Warren Buffett is one of the world's greatest investors, and his advice about finances, life and wealth-building is excellent. I'm going to write about three of his best pieces of advice that can help build wealth in the coming years, even for 30-year-olds with no savings.
One of the most frugal elements of Warren Buffett's life is that he has lived in the same house for many decades. However, "live in the same house for 40 years" may not be useful advice these days for people in their 30s — or anyone else for that matter.
Let's get into some of the investing legend's advice that can really help people grow wealth.
Spend less than you earn
To even get started with investing in ASX shares, investors need money. To have money, investors need to get a wage or make a profit with their own business.
Making an income is one thing, but then we need to make sure our personal expenditure is less than that, so we can make some savings to invest.
As reported by my colleague Sebastian Bowen, Warren Buffett recently said:
You should spend a little bit less than you earn. And you can spend a little bit more than you earn. [But] then you've got debt and the chances are you'll never get out of debt… I'll make an exception in terms of a mortgage on your house.
Being able to invest regularly is a great start to becoming wealthy for a 30-year-old (or people of any age).
If a 30-year-old were able to save $1,000 a month and invest it in the share market, it'd grow into $1.18 million if the portfolio grew by an average of 10% per annum.
Price is what you pay, value is what you get
Cheaper isn't necessarily better. A cheap pair of shoes may be cheaper to buy, but in the long run, they're not good value if they fall apart after six or nine months of use. Whereas a good quality, more expensive pair might feel more comfortable and last longer.
We can make a similar point about cars. I'm not necessarily looking to get the cheapest car, I want one that rates well for safety and hopefully has reliable parts that don't need regularly changing.
I think it's a similar thing when it comes to investing in ASX shares. We don't necessarily need to go for the cheapest investment to do well. It's typically the quality businesses that can keep doing well, and that's worth paying up for.
Investors may prefer exchange-traded funds (ETFs) focused on quality businesses. These provide bonus diversification, too. They include VanEck MSCI International Quality ETF (ASX: QUAL) and Vaneck Morningstar Wide Moat ETF (ASX: MOAT).
Favourite holding period is forever
Compounding is a very powerful force. It can help build wealth over the long term as interest earns interest, rather than us needing to keep adding larger sums of money to achieve growth.
Warren Buffett has previously said that his favourite holding period is forever. That doesn't mean holding every single investment forever. Buffett's company Berkshire Hathaway has sold plenty of holdings in the past.
If we can hold a quality holding forever, it means that the capital growth can compound on itself, and we avoid handing tax over unnecessarily to the Australian Tax Office if we don't trigger capital tax gains events.
There aren't many ASX shares I think are contenders worth holding forever, but two in my portfolio that I'm planning to own for the decades ahead include Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Brickworks Limited (ASX: BKW).
