Why you should live frugally

Buffett bought a house in 1958, and believe it or not, he still lives there. With his net worth of approximately 125 billion US dollars, one could say he does not have to penny-pinch anymore. Still, Buffett chooses to continue living relatively frugally. For breakfast, if he’s feeling adventurous, he’ll indulge in a bacon, egg and cheese biscuit sandwich for $3.89. If the market is down, he could spend $3.19 on a sausage, egg and cheese sandwich. On a particularly awful day, he purchases two sausage patties for $2.38, assembles them and then washes them down with a Coca-Cola he pours himself. “You can’t buy health, and you can’t buy love,” Buffett once said. In addition, if he told you you’d have a car, any type you wanted tomorrow and delivered to your doorstep, you’d be happy. What if this was the only car you had to drive for the rest of your life? Buffett argues you’d be very careful with it, referring to being born with only one mind and one body. To a certain extent, Buffett has said that money is immaterial, as he would not think twice about giving away a percentage of his money for years.

Believe in the power of compound interest

Einstein has famously mentioned that compound interest is the eighth wonder of the world and claimed that anyone who could understand it could earn it. As the name implies, compound interest is interest calculated on a loan or deposit based on the initial principal and the accrued interest from previous periods. In simpler terms, interest earned helps increase your initial value by leaving it exposed to interest, which creates a year-over-year snowball effect that increases your wealth exponentially. Buffett has always used time in his favor and has grown massive wealth, but apart from sheer time in the market, Buffett also possessed a great sense for finding value stocks based on his value investing approach, which seems to be impossible for the average Joe. Buffett is also a great believer in buying index funds and believes that if you stick to a schedule and buy an ETF monthly, you’ll wake up with a lot of money someday. Finally, Buffett has said that it is great to start as young as possible or get as old as possible, claiming that a long-term approach is fit for growing your wealth.

Time in the market beats timing the market

Buffett likes to remind himself of most financial crashes by keeping newspaper articles about crashes in his office. Buffett, who owns Berkshire Hathaway, is known for his perspective on the concept of time in the market. It is impossible for ordinary people and, frankly, anyone, to predict which way the market will swing short-term since news may come in that suddenly causes a downswing and evaporates your investments. However, if you manage to control your emotions and hold the course steadily, you’d likely see impressive results over more extended periods. As a massive contributor to value investing, Buffett believes that regardless of price swings, a company should be bought without consideration of the price. If you like a company at $100 and the price falls to $50, and the fundamentals didn’t change, why would you sell it? You liked it at $100, right?