From paying down your debt to learning to live below your means, here are Buffett’s rules for achieving true safety in retirement.
Right circle
If you’re always surrounded by friends who are upgrading their cars and going on lavish vacations, you’ll start to feel the need to join in. Before you know it, that pressure will slowly be nibbling away at your retirement fund.
For many people, retirement stability comes down to one easy concept: surround yourself with people who know your budget and will not push you beyond it.
Simple test
“If you can’t explain to a ten-year-old why you own something, you shouldn’t own it,” says Buffett.
Many folks end up buying complicated things they haven’t a clue about, and that’s when the panic sets in during market downturns.
If you can’t understand the reasoning behind your purchase on one piece of paper, then you don’t need that risk. Safety comes from knowing how your money is working for you.
Cheap joy
The biggest expenses in retirement are the ones you don’t plan for.
Everyone slaps on a boredom tax when they retire. They buy things to keep themselves occupied.
Buffett doesn’t have that problem. He loves working. But if you’re retiring, you better love something just as much. Find an inexpensive hobby that you can’t live without.
Digging in the garden, volunteering, reading, whatever you do, just find something. A rich retiree with nothing to do is just waiting to spend money.
Affordable living
Warren Buffett still lives in the same house he purchased back in 1958 because he knows expensive lifestyles are traps.
True retirement safety arrives the moment you no longer need to perform for your money for anyone else.
When your expenses are minimal, the stock market’s fluctuations become irrelevant. You can easily sleep through a market crash.
Owe nothing
For Warren Buffett, debt is an absolute no-go, a steady expense that consumes what you’ll earn later.
You’re not in safe retirement if you still owe money on your house or have credit card debt. And having debt means that you’ll have to pull money from your investments even when the market’s low. There is no better way to become broke than that.
Reaching a debt-free status is the finest form of protection you can get.
Stay in your know
Honestly, just stick to what you’re familiar with. Your circle of competence is more important than most people realize.
When people enter retirement and have extra time on their hands, they often find themselves dabbling in day trading or jumping into businesses they know very little about.
Warren Buffett has frequently pointed out how folks squander years of savings by investing in ventures they’re unfamiliar with.
If you can stick to business you know inside and out, your money is far more likely to grow and stay with you.
The only car
Buffett once challenged students to think about what they would do if they were only given one car for their entire life. The answer: Naturally, you’d treat it with great care, given its irreplaceability. That’s how he relates to our bodies.
Illness is one of the primary causes for Americans dipping into retirement savings. Sky-high medical expenses can wipe out years of diligent saving far quicker than a market slump.
Eating right and exercising can go a long way toward preserving your wealth. After all, what good is your money if your health prevents you from spending it?
Hold still
Warren Buffett claims his favorite holding period is “forever.”
If you panic and sell whenever there’s a crisis in the news, you’ll never have a safe retirement. You must be able to do nothing while everyone else around you is losing their minds.
True security is having the emotional strength to let your investments sit quietly for decades.
Money flow
Buffett knows that stock prices go up and down, so he only looks for investments that pay him to own them.
Your retirement gains security when income streams like dividends, rental income, or even straightforward bonds are enough to cover your daily expenses.
That way, even if the market crashes 30% tomorrow, it doesn’t matter because your everyday life doesn’t depend on the stock market.
Enough line
A lot of folks find themselves flirting with danger unnecessarily. And they’re not doing it because they can’t afford to play it safe, they’re doing it because they never stop wanting more.
Warren Buffett once said something extremely basic yet very powerful. He said, “When you’ve got $1 million and you lose $1 million, it’s OK. But if you don’t have that $1 million and you lose it, that’s not OK.”
Retirement is no longer safe when you gamble money you need for wants. At some point, peace of mind comes when you set a clear goal for yourself and stop trying to go beyond it all the time.
Plan loud
Buffett has no secrets about his will. Arguments amongst relatives can wipe out generations of wealth on legal bills overnight.
Don’t consider your retirement safe until you’ve had “the talk” with your heirs.
Be straightforward about what’s going to happen so inheritance greed won’t destroy your family after you’re gone.
It’s the absolute minimum you owe them and the money you’ve worked so hard for.
Self
It’s about living up to your personal expectations instead of bowing to societal pressure.
If you like what you see in the mirror, it doesn’t matter if you drive a beater or wear off-brand pants.
The truly wealthy know this, but most people live by an outer scorecard.
Sources: Please see here for a complete listing of all sources that were consulted in the preparation of this article.
