Warren Buffett: 8 Money Habits Keeping You Broke And Poor NEWS AND WEALTH

Warren Buffett is one of the legendary CEO of Berkshire Hathaway and a professional wealth manager who has made a fortune in wealth creation for himself and his investors. He has a net worth of $115 Billion Dollars. The secret of his success lies not only his brilliant investment decisions, but also his money saving and spending habits. Today, we will cover 8 Money habits Warren Buffett suggests which is keeping you broke and poor.

Habit 1: Not having Budget

Budgeting is one of the most fundamental money habit one should have. Without a proper budget, one will not be able to manage their cashflows and will not be able to track their day-to-day expenditure.

Without a proper budget, one is at a high risk of overspending on items one may not need and can be indulged in impulsive purchases.

Examples of such impulsive purchases can be purchasing something just because of sale or a huge discount, purchasing items which their friends are purchasing and are tempted to buy without proper need or just to show-off.

Introduction of “ Heavy Discount” is a marketing hack sellers use to sell their items and it can be deceptive. One can think that they are saving money, however in reality they might be purchasing an item they might have not purchased altogether. Building a budget can save you from such impulsive purchases and ensure your hard-earned money is invested for better tomorrow.

Creating a budget is the first step toward understanding your financial landscape. It allows you to allocate your money purposefully and track your spending patterns.

Habit 2: Lack of Emergency Savings

Financial journey starts with building emergency fund or emergency savings. Emergency fund is a fund one creates with a special purpose of using the fund in case one is stuck in emergency and are unable to fund the same.

Emergencies can occur anytime, without any prior intimation, so funding such situations can be tough if emergency funds is not created.

Job security in 21st century is at the all time low and one is always at the risk of unemployment, if one does not have adequate emergency fund then he will not be able to survive in such high inflationary environment.

It is advised, to accumulate at least 3 to 6 months’ worth of living expenses as emergency fund to be the safety net in-case one has to face emergencies such as Job loss, medical emergency etc.

Having an emergency fund can prevent you from being trapped into debt trap and provide you with peace if mind and financial stability.

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Habit 3: Lack of Passive Income

Passive Income means and income which is generated by not actively working for the same.Some examples of passive incomes are Rental Income, Dividend income, Royalties, Business income etc.

Warren Buffett once said, “If you aren’t making money while you sleep, you will work until the day you die.”

In the above statement, he is advising his followers to not solely depend on traditional 9 to 5 Job but to work hard and start a passion project or business which can generate income and cashflow in a long term.

Passive income generates positive cashflow, without active involvement and there one can focus on generating more passive income streams which will help him in his journey of financial success. One should note that, at initial stage of generating passive income stream, one has to dedicate a lot of time and money to get things started.

Habit 4: Keeping up with the Joneses

Keeping up with the Joneses is a phrase used when one try to match their lifestyle and expenditure with their neighbours, friends or family. This habit or tendency to match lifestyle with others can be financially destructive and can affect your financial journey. One should always focus on his financial goals and consider his household income before spending beyond his means just to mimic the lives of others.

Example of such habit can be buying new car, big house and spending heavily on weekends just because others are involved in these spendings. To break from this financial trap, it is important to shift your focus away from pleasing others and direct your energy, time and money to achieve your personal objectives.

Habit 5: Making Impulse Purchases

Impulse Purchases are purchases which are done in the heat of the moment without prior planning, research, or comparison. Impulse Purchases are unplanned in nature and are linked to sudden desire, emotional attachment, external influence etc.

Such Impulse Purchases can result in sudden spike of excitement, happiness or give sense of achievement.

Impulse Purchases are often result of a sudden huge discount pitched by the sales person which can result in overspending and can often break your budget. We can provide you with a list of tips to avoid Impulse Purchases-

List : You should make a list of items you need before shopping.

Budget : You should create and stick to the budget for any purchase ( As discussed in Habit 1 )

Control Emotions : You should avoid shopping when you are emotionally running high.

Slow down : You should take your time when making a purchase decision. You can also delay buying an item if you’re uncertain about its necessity.

Impulse purchases may bring short-term gratification and joy, but this can leave you with long-term financial troubles. Avoiding them is essential to maintaining financial stability.

Habit 6: Not Diversifying

The term diversification means spreading your investments into various asset classes. Warren Buffett promotes diversification of portfolio and marks it as a key strategy to mitigate risks in investment and income sources.

He advised to not reply on single asset class for returns and cashflow to cover your expenses but to spread your investments in wide variety of assets.

Diversification involves spreading your investments and income across different asset classes, industries, and geographical regions. This strategy helps you to offset any losses or downturn experienced in any particular area or asset class with gains in another sector, this will reduce overall risk in the portfolio.

Asset classes can be Stocks, Bonds, Real estate, Cryptocurrencies etc. Diversifying investments not only minimizes risk but also maximizes the potential for long-term financial growth.

Habit 7: Lacking a Financial Planning

Financial Planning is a roadmap or a guide your financial decisions and achieve financial goals. One should always prepare a financial plan so you can focus on you goal and will not be distracted with distractions. Without a proper financial plan, you at the risk of making impulsive purchase decisions or bad money decisions which will keep you in a state of financial instability.

A financial plan usually includes a clear financial goal for yourself and your family. It does include creating a defined budget, investment decisions, savings and emergency fund creation, tracking your expenses etc. Financial planning is an ongoing process and one needs to make necessary adjustments with respect to income variations and responsibilities.

According to Schwab’s 2021 Modern Wealth Survey, 2 out 3 American adults do not have a written financial plan.

Habit 8: Not planning Taxes

Paying taxes is a very crucial part of being a responsible citizen and supporting the infrastructure and growth of a nation, however one should do a proper tax planning in advance in-order to save their taxes.

However, there are many methods one can legally reduce their tax payable liability, inorder to do so one needs to do proper tax planning in advance.

Many individuals find themselves unhappy as they fail to plan tax liability and end up paying high amount of taxes which they might have reduced with proper tax planning. While avoiding tax payable altogether is neither possible nor legal, there are legitimate strategies to reduce your tax burden. Below are some ways one can reduce their tax liability.