For one of the richest people in the entire world, Warren Buffett, the CEO of Berkshire Hathaway, is surprisingly down to Earth. He famously lives in the same modest house in Omaha that he bought in 1958 for $31,500, and his favorite meal for breakfast is McDonald’s. Between that and his folksy, easy-to-understand wisdom, it’s no wonder that Buffett is so popular with the general public.
Investors no doubt also love his enviable track record, which has more than doubled the average annual return of the S&P 500 since 1965, an incredible run. The bottom line is that when Buffett talks, people listen.
With that in mind, here are some of the best pieces of financial advice for the middle class offered up by the man known as the “Oracle of Omaha.”
Pay Yourself First
Buffett isn’t the first or the only one to recommend “paying yourself first,” but he’s a vocal advocate of it.
Buffett approaches the problem of prioritizing savings through wise budgeting. As the billionaire puts it: “Do not save what is left after spending, but spend what is left after saving.”
The idea behind this philosophy is that if you wait to sock away savings until after you’ve spent all your money in a given month, it’s highly likely that you’ll find there’s nothing left. But if you instead save your money first, you’ll have to budget what’s left so that it stretches to cover all of your expenses. This serves the dual purpose of forcing you to cut down on needless expenditures, while at the same time forcing you to build up savings, even on a smaller salary.
Some middle class Americans feel that they don’t earn enough to save, but when you flip the equation on its head like Buffett suggests, you might find out that you can save much more than you imagine.
Reduce Your Unnecessary Expenses
On the topic of budgeting, Buffett says that one of the keys to financial prosperity is simply to reduce your unnecessary expenses.
How do you know which ones are unnecessary? If you force yourself to live on a tighter budget, you’ll see right away which expenses you prioritize in life and which ones might be extra costs that you don’t really need. Over time, even a little amount of savings can build into a large amount.
Invest in the S&P 500
It’s true that billionaire investors like Warren Buffett have something of a leg up over the average middle-class American when it comes to picking and choosing good investments. But that doesn’t mean that you don’t have access to wealth-building investments.
The humble S&P 500 index, which can be bought cheaply through an exchange-traded fund by anyone, has a remarkable record of putting even professional money managers to shame. According to Morningstar, the S&P 500 has outperformed the majority of U.S. large-cap fund managers for 14 years in a row. This is why Buffett has been quoted as saying that most investors should just “consistently buy an S&P 500 low-cost index fund. Keep buying it through thick and thin, and especially through thin.”
Avoid Consumer Debt
If you budget properly and spend less than you earn, you should be able to avoid consumer debt. To Buffett, that is an essential piece of advice if you want to get ahead.
Buffett himself says that he has “an American Express card, which I got in 1964. But I pay cash 98% of the time.”
If using cash is one of the tools that has helped Buffett remain wealthy, perhaps it’s good enough for the middle class, also.
Invest in Yourself
In response to a question about “the best investment” at the 2023 Berkshire Hathaway annual meeting, Buffett told his audience, “The best thing you can do is to be exceptionally good at something. Whatever abilities you have can’t be taken away from you. They can’t actually be inflated away from you… So the best investment by far is anything that develops yourself, and it’s not taxed at all.”
Buffet has also been quoted telling students “I would pay you $100,000 for 10% of your earnings for the rest of your life,” further emphasizing the tremendous asset that each person has in the form of their future earnings potential. For this reason, Buffett believes an investment in yourself is the best possible one available.
Live Frugally, Not Miserably
After all of his advice about saving and making tough choices, Buffett still insists that you need to live a balanced, enjoyable life. If you live so frugally that you make your entire life miserable, then what’s the point?
While Buffett endorses focusing on long-term gains rather than short-term goals, he suggests that you balance your life between saving for something and still enjoying the moment.
