How many entrepreneurs possess the same level of confidence now as they did before the onset of the Covid-19 pandemic? Undoubtedly, we are aware that a significant portion of the S&P 500 comprises companies that originated during challenging economic periods.
Furthermore, the most adept entrepreneurs naturally seize challenging times as opportunities to engage more deeply with their market and clientele, introducing innovations where necessary, thus fortifying their businesses to an unprecedented degree.
However, the current landscape appears distinct for numerous individuals. The anticipated outcomes that many, if not the majority, were striving for have experienced delays or undergone complete transformation. Unforeseen shifts have occurred in consumer behavior. Employees have also undergone changes, and the very foundations of employment have undergone significant shifts.
Given this context, does the potential to achieve financial stability for retirement still exist? From my vantage point, it undeniably does, albeit possibly through unconventional approaches compared to your initial expectations. I hold the belief that we can formulate a roadmap for our current actions in just four words: Emulate Warren Buffett‘s mindset.
That’s the essence of it. However, when I convey this notion, understand that I’m referencing a mindset rather than solely praising the individual. Pay keen attention to the principles that Buffett has outlined across various mediums (spoiler alert: the fourth principle was shared with financial advisor Adiel Gorel, the creator and host of PBS specials like “Remote Control Retirement Riches” and “Life 2.0,” in the form of a personal note).
These principles have remained steadfast for decades and have gained even greater significance amidst our ongoing economic challenges shaped by politics and the pandemic.
1. Prioritize Allocating Funds to Your Savings Initially
Buffett’s insights underscore the wisdom of “putting yourself first” by setting aside a portion of your funds early on. Many business owners invest heavily in their startups, hoping for a profitable exit. Yet, this can lead to financial troubles, especially if repeated.
An experienced acquaintance who owned 29 companies pre-pandemic humorously noted that entrepreneurs often talk big but often face financial struggles.
Surprisingly, the financially secure aren’t always the expected ones. It’s those who exercised financial caution. They prioritized saving and investing from the start, not waiting for ideal conditions or business exits.
With guidance or solo, they calculated retirement needs and saved early (sometimes in less accessible accounts). They covered necessities, allocating only a fraction to indulgences or risky ventures.
These principles were consistent. For instance, a teen acquaintance works part-time not for splurges but to build her retirement fund. Another entrepreneur I know faced homelessness but, in high school, bought gold coins after braces, honoring family teachings.
Now in his mid-60s, retired 14 years, he founded and exited businesses, always saving in gold, stocks, real estate, and more. This underlines the power of early financial prudence.
2. Exercise Caution When Indulging in Extravagant Purchases From Well-Known Brands
Taking the case of Buffett as an example, contemplate the option of acquiring your vehicles, whether luxurious or not, in gently used condition.
When deciding on the purchase of an upscale residence, opt for a house and location that possess the potential for easy resale or can function as a permanent or part-time rental, providing supplementary income and potential tax advantages. Alternatively, you might explore the possibility of owning a modest home for everyday living and occasionally renting a luxury property for family vacations or getaways with friends.
An astute advisor I’m acquainted with recommends dedicating just 20% of your income or investment returns to the “three ‘f’s'”: food, fashion, and entertainment.
However, my business partner, Lauren Solomon, an expert in professional image consulting, is quick to point out to her clients that adopting a remote work arrangement or managing a conservative income shouldn’t serve as a rationale for neglecting the concept of “managing yourself as a brand.” You shouldn’t allow yourself to become so casual and complacent that your outward appearance contradicts the standards of quality you uphold.
Even casual attire can be used strategically to project a harmonious visual impression. As she often emphasizes, “You can’t expect others to invest in you if your appearance suggests you haven’t invested in yourself.”
Here’s a valuable perspective to adopt when contemplating luxury brands: Whenever you decide to indulge, approach the acquisition as a type of investment. Assess whether the quality and style possess a timeless and enduring essence. Could it be an item that remains adaptable and relevant in your wardrobe even two decades or more into the future?
3. Exercise Caution When Considering the Option of Borrowing Money
Buffett has frequently emphasized, “If you acquire unnecessary items, you’ll eventually need to part with essential possessions.” Credit cards can lead to significant financial inefficiency. If you choose to emulate Buffett’s approach, you primarily transact in cash.
However, if you opt for card usage, familiarize yourself with strategies that enable you to make the most of your credit utilization, maintaining a strong credit score and ensuring eligibility for maximum credit when necessary, all while minimizing interest payments or avoiding them altogether.
4. Exercise Heightened Caution When Considering Investments Using Borrowed Funds
Buffett consistently warns against using borrowed money for securities investing. However, there’s a fascinating exception he shared with investment advisor Adiel Gorel in a personal note.
In 2012, Gorel discussed how Buffett praised using fixed-rate 30-year mortgages for homes – a common U.S. practice. This benefits from inflation’s impact on loan repayment value while using tenant rent to cut the loan amount.
Buffett saw them responding to Gorel’s offer to facilitate a big purchase. In his note, Buffett mentioned needing around $10 billion for Berkshire to be involved.
While no major home acquisition happened, Gorel emphasizes how individual investors can gain from owning 1-2 investment properties with low-interest 30-year mortgages, leveraging the current sub-4% rates. This strategy is a smart way to use debt for retirement goals.
Other saving and investing rules exist, but I recommend following advice from experts like Buffett. These principles can greatly benefit us all, especially now.
In the post-pandemic era, entrepreneurs must adapt. S&P 500’s history shows success during adversity. Lessons from Warren Buffett offer financial stability, caution in spending, and strategic borrowing for investment. These principles endure amidst evolving economic challenges.