Top 8 Money-Saving Tips from Warren Buffett — Saevr India

Warren Buffett, one of the tycoons in the investment arena and the fourth richest person globally with a net worth of $80.30 billion, is often referred to as the ‘ Oracle of Omaha.’ He initially followed the principles laid by Benjamin Graham. But later, he started focusing on value investing. Thus, Buffett earned multi-million dollars by investing in shares and businesses. A well-disciplined investment style and a lot of patience are his success mantras. Berkshire Hathway, a holding company run by Warren Buffett, owns more than 60 companies.

Warren Buffet’s Strategies for Saving and Investing

Creating a budget and following it rigorously is one of the best ways to start conscious spending. Following a budget is similar to being on a financial diet. But before that, it’s necessary to track your expenses to find the leaks. With the help of an app like Saver, you can easily spot the leaks and build a robust budget.

Remember, whenever you buy an item that you really don’t need, you’re sacrificing a bit of your future spending capacity.

Don’t invest in any financial products unless you fully understand its features. Never get tempted by the quick money that financial products offer. The fees and taxes associated with such products will often be higher, which can drag down your actual gains.

Before making your first trade in the stock market, think about what fascinates you. It may be gadgets, fashion, food, etc. If you’re a couturier, then focus on companies that sell fashion products. If you’re a movie buff, then go for the shares of production houses. Buying the shares of the companies of your interests is better than investing in those you have never heard about and whose business you can’t understand. At the same time, omniscience is not necessary. Just understand the actions you undertake.

Berkshire Hathway keeps a few billion as cash equivalents. It helps them to act quickly when an investment opportunity presents itself.

As an individual, you need to keep some cash aside to meet any emergencies. Having an emergency fund helps you to face the unforeseen circumstance sans others’ kindness. Read more about emergency funds .

Buffett also advises people not to take too much leverage. Too much debt reduces your saving capacity. Buffett is not against taking debt but counsels to use it wisely. He too uses leverages in investments but uses low-interest leverages and never exhausts his credit limit.

Over time, your investments compound and create wealth. In the same manner, if not handled properly, your borrowed money also compounds and grows by many folds, possibly beyond your capacity to repay it.

There is no doubt that self-improvement will surely pay off, if not today, definitely tomorrow.

In his annual letter of 2013 to the shareholders of Berkshire Hathway, Buffett wrote like this, “Games are won by players who focus on the playing field- not by those whose eyes are glued to the scoreboard. If you can enjoy Saturday and Sunday without looking at stock prices, give it a try on weekdays.”

Apart from shares, you have many other long-term investment options. Click here to know more about long-term investment options .

Now you may argue that you invest the leverage in the shares of fundamentally strong large-cap companies. But when the market starts tumbling down, we can see the pressure in the price of all shares irrespective of their market capitalization. If the price of your shares continues to tank and starts incurring losses, then your broker may ask for more margin money to cover the losses. It may result in losing the entire borrowed capital. Such a situation can impact you emotionally, as well.

If needed, sell your shares to generate income rather than drawing dividends from a company. The sell-off option lets you make your choice between cash receipt and capital build-up. On the other hand, if you go for dividends and use your dividends to purchase more shares, you may be beaten-up twice. First, you have to pay a higher tax for dividends than the capital gains. Second, you may need to pay a premium to get your dividends reinvested.

In India, the dividend income will be taxed as per your slab rate. In comparison, your gains from stock sales are classified into two; short-term capital gains (STCG) and long-term capital gains (LTCG). STCG will be taxed at 15% and LTCG at 10%. Yet, LTCG up to INR 1 lakh per year is tax-free. If you have made the share purchase before 31 Jan. 2018, there would be no tax on your gains. In contrast, the entire amount you receive every year as dividends will be taxed.

The price will be the starting point in your investment journey, and value will be your destination. While investing in the stock market, many of us prefer to go for low priced shares.

Remember, all low hanging fruits are not good. You need to pick the better ones among them. This principle is also applicable while investing in other assets like real estate, currency, etc.

Instead of focusing only on the asset’s price, put a glance at its fundamentals as well. Then focus on the intrinsic value of the asset you’re considering. If the market price is below the intrinsic value, then buying that asset makes sense. If you’re not comfortable with the asset’s future earnings, just forget it and move on.

It’ll be unfair to conclude this article without mentioning the famous saying of Warren Buffett.

Originally published at https://www.saevr.com on November 20, 2020.