How to invest like Warren Buffett
Warren Buffet started investing at age 11.
But most adults have no idea how money works. 9 essential financial concepts everyone should know:
1. There are 3 things you can do with money:
• Spend it
• Save it
• Invest it
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2. Inflation:
Saving money doesn’t help you get rich ― it only helps you get poor slowly. Why? Inflation ― the increase in the cost of goods and services over time. Increase in prices means that $1 today buys less than it did yesterday, 1 years ago, 10 years ago, and so on. $17 in 2023 have the same purchasing as $1 in 1923! ________
3. Compound interest:
Large outcomes are often the result of small gains in performance compounding over the course of years and decades. Small improvements may look tiny in isolation, but they result in gigantic outcomes when you zoom out. $1000 compounding at 10% only gets you $1,610 after 5 years. But $1000 compounding at 10% for 50 years gets you $117,000! ________
4. The 2 types of economic assets:
• Depreciating assets:
things that drop in value over time ― cars, clothes, TVs and so on.
• Appreciating assets: things that increase in value over time ― real estate, gold, stocks and so on. ________
5. Liquidity:
The ease with which you can turn an asset into cash. Illiquid assets include houses, machinery, stock options etc. Liquid assets include cash, stocks, gold etc. Illiquid assets help you get rich, but you need liquid assets like cash to pay your bills. ________
6. Needs vs wants:
These are the 2 ways to spend your money. Needs include: food, housing, healthcare and a few other necessities. But wants are potentially limitless ― everything from a bag of candy to a private mansion. Learn to differentiate between the 2.
7. Budgeting
You can’t learn how to be responsible with your money if you don’t know where it’s going. Learn to: • Keep a log of everything you spend money on in a week. • Understand where you could have spent less. • Repeat this weekly to make it a habit.
8. Debt and credit:
These can help you buy something when you don’t have the money for it – like a car or a house. But be careful: • Debt comes with the added cost of interest. • You can be in a lot of trouble if you fail to pay back your debts. ________
9. Taxes:
Everything you earn and spend comes with an added cost: taxes. From income tax to sales tax and property tax ― you should know that things always cost significantly more than the sticker price.
