As perhaps the most successful and famous investor of our time, Mr. Warren Buffett should know a thing or two about money management. When he took over the management of Berkshire Hathaway in 1964 until today, the company has an average growth rate of about 18% per annum. $1,000 invested in 1964 will be worth a staggering $6.4Million today! In comparison, the same amount if invested in an S&P index fund would have grown to about $60,000 in the same period. This speaks volumes about his genius in financial management.
Let’s face it. A lot of us have a very hard time reaching our financial goals and it usually got nothing to do with bad luck. According to Mr Buffet, one of the richest men in the world, there are two simple and costly mistakes most of us make when managing our personal finances.
The first mistake:
We neglect to cultivate the habit of saving money early in life. Yes, saving is a habit that must be cultivated in most of us; it comes naturally to only a few people. But too often, we allow ourselves to fall into the trap of believing that saving can wait until we have more money to spare. This turns out to be a costly mistake as we approach middle age.
My earlier article on “How to do less and have more for retirement” illustrates this point poignantly.
The second mistake:
The second mistake that people make is trying to get rich quickly. One should understand that when it comes to building a fortune, there is really no shortcut to success. The key to wealth accumulation, according to Mr Buffett, is patience. It is usually ‘time in the market’ and not ‘timing of the market’ that creates success in investment. Many people are told that the stock market is useful only so long as you can find the next big company that will double your money in a matter of days and that the best investments are the ones that no one knows about. This is the undoing of most people who want to get rich quick in the stock market. Greed and impatience are the root causes in the failure of money management.
As Mr Buffett says, “It’s pretty easy to get well-to-do slowly, but it’s not easy to get rich quick.” Many financial instruments that promises too-good-to-be-true returns are usually what they are: too good to be true. Wise words indeed from the man who has said his favourite holding period for his stocks are “forever”, contrary to traders who can buy and sell their stock ‘investments’ in less than a day.
Insure yourself, protect others.
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The author of this article is Mr Sean Ong. He is a Certified Life Coach and a Chartered Financial Consultant with more than 14 years of experience in the finance industry. A shareholder with the one of the largest independently-owned financial advisory company in Singapore, Sean also leads a top financial advisory group and has been featured on the local TV and radio. In his efforts to contribute to the society, Sean ran 1,000km over 87 days to successfully raise more than $13,000 for a children charity in Year 2012. He also published a book called “Mend Your Socks!” where sales proceeds were donated to charity. Sean can be contacted at email@example.com.