Charlie Munger is best known as the second-in-command behind Warren Buffett at Berkshire Hathaway. He's also a world-class billionaire investor in his own right, capable of similar market-trouncing results as Buffett himself.
As a successful investor and all around nice guy, Munger often shares his investing wisdom with those who care to listen. Paying attention to what he says and acting upon his best advice should help you make yourself financially comfortable - maybe even rich.
With that in mind, here are some of his most pertinent words of wisdom for those who want to invest.
The No-Brainer Secret to Getting Rich
If you're looking to do more with your money than just stick it in a CD or savings account, perhaps the most important Munger quote of all time is this one:
"Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer."
Because you need to spend less than you earn in order to properly invest, and because investing defers your ability to spend money from today to sometime in the future, even lousy investing beats not investing at all.
Following Munger's advice throughout your career is just about the closest thing you'll find to a guaranteed way for you to wind up financially comfortable during your retirement.
The Key Financial Lesson for Those Not Yet Able to Invest
For those not yet able to regularly sock away cash for their futures, Munger has these words of wisdom:
"Once you get into debt, it's hell to get out. Don't let credit card debt carry over. You can't get ahead paying 18 percent."
Once again, Munger is absolutely correct. He and his partner Buffett may be among a handful of investors in the world with a legitimate chance of outrunning credit card debt with investment earnings. We mere mortals don't have a prayer.
The long-run returns from investing in stocks is somewhere around the 8 percent to 10 percent annualized range - and even that isn't guaranteed. When compared to the 13 percent or more interest rates that typical credit cards charge, the importance of always paying off that credit card bill -- and the futility of trying to beat that rate investing - becomes abundantly clear.
The most important instructions for those who do invest
Finally, for those who are ready to invest, Munger has two critically important pieces of advice. The first:
"The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash-flow than you are paying for. Move only when you have an advantage."
And Munger's second key piece of investing advice:
"There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn't awash in cash -- and I don't want to go back."
Taken together, they form the foundation of the value-investing strategy that made Munger and his partner Buffett two of the richest people on the planet. In essence, Munger's advice boils down to:
- Figure out why a company has a right to win (its staying quality/competitive advantage)
- Determine what that company is worth (the discounted future cash flow)
- Pay less than that amount to buy it, and
- It's a better idea to hold on to cash than to invest your money poorly.
- It's a pretty straightforward strategy, but it's the one that made Munger the billionaire he is today.
These Words of Wisdom Work in Good Times and Bad
Those straightforward bits of timeless advice from Charlie Munger contain the keys that will let anyone able to follow them throughout a career wind up comfortable, if not downright rich. Yet while his advice can work wonders, life does have a way of throwing us curve balls. Jobs get lost, health is not always with us, cars get wrecked, and roofs leak.
Don't let those curve balls dissuade you: Following Munger's advice gets you in a better position to hit them when they come flying past. For instance, it's a lot easier to deal with the costs of a wrecked car if you've got a pile of cash awaiting investment than if you're already in a hole from carrying credit card debt.
Even if you're not yet ready to invest, structuring your financial life around Munger's advice can set you up for success once you're able to get started.
We all want to get out of debt but it can seem like a long and hard road to financial freedom. In reality, it is not difficult as long as you follow a few steps and remain dedicated to the cause. This is a list of ten tips to help you find your financial freedom.
10. Face Facts
Before you go any further, you need to sit down and work out exactly what you owe, to whom you owe it, and what interest rate you are paying. This information will be very helpful with the rest of these tips. It is very easy to think of all of our debts as small payments each pay, but when you add them all up they can amount to a massive debt. This can be a very scary task but unfortunately it must be done. If you need to, get a friend or family member to sit down with you to help you go through old bank statements to make sure you miss nothing out. The good news is that once you have done this, the hard part is over. You have faced the debt and now it is time to kill it.
9. Stop Spending
Be satisfied with what you have. For the next few months you are not going to be able to spend money on treats. It is very important to be able to resist all of those wonderful things that we all want to have. If you are always wanting to buy new things, you are going to find it very hard to stick to the tips in this list and that can lead to failure and, even worse, more debt, unless you can start being satisfied with what you have. Chances are, shopping is what got you in to this predicament in the first place, so nip it in the bud now. You absolutely must stop acquiring new debt.
8. Increase Your Income
While this is not always possible, you should certainly try to increase your income (even if by only a small amount). The more money you have to put on debt, the faster you will eradicate it. You can take a part time job at a supermarket, at a fast food restaurant, or even just offering to do odd jobs around the neighbourhood. There are a huge variety of part time jobs available in all manner of areas.
7. Pay Yourself
It is very important that you give yourself enough money to spend each pay cycle. If you try to skimp in this area, you will break your budget and undo all of the good work you have achieved. This is not to say that you should not be trying to reduce expenses, which is also very important. When working out your “play” money, be sure to include everything you might normally spend money on. If you leave something off you can put the whole budget out of whack.
6. Stop Saving
Until you are out of debt, stop saving. In fact, if you have savings put aside, you should immediately transfer the full amount on to your debts. Your savings account will be making you far less interest than the money you will save by reducing debt at high interest. Here is a very basic example:
Savings @ 5% : £10,000 (Total interest earned in one year: £500)
Credit Card @ 21% : £10,000 (total cost of debt for one year: £2,100)
By putting your £10,000 on to your debt, you are saving £2,100 in interest charges at the expense of £500. It would be utterly foolish to leave your money in the savings account.
5. Consolidation Loans
Unless you have managed to get so deeply into debt that you can’t make minimum payments on all of your loans and cards, you should definitely not get a consolidation loan. If you are in such a bad state that you simply can’t afford your debts, a consolidation loan may be the only choice you have short of bankruptcy. Make sure you shop around and get the lowest rate possible. You should also try to keep the term down as it will become a part of your debt budget and you want to clear your debts as soon as possible.
4. Reduce Expenses
Frugal living can be very rewarding. Not only do you save money, but you learn a lot about survival and taking care of yourself. There are some very simple ways you can reduce expenses. For example, perhaps you go out on the town twice a week – reduce it to one night and have the other night in – you can still enjoy yourself but you won’t be paying bar prices for liquor. If you always buy brand goods at the market, start buying generic – you can save a lot of money doing this. You should also consider buying in bulk as bulk buying is almost always cheaper. Keep your eyes out for good deals and coupons. While this may seem like a difficult step, you will eventually find that you prefer to live like this because of the many rewards that come from exercising your brain in seeking out ways to reduce spending. A very beneficial side-effect to this (which I have personally experienced) is that you can dramatically reduce the amount of trash you produce by buying only what you need and buying in bulk. This can be looked at like a game. When I was following this plan, I found myself trying every week to reduce the amount of money I was spending. The less I spent, the better I lived (as a result of home cooking and pride in my efforts). Do not buy pre-packaged or prepared meals – you are paying a lot of money for nothing. You should also be aware that certain meats, like chicken, can go up in price dramatically when you buy skinned and boneless. It does not take much time to do this yourself.
3. Credit Cards
Credit cards can be as good a tool to get out of debt as they were to get you into debt in the first place. If you have a credit card with a low interest rate that is not maxed out, consider moving a higher interest debt (or as much of it as you can) to the card. The interest savings may seem low, but every penny counts. If you have maxed your cards out, the first thing you need to do is cut them up. You will not be using credit cards on this plan (and if you absolutely need one for important internet purchases, get a pre-paid credit card).
2. Budget
First of all, this budget will include all of your income and all of your expenses, but, it will not include any of your debts – they will go on your special debt budget. In this budget you should list your total income, your total outgoings, and your total surplus. As a part of this budget you should also include your required spending money. It is imperative that you stick to this budget – it is your lifeline. If you are not honest when creating it, you will find the whole thing collapses within one or two pay cycles. Include every expense.
1. Make a Debt Budget
This is different from your regular budget. Your regular budget will tell you how much money you have left after all other expenses have been paid, the debt budget will tell you what you owe and how much to pay on each debt. Transfer the total surplus from your budget to the debt budget. This is the most important money you have – it is the money that will give you financial freedom. Next you need to itemize all of your debts in order of highest interest paid to lowest interest paid. Pay the minimum amount required on all but the highest interest debt – this is the only time you should be paying minimum payments. Keep doing this until you remove the high interest debt entirely. Once this is done, put 100% of the money you were spending on that debt to the debt with the next highest interest; keep doing this until you have paid all of your debts off. This creates a snowball effect and you will be amazed at how quickly your debt is reduced. It is one of the best motivators for people working on debt reduction. You should remember to do this in conjunction with no.3 (transfer highest interest debts to lowest interest debts where possible).
Once you have paid all of your debts off, start putting the full amount of your debt payment money into savings and investments. You were already living without the money – why not keep doing so and save it for something special.
Logbook loans
In a nutshell, logbook loans are loans secured against your car. Certain companies will lend to anyone who owns a car and won't carry out credit checks. These companies lend you a percentage of the trade value of your vehicle.
The lender will keep hold of the original documents associated with your car, including the V5 registration document (the 'logbook'), the MOT certificate and the insurance certificate.
You'll also have to sign a credit agreement and 'bill of sale', which will temporarily transfer car ownership to the lender. So this means the lender can take possession of your car if you can't meet your repayments - and your car will be sold at auction.
All of the money from the sale will go to the lender and you will still have to pay any difference between the sale price and the value of the loan.
To make things even more difficult, you'll be whacked with a whopping interest rate!
This is a really expensive way to borrow money and although it can seem like a quick and easy way to get some extra cash, don't do it. Logbook loan companies aren't regulated by the Financial Conduct Authority (FCA) – and they're not under any obligation to comply with the FCA's fair customer treatment guidelines.
Payday loans
Payday loans are cash advances on the salary you're expecting at the end of the month. Again, these can be tempting if you need cash in a hurry as it doesn't take long to apply. And again, no credit checks are carried out.
Typically, you can borrow up to £1,000, although some lenders will only allow you to borrow up to £750. Most lenders will charge you around £25 for each £100 you borrow – which can soon add up. If you borrowed £500, for example, you'd end up paying back £625. And that's providing you pay it off in the first month!
Lenders have made it ever so easy for you to simply 'defer' your repayment – in other words, postpone repaying your loan for a second month or more. And all the while, the costs are stacking up.
Again, the APR for these loans is astronomically high – in some cases, as high as 68,300%!
Loan sharks
A loan shark is simply anyone who illegally lends money and doesn't have a licence from the Office of Fair Trading (OFT).
So if someone promises to lend you all the money you want, no matter what, and doesn't carry out a credit check, steer clear. If you do borrow from a loan shark, it's unlikely you'll be given any paperwork so it will be difficult to keep track of exactly how much you owe.
What's more, you'll be charged an eye-watering interest rate and the loan shark could add extra charges whenever he/she decides to.
If you struggle to make your repayments on time, loan sharks tend to resort to violence and threats as a way of ensuring they get their money. You may even be pressurised into borrowing more money to help pay off the initial debt.
Pawnbrokers
Pawnbrokers allow you to borrow money, while you leave something valuable behind as security. You'll need to sign a credit agreement and you'll be given a receipt to prove you own the item. No credit checks will be carried out.
Once again, you'll be charged a hefty rate of interest on the loan and you risk losing your 'security' if you can't repay the money.
Credit card cash advances
Withdrawing cash from your credit card at an ATM is also a big no-no.
If you do this, you'll be charged a withdrawal fee of around 3%, with a typical minimum charge of £2-£3. Not only this, but you'll then be charged an eye-popping rate of interest – usually around 30%-35%.
And unlike purchases, there's no interest free period for cash advances so you'll be charged from day one. Eek!
Unauthorised overdrafts
An unauthorised overdraft is when you either go over your overdraft limit or fall into the red without agreement with your bank. This can quickly spiral out of control, with daily changes and other fees quickly mounting up.
Courtesy of Lovemoney.com
1. Create a Personal Expense Account
Open a current account just for household expenses, but avoid accounts with a monthly fee. Next, figure out roughly how much your monthly expenses—everything from electricity to entertainment—are, and put that exact amount into this expense account from your salary. Put the rest of your salary into your savings account and let it accumulate until you need it.
Not only have you just taken the guesswork out of saving, but you've also created a budget without the hassle of doing a monthly line-by-line accounting of what you've spent. If you have £100 left in your current account at the end of the first month, put the extra £100 into your savings account. If you have nothing left, cut back on expenses the following month.
2. Take a Salary Cut
The cash you don't see every month can only help you. You want to put as much of your gross salary into your works pension as is reasonable, especially if your employer matches your contributions. There are numerous tax benefits to this to list in one post. Needless to say, don't put less than 10 percent of your salary into your pension plan each month. Because of the tax benefits, your take-home pay will drop by much less than this. That seems like a lot, but trust me, you'll never miss it. And in 10 years, you'll be giddy every time your pension statement arrives. If you're under 30, put all your money in stocks. At 30 onward, start dripping this into cash, bonds, and other safe investments.
3. Become a Predator in These Unpredictable Times
During downturns or unpredictable times, emotions like guilt or fear can prevent you from making wise purchases. Are you thinking about making an offer on a foreclosure, or buying some cheap furniture or jewelry off Craigslist from a guy who's down on his luck? The herd would call you a vulture, but you're buying from a willing seller—not taking advantage of him. That guy (and even that bank) is just trying to make a clean start. So shrug off the stigma. The economy will thank you.
4. Hold Steady
For people who are a decade or more away from retirement, investing in the stock market has proved to be the best way to grow wealth. But most investors can't match the market's performance. Why? Because sell-offs freak them out. They tend to sell on the dips and then miss out on the climbs.
The market may feel like a yo-yo if you follow it day to day. But imagine that a boy is playing with that yo-yo as he climbs a steep hill. That metaphor best captures how the market has performed over the years, says Ric Edelman, the author of The Truth About Money. The gains have tended to be longer—and larger—than the dips. Edelman's koan: "Focus on the hill, not the string." In other words, stiffen your spine and keep buying through those dips. That's the only way to make the most of the climb.
5. Keep Your Perspective
You can't predict much in these times, but you can bet your last pound on two things: First, the economy soars and plunges, and second, nothing rises in price endlessly. The only people who seem to remember these truths and act on them—that is, those who can overcome the recency effect—have a lot of experience. People who've been in the game long enough, whether it's real estate or anything else, have seen the cycles and had the chance to curb their overconfidence.
So seek financial advice from people who not only are impartial (that is, not trying to sell you anything) but have also been there and done that—two or three times. That means working with financial planners, estate agents, and other professionals who have been in business 15 years or longer. With their help, you'll see the future.
As a buy-to-let property investor, rental income is the lifeblood of your investment - here are seven ways you can increase your investments income:
1. Keep it fresh, clean and neutral
If a lettings agent has provided a disappointing rental valuation for your property you may be able to improve it by redecorating in neutral tones. Good old magnolia paint is available in great-value bulk buy tubs. Add interest and an ‘interior design’ look with wallpaper on one feature wall.
2. Let fully or part furnished
If there is a demand for fully furnished properties in your area you may be able to capitalise on this by adding furniture to your property.
Even if they are not going to be included in the tenancy agreement, stylish accessories and attractive bedding from Sainsbury’s can help create a desirable image for your property for photographs and viewings.
3. Invest in your kitchen and bathroom
According to the latest poll by estate agency group Spicerhaart, the kitchen and bathroom are the most important areas in the homes in which to invest.
If your budget won’t stretch to a new kitchen or bathroom, you could consider replacing the unit doors or updating old tiles for a relatively cheap transformation.
4. Create a low-maintenance garden
Few tenants are interested in spending a lot of time maintaining a garden so provide a pleasant outdoor area that requires little mowing or weeding, to maximise your property’s appeal. Reduce or replace your lawn area with paving slabs and gravel, while maintaining greenness with shrubs in borders.
5. Review your rent on a regular basis
Set yourself periodic reminders to check your rent against others in the area. If the average rate has been increasing, you will be able to increase yours accordingly.
6. Charge for late payments
Add a clause to your tenancy agreement to provide for a charge for late payment of rent to increase your income from late payers, rather than wasting time and money chasing them.
7. Fill void periods
Many landlords consider void periods a fact of life but effective management can help to keep the time your property is empty to a minimum. As soon as a tenant provides notice that they will be leaving, begin contacting past potential tenants who have made enquiries and don’t waste any time before advertising.
1) Own your own home
Home ownership helps you build wealth in at least two ways. First, real estate is an asset with a healthy long term track record. Second, mortgage payments usually help you build equity and are therefore a form of forced savings.
2) Set goals, prioritize and focus
I figured out in the first year of my relationship that if you set goals, prioritize and focus your financial goals are far more likely to be achieved. I’ll repeat this. If you set goals, prioritize and focus, you WILL achieve your financial goals.
3) Invest in stocks
Over the long run, owners come out ahead under our system of democratic capitalism. To get maximum return on your money, you have to have some exposure to common stocks. Why? Making money on the appreciation and on the dividends will help improve your bottom line.
4) Don’t spend more than you earn
This is a no-brainer. If you have £100, but rack up debts of £500 on your credit card, then you’re in the red. Doing this over the long term is a recipe for bankruptcy. But if you got £100 and only spend £80, then your bank account is healthy and you’ll be happier, more in control if your life and better prepared to take whatever financial challenges come at you.
5) Pay off high interest debt
Usury sucks. Many credit card companies are usurious and attempt to engineer you into an agreement whereby your borrowing terms are stacked in favor of credit card companies. Other lenders like payday loan companies do essentially the same thing. In some of the arrangements, the borrower will be forced to pay upwards of 200% or 300% interest on their loans. If you’ve got high interest credit card debt or payday loans, pay them off immediately. Bite the bullet, sell some stuff, beg, do what you have to, but pay these types of obligations off immediately.
“People who succeed have momentum. The more they succeed, the more they want to succeed, and the more they find a way to succeed. Similarly, when someone is failing, the tendency is to get on a downward spiral that can even become a self-fulfilling prophecy.” Tony Robbins
“Live as if you were to die tomorrow. Learn as if you were to live forever.” Mahatma Gandhi
“The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack of will.” Vince Lombardi
“Really it comes down to your philosophy. Do you want to play it safe and be good or do you want to take a chance and be great?” Jimmy J
“You have to learn the rules of the game. And then you have to play better than anyone else.” Albert Einstein
“Every great dream begins with a dreamer. Always remember, you have within you the strength, the patience, and the passion to reach for the stars to change the world.” Harriet Tubman
“If you don’t design your own life plan, chances are you’ll fall into someone else’s plan. And guess what they have planned for you? Not much.” Jim Rohn
“If you genuinely want something, don’t wait for it – teach yourself to be impatient.” Gurbaksh Chahal
“If you want to make a permanent change, stop focusing on the size of your problems and start focusing on the size of you!” T. Harv Eker
“You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something – your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.” Steve Jobs
