By John Grace
On May 1, Warren Buffett, the oracle of Omaha, addressed investors in the Berkshire Hathaway live-streamed annual meeting. As we teach our children, “You make your habits and then your habits make you.”
We adults can be good role models to our progeny who aren’t listening to much we have to say, but are paying close attention to what we do. In fact, the children often unconsciously mimic exactly what they see adults do.
To my way of thinking, it’s always a good idea to learn from the best and brightest. Otherwise, we simply follow an old Belgian proverb: “Experience is the comb that nature gives us.”
Before I go bald, I prefer to learn from other people’s experience, to include what to do as well as what not to do.
Buffett knows all about success. The 90-year-old Berkshire Hathaway chairman and CEO is the sixth-richest man in the world and arguably the best investor of all time, with an estimated net worth exceeding $103 billion, according to cnbc.com.
Here are eight ways Buffett’s frugality can help you develop and keep good save and spending habits:
Instead of moving up every chance he gets, Buffett lives in the same home purchased in 1958.
As Yahoo Finance reports, Buffett paid $31,500 for his Omaha, Nebraska home, which is approximately $288,700 in 2020 dollars. He has lived there for more than 60 years.
Thanks to the improvements and renovations, the home is about 6,570 square feet with five bedrooms, lots of security cameras, and a good homeowner’s insurance policy. It’s valued at about $1 million today. In a 2010 letter to Berkshire Hathaway’s shareholders, Buffett called it “the third best investment I ever made.”
He only takes out loans when appropriate
The only loan Buffett took out was for his Laguna Beach home in 1971 that cost $150,000. That home was sold in 2018 for $7.5 million or $7.35 million more than he paid for it, according to the L.A. Times. It’s the same house that was listed in early 2017 for $11 million. Instead of buying another home, Buffett used the extra cash to buy shares of Berkshire Hathaway, the same company that put billions in his pocket.
He buys breakfast cheap. Unlike the rich and famous who hire personal chefs to prepare gourmet meals, he prefers to get breakfast from McDonald’s on his way to work. He dresses every workday in a suit and tie so he can spend a lot of time reading about things, long before he puts his money anywhere.
Please take note of one of his best quotes, “Risk comes from not knowing what you’re doing.”
Buffett usually spends $3.17 on breakfast. “When I’m not feeling quite so prosperous, I might go with the $2.61, which is two sausage patties, and then I put them together and pour myself a Coke,” he said in “Becoming Warren Buffett,” an HBO documentary.
Notice that he knows exactly how much things cost. Now would be a good time for you and me to make meals at home and skip the expense as well as the experience at the most expensive coffee houses in town.
He buys cars cheaply
In a BBC documentary, Buffett said he drives all of 3,500 miles per year, so there’s no need for a fancy car. For years he drove a 1979 Ford F-150 or a Subaru Baja. He stepped up to a 2006 Cadillac DTS that he drove for 10 years. Forbes reported that it was GM CEO Mary Bara who convinced Buffett to move up to a 2014 Cadillac XTS. Retailing for $44,000, that’s pretty economical for a billionaire. He donated his old Caddy to Girls Inc., a nonprofit organization that was able to auction it for $122,500, according to motorbiscuit.com.
He continues to clip coupons
While some of us consider using coupons to be a sign of poverty, Buffett relishes the habit. Bill Gates wrote in a 2017 annual letter that Melinda found a photo of the two while in Hong Kong, where Buffett treated his fellow billionaire buddy to lunch at his favorite fast-food restaurant with coupons. The money you save, might be your own.
Brand names are unnecessary. Instead of blowing money on big purchases, Buffett believes in, “Do not save what is left after spending, but spend what is left after saving.” Pay yourself first every month. Repeat, for life.
Practice spending less than you earn. Buffett passes on designer suits and he depended on his $20 flip-phone for years before swapping it out for an Apple smartphone in 2020. He also passes on the i-Phone’s fancier functions, observes Yahoo Finance.
He has no interest in borrowed money. Buffett said he learned from his experience of borrowing 25% of his net wealth to buy shares.
As he said to Notre Dame students in 1991, “I’ve never borrowed a significant amount of money in my life. Never. Never will. I’ve got no interest in it.” Now you can put apps to use to invest your spare change or employ automated investment firms.
Cash, not credit. In the old days, you never left the house without your checkbook. And you balanced your account with every purchase, every time. These days it’s so easy to be completely unconscious with spending thanks to credit and debit cards, where you never see how much money you have.
Buffett uses hard cash. As he said to Yahoo Finance in 2019 that he uses cash “98% of the time. If I’m in a restaurant, I’ll always pay cash. It’s just easier.”
This time easier is also being more conscious. You always know how much money you have.
John L. Grace is president of Investor’s Advantage Corp., a Los Angeles-area financial planning firm that has been helping investors manage wealth and prepare for a more prosperous future since 1979. His On the Money column runs monthly in The Wave.