4 Smart Money Moves From Warren Buffett's Playbook

The legendary investor is known for his stock picking abilities, but he has given quite a bit of personal finance advice as well.

Warren Buffett, the legendary billionaire investor and CEO of massive conglomerate Berkshire Hathaway, is best known for his time-tested stock picking abilities. However, it might surprise you to learn that Buffett has given quite a lot of personal finance advice over the years, on topics ranging from consumer debt to planning for emergencies.

1. Avoid credit card debt

Buffett is very cautious when it comes to debt. To be sure, Berkshire Hathaway has strategically used debt in its business, but generally at a very low interest rate and when it makes good business sense to do so.

On the personal level, Buffett has been quite vocal about cautioning Americans against taking too much debt. As he says, "If you buy things you do not need, soon you will have to sell things you need."

Credit cards can be excellent financial tools when used properly. Some of the best credit card products offer excellent rewards, and the fraud protection on credit cards is far superior to debit cards, just to name a couple of examples. But if you carry a balance over time, the math just doesn't work. "You can't borrow money at 18% or 20% and come out ahead," Buffett says.

2. Use a mortgage when buying a home (if it makes sense for you)

While Buffett advises against taking on credit card debt and most other kinds, mortgages are a big exception. If you're planning to stay in the same home for a long time (Buffett has lived in his Omaha, Nebraska home since the 1950s), he believes a 30-year fixed-rate mortgage is an excellent tool.

Not only does a mortgage allow you to buy an asset that is likely to increase in value over time, but the cost of the loan itself could potentially go down if market interest rates do. As Buffett puts it, "It's a one-way renegotiation. It is an incredibly attractive instrument for the homeowner and you've got a one-way bet."

In other words, mortgage rates are at about 6.7% as of October 2022. If they were to fall to 4% next year, you could simply refinance and permanently lower your rate. On the other hand, if rates were to climb to 10%, your rate wouldn't go up.

3. Plan for the unexpected

One of my favorite Buffett quotes of all time is, "Only when the tide goes out do you discover who's been swimming naked."

Now, Buffett said this in reference to people using margin to invest and who buy speculative stocks. But it applies equally to personal finance. When times are great, many people don't bother saving for emergencies and accumulate excessive credit card debt. But when the tide turns and a recession hits, people who take cautionary steps like these during the good times are in a much better position to ride out recessions and tough times in their personal lives.

So, even if your career and cash flow situation is excellent right now, it's a smart idea to take a look at your emergency savings and debt levels to see if you're well-prepared for whatever comes next.

4. Invest in yourself

While Buffett is correctly known as one of the best stock pickers of all time, he has said, "The most important investment you can make is in yourself."

For example, many new investors are surprised to learn that Buffett (who is CEO of a $650 billion company) spends most of his days sitting alone and reading in his office. His philosophy is that the more you're willing to learn, the better your life will be. Buffett says, "Read 500 pages like this every day. That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it."

In other words, take the time to learn new things and improve your financial life over the long run instead of always focusing on what's best right now. Read books on financial topics, exercise (Berkshire subsidiary Brooks hosts the "Invest in Yourself" 5k race at the company's annual meeting every year), take care of your health, and the results will be more powerful than any investment you make.