice is to avoid them altogether. "Interest rates are very high on credit cards," Buffett once said. "Sometimes they are 18%. Sometimes they are 20 percent. If I borrowed money at 18% or 20%, I'd be broke."
5. Keep Cash On Hand - Cash is King
Another key to ensuring security is to always keep cash reserves on hand. "We always maintain at least $20 billion -- and usually far more -- in cash equivalents," Buffett said in the 2014 Berkshire Hathaway annual report.
Businesses and individuals alike might get an itch to put liquid cash to work through investments. "Cash, though, is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent," Buffett said. "When bills come due, only cash is legal tender. Don't leave home without it."
“Revenue is vanity, Profit is sanity and Cash is king.” - Anonymous
6. Invest In Yourself (MOST IMPORTANT)
Buffett said, "Invest in as much of yourself as you can. You are your own biggest asset by far." He echoed those sentiments in a interview on a channel when he said, "Anything you do to improve your own talents and make yourself more valuable will get paid off in terms of appropriate real purchasing power."
Those returns are big, too. "Anything you invest in yourself, you get back tenfold," Buffett said. And unlike other assets and investments, "nobody can tax it away; they can't steal it from you."
The best protection against inflation is still your own personal earnings power. The best investment by far is anything that develops yourself." (The investor asserted that people will always be willing to pay to see a good doctor or hear a great singer.)
This phenomenon is also called Antifragility by Nicholas Nassim Taleb
7. Learn About Money
Part of investing in yourself should be learning more about managing money. As an investor, much of Buffett's job consists of limiting exposure and minimizing risk. And "risk comes from not knowing what you're doing," Buffett once said, according to newspaper. The more you know about personal finance, the more security you'll have as you minimize risks.
The lesson from this Buffett quote is to actively educate yourself about personal finance. As Charlie Munger -- Buffett's partner -- put it, "Go to bed smarter than when you woke up."
Look at his three advices in recent shareholder meeting which are actually exposing the Illusion of Freewill mindset:
"If you told me you owned all of the bitcoin in the world, and you offered it to me for $25, I wouldn't take it because what would I do with it? I would have to sell it back to you one way or another. It isn't going to do anything." (Buffett contrasted the cryptocurrency with farmland, apartments, and other productive assets.)
"In my life, I try and avoid things that are stupid, evil, and make me look bad in comparison to someone else. Bitcoin does all three." (Charlie Munger said bitcoin's price would likely fall to zero, the crypto threatened the stability of the financial system, and it made the US government look foolish compared to the Chinese authorities who have banned it.)
"It was disgusting. Now it's unraveling. There's been some justice." (Charlie Munger accused Stock and Crypto Apps of encouraging "short-term gambling" and collecting "big commissions," and criticized its business model of collecting payment for order flow.
"Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions are already factored into its price, and no new buyers are left to emerge." - Howard Marks
"Investors with no knowledge of (or concern for) profits, dividends, valuation, or the conduct of business simply cannot possess the resolve needed to do the right thing at the right time." - Howard Marks
8. Trust a Low-Cost Index Fund for Your Portfolio
While much of Buffett's wisdom and advice borders on the philosophical, he has also provided some actionable tips that nearly anyone can apply. For instance, Buffett urges the average investor to purchase index funds.
"Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund" he wrote in his 2013 letter to Berkshire Hathaway shareholders.
Buffett has given this advice for years. "If you invested in a very low-cost index fund -- where you don't put the money in at one time, but average in over 10 years -- you'll do better than 90% of people who start investing at the same time," Buffett said at the 2004 Berkshire Hathaway annual meeting. He also said “Take away the management fees and I'd bet on the monkeys." (Buffett suggested that most financial advisors are no better at investing than a bunch of monkeys picking stocks by throwing darts at a dartboard.
With value investing, you only buy the stocks of companies that have a business model that you believe in and understand. Ideally, these companies are undervalued and have the potential to provide greater earnings over a long period of time.
Since value investors look for deals based on their own research into the intrinsic value of a company, they don’t tend to follow trends or short-term stock movements in the market. He said
"People are charging for skill and delivering closet indexation." Munger asserted that many fund managers are scared to underperform the market or their peers, so they invest in the equivalent of index funds.
Buffett’s most famous quotes about not following the crowd, even when the market is down: “Be greedy when others are fearful, and fearful when others are greedy.” Also he said “I don't think we're smart, I think we're sane. That's the main requirement in this business."
"If they told everybody what a simple game [investing] was, 90% of the income of the people that were speaking would disappear." - Warren Buffett
9. Give Back
Buffett once said, "If you're in the luckiest 1% of humanity, you owe it to the rest of humanity to think about the other 99%." And as a top member of that 1% himself, Buffett makes it a point to put his money where his mouth is.
Along with Microsoft co-founder Bill Gates, Buffett is a founder of The Giving Pledge, which is a promise made by more than 100 billionaires to give their fortunes away. While you might not be a billionaire, you can still enrich your life by giving back.
10. View Money as a Long-Term Game
Buffett once said, "Someone's sitting in the shade today because someone planted a tree a long time ago." And it's true. Planting and nurturing the seeds of financial success now will lead to shade to enjoy later in life. That shade might include freedom from debts, a secure retirement or the ability to cover the cost of college for your children.
Such a long-term view of money is central to Buffett's investing decisions. In his 2014 letter to shareholders, he said people should "invest with a multi-decade horizon. Their focus should remain fixed on attaining significant gains in purchasing power over their investing lifetime." He urged investors not to focus on moments of stock market volatility or economic crisis.
In times of high inflation, it is “generally better to own physical things like a home or stock in companies you think make good products, rather than keeping your money in cash.”
Building true wealth and financial security takes time, and you'll likely encounter financial challenges along the way. But viewing your finances as a lifelong endeavor can help you stay on course despite hardships. That gives you a financial foundation that will last.
Conclusion
Ideally in this uncertain world, these should be the new priorities :
Daily Self Learning
50% in cash
40% in U.S. index funds and 5% in international index funds
5% in gold and crypto
Thanks for reading...