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There’s a reason Warren Buffett is called the Oracle of Omaha — and it’s not because the chairman and CEO of Berkshire Hathaway has a crystal ball. Instead, he relies on clear, common-sense insights about what to do – and what not to do – with your hard-earned money. And he’s not entirely in the spotlight either: In addition to his investing skills, Buffett is also known for living a frugal life, even living in the same Nebraska home he bought in 1958.
When Buffett recommends doing nothing with your money, it’s worth your time to listen. He didn’t become a billionaire by accident, and following his advice can help you protect or potentially grow your wealth. GOBankingRates has compiled some of Buffett’s wise warnings about what you should avoid doing with your money.
drowning in credit card debt
Buffett has strong opinions about credit card debt, calling it a trap that makes it nearly impossible to build wealth. This is a long-held belief: In a speech in 1999, he advised people to avoid credit cards altogether.
He is concerned about the high interest rates on credit cards – sometimes as high as 18% or 20%. Because of his anxiety he once famously said: “If I borrowed money at 18% or 20%, I would be ruined.”
Buffett has said that two of the most common issues he receives in letters from scared, desperate people involve medical debt – which he describes as a tragedy of bad luck – and credit card debt – which he says could have been easily prevented.
not carrying cash
You don’t have to run a huge corporation to understand that keeping cash on hand can help you stay disciplined with your spending. Without a clear understanding of how much you have, it’s easy to overdo it – buying things you don’t really need because you can’t see the money slipping away. When a better offer or opportunity comes along, you may be taken advantage of and unable to take advantage of it.
Buffett’s high-profile business dealings have made him appreciate the importance of liquidity. Writing to shareholders, he once explained that Berkshire Hathaway typically holds at least $20 billion in cash equivalents. Why? He considers cash “dry powder” – a resource that makes him patient and act quickly when an attractive opportunity arises.
Not researching the companies you invest in
Scroll through social media, and you’ll likely find someone promoting the latest hot stock. You may not know much about the company – or even what it does – but you buy anyway. Later, the stock runs out, and you’re left wondering what went wrong.
One of Buffett’s main pieces of advice: Invest within your means.
In other words, put your money in companies that make products or provide services that you understand and whose business models make sense to you. This doesn’t mean standing still – as Buffett’s own evolving approach to tech investing shows.
Initially, he was hesitant to invest in the technology, citing industry volatility and his uncertainty about the products. While this strategy helped him survive the dot-com crash, it ultimately took him time to understand the business models behind major companies like Apple, IBM, and Amazon – which helped him become more confident and successfully invest in technology.
not learning about money
To use anything wisely, you need to understand how it works – and money is no exception. Trying to dabble in the stock market without knowing how investing works can hurt you. Do you want to avoid huge debts? Understand how credit cards and interest rates work. Saving for the future? Learn why a high-yield savings account is a better place for idle cash than a regular checking account.
For Buffett, financial literacy helps reduce risk. You are more susceptible to wrong decisions if you don’t know what you are doing. Luckily, in the age of books, podcasts, and expert-led social media content, there are more resources than ever to help you get educated.
As Buffett’s longtime partner Charlie Munger once said: “Go to bed wiser than when you woke up.”
not planning for the long term
It’s tempting to react emotionally to short-term market fluctuations – especially during recessions. But panic selling can lead to costly mistakes. In tough times, high-quality assets may be undervalued and dumping them too soon could mean missing out on future profits. You also lose out on the compounding benefits that come with long-term investing.
That’s why Buffett has said that his preferred holding period is “forever.” His belief in keeping an eye on the long term is one of his most famous investing advice: “Be fearful when others are greedy and greedy when others are fearful.”