Most of us assume that becoming entrepreneurs is our best chance at becoming millionaires. This could be because we are continually bombarded with pictures of multi-millionaires who built businesses from the ground up. Furthermore, we are constantly led to believe that anyone with the right idea and enough hard work will become successful.
However, the path to making your first million and joining the “million dollar club” is not for everyone, despite the fact that the number of Malaysians with at least US$1 million (RM4.6 million) in wealth is expected to nearly double from over 85,000 in 2022 to 164,0839 in 2027, according to the latest report from property consultancy Knight Frank.[1]
In order to become a millionaire and become financially secure enough to retire, we not only need to create a plan for what we need to do now, but we also need to visualize these four words: Think like Warren Buffett.
Here are the four hard-and-fast Buffett rules to live by if you dream of making millions.
- Pay your savings first
According to Buffett, you should “pay yourself first” by putting a portion of your funds away first.
Too often, many entrepreneurs invest everything they have got into the company they founded but then something goes wrong somewhere down the line and the business closes down.
Frankly speaking, the people who are the most financially secured are the ones you would not expect. They are ordinary people who practiced financial discipline and did not wait to save and invest. Instead they calculated how much they would need to cover their needs each month, use the smallest share of their funds to invest and put the rest of their savings away for retirement.
- Be careful when splurging on brands
Consider buying lightly used cars, as Buffett suggests.
It is also best to choose a house and location that will allow you to easily resell it or use it as a permanent or part-time rental for extra revenue. You may also consider living in a modest home and occasionally renting a luxury home for a family holiday or a vacation with friends.
Besides that, it is also advisable to allocate only 20% of your income or investment revenue to “the three “f’s'”: food, fashion, and fun. However, living on a conservative income is never a justification to downgrade yourself. You should not become so casual and lax that how you show up contradicts the quality of the standards you uphold.
- Be careful about taking out loans
“If you buy things you don’t need, you will soon sell things you need,” Buffett said.
Credit cards can be the biggest potential waste of earnings and savings. If you follow Buffett’s lead, you should use cash most of the time. However, if you choose to use credit cards, then learn how to optimize your usage to maintain a good credit score and remain eligible for maximum credit when needed while paying the least amount of interest (or none).
- Be even more careful about investing with borrowed money
Buffett also cautions against borrowing money to invest in securities like stocks and bonds.
A possible exception to the avoidance of credit, however, is an interesting detail Buffett delivered to investment advisor Adiel Gorel in the form of a personal note.
Following an MSNBC interview in 2012, Gorel shared Buffett’s opinion about the wisdom of purchasing or refinancing homes on the fixed-rate 30-year mortgages.
Interestingly, a fixed-rate loan on a single-family home has the advantage of allowing inflation to make your loan payment and balance an increasingly good deal over time, as inflation allows borrowers to repay lenders with money worth less than when it was borrowed, which benefits borrowers. Furthermore, the rent your tenant pays contributes to the monthly repayment of the loan principle.
Summary
While it is a human tendency to upgrade your lifestyle with bigger homes, luxury cars, and multiple vacations in a year, remember that the more you spend, the longer it will take to make your first $1 million. So, take a cue from Buffett and minimize your expenses while seeking opportunities to save, invest, and earn from compound interest.
[1] https://www.malaymail.com/news/malaysia/2023/05/30/by-2027-malaysias-dollar-millionaires-will-double-to-164839/71710
