Warren Buffett, the CEO of Berkshire Hathaway, is one of the richest people in the world with a net worth of over $98 billion. While it may seem his wealth came easy, Buffett’s frugal habits and financial practices paved the path to his prosperity.
By emulating some of Buffett’s money habits, you too can position yourself for financial success instead of falling victim to the bad habits that keep most people broke and poor.
In this article, we’ll cover the top 10 money habits that lead to lifelong financial struggles, and what lessons you can learn from Buffett’s habits.
Not Forming Healthy Money Habits
Perhaps the number one reason people stay poor is that they don’t form good financial habits from the start. Without discipline in spending and budgeting, it’s easy to overspend and fall into debt.
As Warren Buffett said, “The chains of habit are too light to be felt until they are too heavy to be broken.” It’s best to focus on building healthy money habits early while breaking poor ones.
To develop healthy financial habits:
- Track where your money goes each month
- Create a budget to curb overspending
- Invest intelligently by putting money into assets like stocks
- Reinvest profits back into quality assets
Establishing these simple yet effective habits from the beginning will pay dividends over your lifetime.
Not Having a Budget
Going hand-in-hand with habit formation is budgeting. Without a budget to dictate spending, money can easily slip through your fingers on non-essentials.
Buffett warns against spending 100% of your income, saying it “leads to all kinds of problems.” To avoid this, you must start monitoring expenses and sticking to a detailed budget. This will keep you aware of spending patterns so you can make wiser money choices.
Lack of Emergency Savings
Another reason people stay poor is having no rainy day fund for emergencies. As Buffett said, “If you don’t find a way to make money while you sleep, you will work until you die.”
Emergency savings provide a financial safety net in case anything unexpected happens. Without this buffer, you’re far more prone to end up in debt from surprise expenses or job loss.
Aim to save 3-6 months’ worth of living expenses so you have backup funds in the event of a crisis. Even small contributions of $5-10 per week will grow your rainy day fund over time.
Keeping Up With the Joneses
Trying to keep up with friends, neighbors, and the Instagram lifestyle is a surefire way to overspend. As Buffett said, “Keep up with the Joneses who are living within their means.”
To stop this habit, focus on your own financial goals rather than comparing yourself to others. Save and invest money consistently, and live below your means. With time, you will be the one others aspire to emulate.
Not Tracking Your Spending
Not knowing where your money goes is a path to financial disaster. You must be aware of spending habits and patterns to make any positive changes.
Buffett suggests keeping a simple ledger to track all expenses so you always know where your money goes. This may seem tedious but is necessary to gain control over your finances.
Once you start tracking spending, you can pinpoint areas needing improvement and make budget changes to save more.
Making Impulse Purchases
Impulse buys are a big money habit that keeps people poor. When you buy things spontaneously without consideration, the costs add up quick.
To curb impulse spending:
- Make a shopping list beforehand
- Set a budget for the trip and stick to it
- Avoid shopping when sad, stressed or angry
- Take time before deciding on a purchase
Creating this mental pause will help reduce regrettable impulse buys.
Not Diversifying Your Investments
Buffett stresses the importance of diversification saying it protects against ignorance. When you diversify, you spread investments across assets, industries, and regions.
This balances your portfolio, reducing risk. Having all money tied up in one place leaves you vulnerable. To stay financially stable, be sure to diversify your holdings.
Lacking a Financial Plan
Most Americans don’t have a financial plan, which can lead to poor money decisions. Without clear goals and plans, it’s easy to make rash choices about major expenses that create debt.
To get ahead, make financial goals for you and your family. Then create a realistic budget and savings plan to pursue them. Consider working with a financial advisor to help develop a strategy.
Paying Lots of Taxes
No one likes paying taxes, but they’re necessary to fund public services. Some people try avoiding them, but this often backfires.
Strategies to sensibly reduce tax expenses include:
- Contributing to tax-advantaged accounts like a 401k or IRA
- Itemizing deductions for things like mortgage interest
- Claiming applicable tax credits
- Setting up a payment plan if you owe back taxes
The key is being proactive about taxes to minimize expenses while still paying your fair share.
Inflating Your Lifestyle
When you spend more than you make, you live beyond your means and risk going into debt. Lifestyle inflation erodes purchasing power too.
Avoid lifestyle creep by:
- Capping spending increases as income rises
- Following the 50/30/20 rule: 50% on necessities, 30% on wants, 20% on savings/investing
- Monitoring lifestyle expenses as your salary grows
In summary, Warren Buffett’s frugal habits and financial practices led to his vast wealth. Avoiding these 10 detrimental money behaviors can help you achieve similar financial success.
The key lessons are: prioritize habit formation, budget diligently, save for emergencies, ignore comparisons, track expenses, avoid impulse buys, diversify investments, make financial plans, minimize taxes sensibly, and control lifestyle inflation.
Embracing these positive money habits will go a long way towards building your wealth and avoiding lifelong financial struggles. What money habit will you focus on improving first?