How to Invest Like Warren Buffett

Warren Buffett is perpetually one of the richest people in the world and almost universally considered to be the greatest stock picker the world has ever known.

While you might not ever be worth $50 billion, you can certainly learn a thing or two from "The Oracle" and greatly increase your wealth over the long-term.

Though Mr. Buffet has never officially written down his process for evaluating and choosing stocks, there is a lot that can be learned from his letters to his shareholders.

These rules are in line with those shareholder letters:

1. Rule #1: Don't lose money. Warren's basic philosophy is to purchase a stock for less than it's worth and then let the rest of the world finally figure it out, too. This is commonly referred to as value investing and has been the corner stone of his philosophy from the very beginning.

* In fact, the rest of the rules are really rules to find these companies.

2. The company must have strong profitability. Buffet prefers companies that are already profitable as opposed to companies that are likely to someday become profitable. There are several measures he utilizes to determine this. Some of these include Return on Equity (ROE), Return on Invested Capital (ROIC), and the profit margins.

* ROE - While no one knows for sure, the general consensus is that he wants to see an ROE of 15% or more.

* Profit Margins - In this case, we're talking about dividing net income by net sales. Obviously, the higher the better.

3. The company must have low debt. Too much debt is bad for everyone, including companies. In case you thought we skipped ROIC above, we're getting back to it now. Sometimes a company will appear to have a high ROE, but the number is actually artificially inflated. This can happen when the company is using debt to pay its bills. This is where ROIC comes into play.

* ROIC removes debt from the calculation by adding it back to the shareholder equity prior to completing the ROE calculation. You can simply divide the company's total liabilities by the shareholder equity. The higher the ratio is, the more a company is using debt to grow the company. Be careful.

* Companies with a lot of debt can be harmed when either interest rates rise or credit becomes harder to acquire.

4. The company must have competent management. Buffett has always placed a lot of emphasis on a company's management team. He favors intelligent, humble management that doesn't simply follow the crowd. He has stated that his company simply allocates capital; it does not provide management.

* He has traditionally stayed out of influencing a company's management, but he insists that good management be present. Ensure the companies you invest in are being run by a competent management team.

5. Comprehension. Buffet refuses to invest in a business that he doesn't understand. You will find that the businesses in which he invests are relatively simple. He largely avoids the technology companies, because as he has stated, he doesn't really understand that type of business. Only invest in what you are capable of understanding.

6. Be patient. It seems like Buffett has held some stocks since before the dawn of time. He has held many stocks for 5 years or more before the stock ever rose even 1%. Value investing takes time; you're going to have to be patient to see the returns. Don't be in a rush.

While we can't all be Warren Buffett, we can certainly follow his basic principles and improve our own investing results. Focus on under priced companies with a history of profitability, little debt, and a competent management team. And remember to be patient!

If you can do these things consistently, you'll be surprised at the amount of wealth you can gain!

Does Your Spending Reflect Your Priorities?

When most of your money goes toward providing what's most important to you, you tend to live a more fulfilled life and feel more satisfied with the way you spend your money. It's also easier to stick to your personal finance plan when its objectives are to get you what you really want out of life.

Because life priorities can differ drastically from person to person, it's important to be aware of your own personal values.

What do you really want from life? What kind of lifestyle do you seek? What are your life goals? Does your spending reflect those things?

Follow these steps to help determine if your finances are in alignment with your priorities:

1. List your priorities. You might notice different levels of priorities as you write yours down. Things like having a place to live and plenty of food to eat are your basic priorities.

* However, you'll most likely include some "necessary" priorities to ensure a strong future for yourself and your family members, like maintaining good health or providing your kids with a good education.

* Also, list things you love to do that seem more like "luxury" priorities, like reading, traveling or playing golf. These might be on a lower level of priority than your basic priorities, but, nevertheless, they're still important to you, so include these as well.

2. Now, write down how you spend most of your money. Where does it go? Although you may get annoyed that much of your money goes toward the mortgage or paying rent, the fact is that we all require a roof over our heads.

* You might consider the type, size and expense of your home and whether you've gone too far in terms of house expenses. If so, where you live and the mortgage/rent payments might require re-evaluation on your part.

* Maybe a good portion of your dollars goes to other necessary expenses like groceries and paying your utilities. But what else do you spend your money on?

* Do you play slot machines on Saturday for fun and end up losing money? Maybe you love to shop and use shopping as a pastime that ends up costing quite a bit. Perhaps you spend $20 a week on coffee and snacks or $30 a week having drinks with your friends.

* Thoughtfully consider where your money goes from week to week and write it down.

3. Finally, compare your lists. Take a look at your first list, the one with your priorities. Ponder each item; does every item accurately reflect what's important to you? Now examine your second list, the one showing where your money goes. Do the lists appear connected? Does your money go mostly toward your priorities?

* You might be shocked to learn that, even though you listed certain priorities like providing a good education for your children or having a comfortable home, you're spending $100 plus a week on eating out instead of starting an education fund.

* What if you listed reading as one of your priorities, yet you spend nearly $100 a month on cable television you don't watch much? Or if you do, it's the same 3 channels that you'd actually get on a basic cable plan costing less than $40 a month.

* In either case, you've got to ask yourself, "What are my true and real priorities" and "Why aren't I putting my money toward the things that matter most to me?"

Having great clarity in knowing your priorities and being conscious of how you spend your money will help you routinely place money toward what's most important to you. Then, you'll like the way you feel about your finances as funds become available for your favorite things.

Common Real Estate Investing Mistakes

Although real estate may seem like a sure bet for anyone, many investors make the same few mistakes. Eliminate these errors from your investing activities and you'll be well on your way to accumulating the wealth you desire.

Avoid These Mistakes

1. Poor research. Most of us do a lot of research when we plan our vacations or purchase a new television. If you were buying one that was worth 100k, you can bet you'd do even more research! Well, you should be doing that when you purchase a piece of real estate, too.

2. Inadequate financing. Real estate investors frequently like to wheel and deal, and their deals can have a lot of moving parts. Balloon payments, interest-only payments, owner financing, subject-to, and many others are commonplace.

* To make a deal happen, we can get carried away doing everything in our power. Getting a great price doesn't always justify the deal if the financing is inadequate. Are you really sure that you can unload the property or get other financing before that balloon payment comes due?

3. Trying to do everything yourself. Though every real estate investor attempts this at one time or another, you have little chance at success all by yourself. A great investor will have, at a minimum, a real estate agent, attorney, title company, inspector, handyman, and insurance agent - all on speed dial.

* You may not always need them, but they should already be in place, and you shouldn't hesitate to call them if you do want their services. Use your experts to your full advantage.

4. Paying too much. This one is certainly related to doing enough research. Real estate deals primarily sink or swim based on price. If you pay too much, not much can be done to rectify the situation.

* Beginning investors are more likely to mentally fudge the numbers a little bit to make a deal happen. But if the repairs run high, and the price they can sell for is lower than expected, then overpaying in the first place can be disastrous. Do your research and your math and stick to your numbers.

5. Not estimating expenses accurately. This is similar to paying too much. Many investors will look at repairs and think to themselves, "Everyone is saying it will take $20,000 to fix, but I'm sure I can get it done for $14,000." But what if it really takes $23,500? That's part of the reason getting the property at the right price is so important.

* The other aspect of this mistake is not accounting for all expenses. The costs of landscaping, lawn mowing, insurance, utilities, property taxes, and new appliances can really add up in a hurry. Be realistic with your repair planning and take careful notes of all your possible expenses.

Real estate investing is a relatively simple business, but mistakes can create massive challenges in a hurry.

Every seasoned investor has made all of these mistakes. The best investors just make them less often than everyone else. In any housing market, there are moneymaking opportunities, so don't let these mistakes slow you down!

Can You Afford to Miss Your Next Paycheck?

Living hand-to-mouth is never enjoyable. But when the economy is struggling, changing jobs isn't easy, and layoffs seem all too possible, living paycheck to paycheck can feel even scarier. What if your next paycheck didn't come as expected? How long could you get by without it?

Luckily, there are some simple things you can do to better your situation and reduce your financial risk.

Consider implementing these strategies to make your financial situation more secure:

1. Reduce your expenses. No one likes to cut back, but reducing expenses is a really fast way to have more money left over at the end of every month.

* Look at all the things you're spending money on that you don't really need. Do you eat out frequently? Do you have cable television? How many cars do you own?

* Really take some time and think about what you could do without. Maybe moving to a smaller house or apartment would make sense right now. After all, once you have some emergency money set aside, you can always move back to a bigger place.

2. Increase your income. You could do lots of things to earn extra money.

* Consider asking for a raise. It might seem like a bad time to ask your boss for more money, but good employees are always critical to a company's success. Don't underestimate your value.

* A part-time job is another option and, in some situations, this can be a good plan. Maybe you can find some work to do at home in the evenings.

* Even walking the neighbor's dogs, babysitting, mowing lawns or shovelling snow for your elderly neighbors could bring in some extra income on a regular basis.

3. Take responsibility. Although your current situation may very well be someone else's fault, blaming others isn't helpful. Even if your predicament isn't your fault, solving your financial challenges is still your responsibility. After all, who else is going to fix the situation for you?

* Responsibility isn't about fixating on the past or blaming yourself. Instead, it means taking back control of yourself and your situation. And while you can't have power over every little circumstance that pops up, you can always choose to respond effectively.

4. Decide that you and your family deserve better. Circumstances rarely change without a decision being made first. Commit to having to a better financial life, whatever it takes.

* At the end of the day, most people earn what they believe they deserve to earn. Almost undoubtedly, there are many people out there with less intelligence and fewer skills than you who are earning more money than you are. Why is this? Primarily because they believe they deserve to earn more.

* You wouldn't take a job that paid half as much as you're making now, because you believe you deserve to earn more. What if you thought in your heart that you deserved to earn another $25,000 a year? You can be pretty sure that you'd be out there finding a way to get it and you wouldn't stop until you did.

It can be a challenge to stop living paycheck to paycheck, but the solutions are relatively simple. Try implementing the practical tips above to enjoy greater financial security and experience a less stressful, more fulfilling life.

How to Raise Cash Quickly

Unexpected financial situations happen to even the most careful among us. When financial emergencies occur in your life, you may find yourself tempted to go for the easiest ways to raise cash. However, there are usually better ways.

If you can keep your wits about you, money can often be raised in ways that have minimal long-term consequences.

Follow these tips to help you calmly assess the situation and determine which option would be best for you.

Be Certain You Really Need Cash

You might not even need cash if your unexpected expense is relatively small. Maybe you have some gift cards to stores or restaurants that you've forgotten all about. Also, some credit cards have reward programs that frequently go unused. Some of these pay cash and others build points than can be redeemed for merchandise, gift cards, and more.

Quick Money Schemes to Avoid, if Possible

1. Family loans. Borrowing money from family and friends can be a positive or negative experience. Whether or not this is a good option for you really depends on your unique situation.

* Consider the likely outcome if you are unable to pay them back as agreed. In many instances, if such likelihood occurs, it can cause hard feelings for a long time.

2. Payday loans. Some of the worst ways to raise cash are loans that come with very high interest and fees. Payday loans are an easy way to raise money quickly, assuming you're employed. But when you consider the interest and fees associated with these loans, you could easily end up paying them back twice as much as they lent you - or even more!

3. Title loans. Loans that use your car title as collateral are not only very expensive, they are also quite risky. If you can't pay as agreed, you'll lose your vehicle.

4. Cash advances from credit cards. These advances are another expensive way to get your hands on some cash. While credit card purchases don't usually start accruing interest immediately, cash advances do.

Better Options

While still not your best option, you can withdraw money from your retirement account. Here's a loophole you can use to avoid taxes and penalties:

If you transfer your IRA into a new IRA account, you have the option of having the money sent directly to you, on the condition that you deposit the money into a new IRA account within 60 days. If you can replace the money in that time frame, you're getting an interest-free, penalty-free, and tax-free loan. You can only do this once each year.

If an IRA transfer isn't an option for you, you can also sell savings bonds that haven't yet matured. Also consider selling your stamp, coin, or jewelry collection. Keep in mind that if you're going to sell them quickly, you're unlikely to get a good price.

Your Best Choices

1. Sell some liquid investments. Selling items from your non-retirement portfolio is, for many people, the best way to raise some money. First, sell those items that have been stagnant and show no signs of doing anything in the near future.

2. Borrow from your 401k. However, there are penalties and taxes if you fail to pay the money back.

3. Take out a home equity loan. A home equity loan is a viable option for some; just keep in mind that you are putting your house at risk if you can't pay back the loan.

Planning Ahead

Having an emergency fund is critical to negating the effects of financial emergencies. Strive to save 3-6 months of expenses and leave the account alone unless you have an actual emergency. This is the most fundamental step you can take to ensure your financial security.

Avoid letting a challenging situation become even worse by making a hasty decision. First, decide if you really need cash. Maybe a non-cash alternative is available. If this doesn't work for your situation, do some planning before you decide how to proceed. Be sure to thoroughly investigate the fees and interest rates that are associated with your options.

Although unexpected expenses can bring with them tension and high emotions, remember that making a good choice now will result in fewer headaches later. Take as much time as you can to make the best decision for you.

All-Inclusive Vacations Can Save You Money

Most of us carefully plan our vacations to fit our paychecks. Somehow, though, in spite of all of our best intentions, vacations always seem to cost more than we expect. We go each time with a plan in hand, and each time, we come back wondering where all the money went.

Budgeting for the big things like travel and lodging is pretty straight forward. Smaller expenses are usually the cause of unplanned spending. Entertainment, food, and drinks are more difficult to plan well for, since these items can be rather spontaneous in nature.

But you can avoid the overspending and still feel like you're treating yourself well. One possible solution is an all-inclusive vacation. Let's have a look at this type of package, and make this the year when you come back with both happy memories and a few bucks in your wallet.

What's Included

All-inclusive vacations can really help you stay within your budget. You pay a fixed rate for all the essentials. As long as you don't spend money outside the resort, you're all set. If you prefer not to worry about money while vacationing, these types of packages can be ideal.

All-inclusive resorts are really the equivalent of an insurance policy. You pay a set amount in exchange for having access to everything you need, when you need it.

What's Not Included

However, you won't have the same level of freedom. Unless you want to pull out your wallet again, you'll have to confine your food, beverages, and entertainment to the resort. Also, if you decide you don't like the resort you've chosen, you're stuck with what you've got.

Vacationing the more traditional way, you can always check out and head down the street to another hotel if you're not pleased. Only you know how much that flexibility is worth to you.

Also, you've already paid for the package, even if you don't use it. Be sure you're going to get your money's worth. For example, if your idea of vacation is sitting on the beach all day and eating one meal a day, you're going to be paying for a lot more than you're using with an all-inclusive package. In this case, you might be better off with a traditional vacation.

Consider these ideas to minimize your potential risk when booking an all-inclusive resort:

1. Look for amenities that suit you. Consider what you want to eat. Do hotdogs and potato chips sound good to you? Maybe you want a vacation that includes gourmet food in a nice restaurant setting.

* Some less-expensive places will only provide water, soda, and a few more beverages. Do you want to have access to mixed drinks and fine wine? Many resorts will not include alcoholic beverages unless you pay extra.

* Do you enjoy the types of entertainment they offer?

* How is the customer service?

2. Consider the quality of the accommodations. Some resorts are bare bones, while others are extremely plush. Be sure you're getting the best combination of what you can afford and what you want.

3. Do your homework. Researching the quality of the resort is the most important task you can undertake before you book your vacation. In the Internet age, reviews and suggestions are easy to find. Low-quality establishments have a harder time hiding than ever before.

All in all, an all-inclusive package can be a great way to put a cap on your vacation spending. There are no surprises, and you can eat and drink without worrying about budget or about how much money you have left.

Vacations commonly result in overspending, but with an all-inclusive package, you can stay in charge of your finances even as you play. Start doing your research now; an all-inclusive vacation might be just the ticket this year.

7 Steps to Organizing Your Finances

You might not consider yourself to be an organized person, but your finances are the last place you want to be disorganized. Having too little cash at the end of the month is a challenge, but overdraft fees and late fees every month are an even bigger concern. By getting organized you dramatically cut down on the likelihood of these things happening.

Follow these steps and you'll be more organized that you ever thought you could be:

1. Look at your budget every month. Ensure that your budget is accurate. No two months are ever the same, so be sure your budget reflects reality for the upcoming month. For example, electricity bills can be much higher in the summer if you use air conditioning or in the winter if you have the heat turned up.

* If you don't have a budget, make one now! There are an unlimited number of resources available to make the job a lot easier. Budgets are critical. Your budget is your key to having your money work for you!

2. Utilize financial software. Some of the software available now can really help you to get organized, track your spending and bills, and help with budgeting. Many programs are free.

* You might actually find working with your money to be enjoyable when you can use a computer and specialized software. It's a whole different experience than laboring over your hand-written figures on paper.

3. Keep all your bills in one place. Avoid leaving some of them on the kitchen counter, some in the junk drawer, and some on the desk. Having one specific location for all your bills will ensure that nothing gets lost, and it'll also give you the best chance to ensure that everything gets paid on time.

* Store your bills close to where you normally sit and pay them. Keep them out in the open where you can see them regularly.

* When you're done paying them, retain any records you need and shred everything else to protect yourself from identity theft.

4. Pay your bills weekly. Each week, pay any bills that are due in the next couple of weeks. Choose a day and make a habit of paying your bills on that same day each week. Developing good habits is a big part of staying organized.

5. Make a checklist of your bills. This should include all your recurring bills. Then, when the bill arrives, you can note the day it arrived, the amount due, the date it's due, and the day you actually paid it. Any non-recurring bills can be added to the checklist when they arrive.

6. Communicate regularly with anyone who shares your account(s). Whoever pays the bills needs to know what the other person is doing with the account. Develop a system to ensure that the bill payer is kept in the loop at all times.

* Financial matters can be a source of stress in relationships, so work out an effective system before it becomes a challenge.

7. Have two accounts. Mishaps are a lot less likely to happen if you have one account that is only used to pay bills. Use a separate account for everything else.

Getting your finances well organized is a pretty simple task once you set up a system that works for you. Anytime you can eliminate financial clutter in your life, your mental chaos goes down and things seem to go more smoothly as well.

These seven tips will provide a great foundation for your organization effort. Regardless of how you've handled your finances in the past, you can put this plan into action today to make your future financial organizing easy and beneficial.