There couldn’t have been a better start to Saturday morning than reading Warren Buffet’s 2010 annual letter to shareholders. Although my wife doesn’t endorse this as a perfect start or she might actually hate it because I dropped all the weekend chores for it. However, now that I have resumed the chores by taking my car for a wash, I have some time to reflect on Buffet’s letter and write this blog. As always there is plenty of wisdom in his letter but there is one thing that stood out for me – financial prudence and his grandfather’s letter about savings.
I grew up in a culture of spending. Rich people show off their money by lavishly spending while middle class try to keep pace mostly through borrowing or mortgaging their future earnings and property. The rule is, if you can’t spend, you can’t get into the elite circle. Fortunately or maybe not, I grew up in a well-to-do family that deeply endorsed this culture. I grew up thinking spending on luxury is the way of life. It was only in my under-grad school that I started thinking about money and how to become rich. I was a Curious George looking for a formula for success. As weird as it may sound, but I got my first life-changing advice about money from a stranger on a train. He told me that it is not spending but savings and investments that make you rich. According to him the rule of thumb should be-a bachelor should save 75%, married couple 50%, and couple with kids 25% of their income. The second step is to invest it prudently to grow your asset base. First time in my life, I learned about the other side of the equation-savings! Thanks to that man, I got interested in stocks, property and other investments and was keen to start working to make, save and invest money.
Buffet epitomizes the conventional wisdom of the man I met on the train. He is a testament that one can become the richest man and build one of the most prosperous companies in the world through simple financial prudence. However, I am surprised by how many smart people still don’t get it. No wonder in my hometown, many folks still see only the spending side of the equation and continue to get trapped in debt. If only they could meet the man on the train or read Buffet’s letter. Well, I don’t know the whereabouts of that man but you all can read Buffet’s letter here!