INVESTING RULES OF BUFFETT, OUTSIDE INVESTING

One of the most famous sentences by Warren Buffett is the rule number one in investing is don't lose money. And the rule number two is don't forget rule number one. And why am I mentioning this? Because first of all, I think it's very important to remember this rule if you are investing. Many times people focus so much on earning money and gaining money from the stock market, for example, that they completely forget about not losing. And sometimes it's even more important. And today I want to discuss this concept not specifically in relationship to the stock market, but to a more general application, that is how you manage your finance. Because many times what happens is this. You have a salary. Let's say, for example, you earn 40,000. I don't know, the currency is not important, depends where you live. But let's say 40,000 as an example. And maybe you spend 30,000 because you know, for your living expenses, for your rental, for your car, whatever it is, you manage to save 10,000 out of 40, so you spend only 30. Now what happens, for example, if you get a promotion, you get a pay raise? Well, for many people what happens is that they start to spend more and unfortunately even more than what they were spending before. In proportion, that means you can save less. So I give you an example. Before you were earning 40 and then you spent 30, right? So you can save 10. Maybe now you are earning 60, but you are spending 55. Why? Because you get a pay raise, right? You get a huge increase of the pay raise. So you think you deserve to improve your lifestyle. That's the main focus, the lifestyle. Not saving more, but spending more. So now the question I have for you is this. If you consider these two situation. Number one, you earn 40 and then you can save 10 because you spent 30, right? And number two, after the pay raise, you earn 60, but you spend 55 because you are saving only 5. Which one is more wealthy? And the answer is the first one. So times and again, when you progress with your career and then you are earning more, the mistake is to spend more and more and not in a proportional way. So eventually you are not becoming more wealthy, you are just accumulating a lot of liabilities. You are buying a new house and a new car. And then when something happens, when there is a bad event affecting your life or your career, whatever it is, then you realize that you don't have enough money to deal with that because you spend the majority in car upgrading your lifestyle, because that was the real objective, right? That was the most important thing. So by doing that Effectively, what were you doing when you were, as Warren Buffett said, losing money. So what is a better way to deal with that? Because it's, I think, very natural of individual that when we get, for example, this kind of pay raise that I mentioned in the example, you feel excited and then you feel that you deserve. And actually it's true, you deserve to some extent to upgrade your lifestyle. Problem is that humans often, they are not so good in that. So we exaggerate, we overextend this concept, and eventually we end up in a worse situation than before. So I want to give you a very, very simple technique that you can use because, you know, there are two extremes. The number one extreme is whatever I earn more, I spend, that is not good. The other one is whatever I earn more, I just save it. That is also not good because your lifestyle should somehow improve if you improve your situation. Otherwise you may feel like, oh, I'm just saving, just saving. And then you don't. You are really getting any tangible benefit for your effort. So a better way is in the mid. What does it mean? You just take your spending and then you adjust them proportionally to the increase. So if you are earning, let's say 10% more, then, okay, you are allowed to spend 10% more on your basic necessity. You increase by 10% the amount you save. You increase by 10% the money that you spend for your entertainment. So everything will be scaled up proportional. So this way you will have a benefit in your saving, a benefit in your spending, a benefit in your entertainment, and you will feel much more accomplished. Because now the upgrade of your situation will upgrade every aspect of your life. It's not just entertainment, but everything. So to do that, what you can do is you can first keep track of your expenses, okay? So keep track of how much you spend for your basic necessity, how much you spend for your entertainment. And then I also suggest you to keep track of something else, like charity, that is important. Because what we give will come back to us magnified and then how much you are saving. And when you have these numbers and then you set these numbers, then it will be much easier for you to know how much more you can spend when you have an increase of salary or when you get some more. For example, you get lucky, you win a lottery, who knows? So this way you will know exactly what to do, how to do it, how much to spend. And most important, you will not feel bad about spending money. Because now if I know that I can spend this amount of money for my entertainment, I will not look at this nice car or whatever it is that I want to buy and keep wondering, oh, did I spend too much or no? No. I know that with my current situation, I can afford to spend that amount of money for entertainment, that amount of money for basic necessity, that amount of money for charity and so on. So again, what is the point here? Not wasting money is not just a concept that applies to the stock market, but this principle from Warren Buffett can really help us improve every aspect of our life. Because I tell you, if you open your wardrobe, I'm sure you will find so many kind of clothes and trousers and jackets that you bought, but you never use and that is waste money. So in order not to waste money, you need to manage your money in a smart way. And if you do that, you will also better off on your investing journey. See you next time.