Are You As Frugal As Warren Buffett?

Warren Buffett's house in Omaha has always been the focus of intense interest and for good reason. Buffett has earned a reputation as the world's greatest stock investor, and his long-term track record suggests that the title is well deserved.

He was worth $99.4 billion as of Sept. 10, 2022, according to Forbes' real-time billionaire net worth calculator. At age 92, Buffett is still legendarily frugal. He resides in the same house in his hometown of Omaha, Nebraska, that he bought for $31,500 in 1958. But he also had a beach house in California that he bought for $150,000 in 1971. He sold it for $7.5 million, down from an original listing of $11 million, in 2018.

His tastes otherwise are simple and they include McDonald's hamburgers and cherry Coke. His lack of interest in computers and luxury cars is well documented. Underlying Buffett's legendary success is one simple fact: He's a value investor. And that's the hallmark trait of both his professional success and his lifestyle.

Warren Buffett's Omaha House

The home Buffett bought for his family in 1958 for $31,500 is a handsome stone and stucco house on a tree-lined street in the Dundee neighborhood of Omaha. With five bedrooms and 2 1/2 baths, it spans about 6,570 feet. The home's 2023 estimate is $1,44 million. Buffett calls it "the third-best investment I ever made."

By way of contrast, Jeff Bezos, one of Buffett's rivals for richest-guy-in-the-world status, spent $165 million on a sprawling estate in Beverly Hills, California. His goal was to add it to the $10 million spread next door that he already owned.

The richest person in India, Mukesh Ambani, built a 27-floor high-rise as his principal residence. Buffett could afford it, or, for that matter, Buckingham Palace, which is said to be the world's most valuable property estimated at $6.7 billion. Buffett apparently doesn't see the need for 78 bathrooms.

The Ultimate Luxury

Warren Buffett's definition of personal success and luxury was revealed in an interview with CNBC, and it provides some insight into his philosophy. "Success is really doing what you love and doing it well," Buffett said. "It's as simple as that. Really getting to do what you love to do every day—that's really the ultimate luxury. Your standard of living is not equal to your cost of living."

And what Buffett loves to do every day is work at Berkshire Hathaway, the multinational conglomerate that he built from the bones of an ailing cotton fabric manufacturer.

The Trappings of Wealth

Buffett is not an accumulator of toys and other trappings of wealth. He views the maintenance and expenses associated with these things as a burden. It's a view that extends to cellphones and computers.

When CNBC asked him what the one thing was that he believed young people should be doing to be smarter about money, his primary advice was to "stay away from credit cards."

Keeping It Simple

As a value investor, Buffett is always looking for a bargain. Even his second wedding was a simple affair. A man who could have chosen any venue in the world married his second wife, Astrid Menks, in 2006 in Omaha at a private ceremony held at his daughter's house. The ceremony lasted 15 minutes.

An Independent Streak

Warren Buffett loves his job. He often says that nothing is more fun than running Berkshire Hathaway, so he doesn't spend a lot of money on hobbies, relaxation, travel, and other escapes from his day job.

Like many born entrepreneurs, Buffett never had a desire to work for someone else. His ambition was to start his own company rather than complain about the one he was working for. That in itself could be a key to future wealth for like-minded people.

Buffett's Tips on Living Frugally

Now that you understand Buffett's interpretation of frugality, it begs asking what steps you can take to implement these goals in your own life. Buffett has had plenty to say about some habits and patterns that will help you along.

Do You Want It or Do You Need It?

Ask yourself if you really need an item or asset you're on the verge of purchasing or if you just want it. Maybe you think it will add a little flash to your image. Buffett has said that his goal is "not to make people envious." He warns, "Don't confuse the cost of living with the standard of living." Do not live above your means. Buffett recommends living below your means.

Quit Smoking and/or Drinking

This is an extension of the want vs. need equation. Buffett has advised that liquor and tobacco should not be on your "to buy" list. They're expensive, or at least they are if you're not purchasing the cheapest bottle of vino you can find. And who wants to drink that? This isn't just a judgment on how to pursue frugality. Buffett has never smoked or drank and that has no doubt helped him amass a good many years of life that he could put toward making money.

Clip Those Coupons

Now it's time to consider how you're going to pay for that purchase that you've determined you do indeed need. Buffett has advised that you shouldn't be shy about whipping out those coupons you saved and handing them over at the cash register, even if you're in the company of friends. They don't have the right to judge you and you shouldn't be burdened with a need to impress them, particularly because they're not paying for the purchase themselves.

Pay in Cash

Coupons won't save money if you then pay for the purchase with a credit card. Maybe you shaved $10 off the cost of your groceries. You haven't saved $10 if you then swipe your plastic to pay the tab. Now you're giving your credit card lender that money in the form of interest. Paying interest on credit cards probably indicates that you're living beyond your means and you're throwing money away. Both are incompatible with Buffett's philosophy.

Don't Gamble

It can be said that investing is a form of gambling but that's not the case if you do it the way Buffett does. Keep in mind that his motto stresses analysis and research as part of the art of investing wisely. Rolling the dice at a craps table or putting money down on that Kentucky Derby pony is just another way of giving away your hard-earned money.

How to Get Rich

Your next step is to make more money after you've stopped giving it away and wasting it. Buffett has a clear strategy for doing this. "The first rule of investing is don't lose money. The second rule is, don't forget rule number one," he says.

It's a strategy he employs in his personal life as well and it begins by living far below his means. He's not interested in keeping up with the Joneses although, in his case, the Joneses probably have a private island and a jet to get there.

Despite a net worth measured in the billions, Warren Buffett has earned a base salary of just $100,000 a year for more than 25 years at Berkshire Hathaway. His total compensation in 2020 was $380,328.

The Bottom Line

Billionaire status is out of reach for most of us, but that's not the point. You're as far from future wealth as anyone can be if you're letting your entire income slip through your hands in discretionary spending and unnecessary expenses.

As it turns out, people can learn a lot from the Oracle of Omaha, about living well as well as investing wisely.