Warren Buffet is a successful investor and one of the wealthiest people on the globe. How did he achieve such wealth? He was a savvy investor and jumped into investing and business at a young age. Mr. Buffet’s father was a stockbroker and Warren made his first investment at the age of 11 and had his first business at 13. However, for the average Joe or Joelyn, let’s face it, the stock market is nothing but a legal gambling game – especially these days. On the other hand, this is not the only way Mr. Buffet built his bank account. He is cheap, ur, um, I mean frugal. What’s the point?
Many Americans want to be entrepreneurs. Unfortunately, staring a business can be expensive. There are star-up costs and profitability may not come for a year or two. Therefore, the entrepreneur must have money to live on and if the entrepreneur has a family…well let’s just say, more than one entrepreneur has wound up in divorce court over money issues. There seems to be a trend for older Americans to become entrepreneurs. They might have an advantage in that, if they’ve been smart, they’ve saved and invested their money and have the shekels to fund their own business. Younger entrepreneurs may not have such an advantage. Yet, older Americans, who have not done a good job at managing the money they’ve earned throughout life, may also be at a disadvantage. So back to Buffet, how did he do it?
Even today, he still watches his pennies. According to Bio.True History, he might take a colleague to lunch at McDonald’s, he doesn’t drink alcohol (Mr. Buffet would rather have the cash), and he drinks Pepsi because he says there is more liquid in the bottle than Coke. As stated above, we Americans call people like Mr. Buffet cheap and we are not ones to live within our means. Calvin Coolidge our 30th President stated “There is no dignity quite so impressive, and no one independence quite so important, as living within your means.” You see, over a lifetime we do make quite a bit of money. Depending on which source you research, the average income for Americans is around $32K to $50K annually. Take that and multiply it by say 40 years of an average career and you have quite a tidy sum. Even adjusting for living expenses, if we lived within our means, as Mr. Coolidge suggests, saved and invested our money, we would have enough to weather any storm and fund a business venture. The more education one has, the more money one earns in a lifetime. However, even a high school dropout makes just over $1M in a lifetime. If you have already started a business, here are some ideas on how not to be part of the statistical businesses that fail within the first five years.
- Pay yourself first. Always pay yourself and save, save, save. Find a good investment house and invest. Remember, never put all your eggs in one basket.
- Don’t try to keep up with the Joneses There will always be someone richer and someone poorer than you are.
- Rent or purchase used equipment. This is a practice used frequently in the restaurant business. Never pay full price.
- Track and measure everything. This means keep a budget and be aware of how much being in business is costing you.
- Invest in a good CPA who ensures that you leverage every tax advantage
- Be careful how you expand and grow your business. Too fast and you will only wind up in more debt. Too slow and you will lose valuable revenues. Knowing when and when not to take risks is critical to your business growth.
As a CEO, you must always manage the balance between prudence and risk. There are many events out of our control including such incidents as global politics, acts of nature and regulatory laws. However, we are always in control of our finances. It does not matter how educated you might be, your birth circumstances or whether your IQ leans towards brilliant or average, you have control of how you manage your personal income and your business revenues. Remember this simple formula, be disciplined, diversified and debt free. Print it out and put it up where you will see it every day.
Graphic: Big Stock