vanguard

5 Surprising Budget Habits of Wealthy Financial Gurus

Damian Davila — Fri, 24 Mar 2017 10:00:10 +0000

"He who will not economize will have to agonize," warned Chinese philosopher Confucius as early as the 5th Century B.C. His advice has survived the test of time and has become the mantra of many individuals in their quest for financial success.

However, you would think that once somebody "makes it," it's time to sit back and "treat yourself." Not so fast! Let's review five wealthy financial gurus who continue to save money in the most surprising ways.

1. Warren Buffett eats McDonald's every day for breakfast

With an estimated net worth of over $78 billion, Warren Buffett can definitely afford to sip mimosas for breakfast without sweating the bill. Still, the Oracle of Omaha revealed in a recent 2017 documentary that he sticks to a daily breakfast budget of no more than $3.17 at Mickey D's.

Buffett usually picks up his breakfast from the drive-thru of a nearby McDonald's on his way to the office. "When I'm not feeling quite so prosperous, I might go with the $2.61, which is two sausage patties, and then I put them together and pour myself a Coke," Buffett deadpans. Coke for breakfast, you ask? Buffett's investment company holds over 9 percent of shares from the drink company.

2. T. Boone Pickens owns a pair of shoes from 1957

Through his success in the oil and gas sector, T. Boone Pickens amassed a fortune over the years and ventured into the financing and investment sectors. In 2012, Pickens ranked #913 on Forbes' list of billionaires. Nowadays, he doesn't rank in that list at all because he has given more than $1 billion away through his philanthropic efforts.

Despite his financial success, the author of The First Billion Is the Hardest uses what he buys until it falls apart, which can be several decades later. "If I want something, I look at it, decide what it is, but it will usually be the best product. I've got a pair of loafers that I still wear that I got in 1957," he disclosed during an interview in 2011.

And it's not just shoes, Pickens limits the size of the pieces on his closet in general. "People are always surprised that I don't have a closet full of suits," Pickens told Kiplinger. "I buy three suits every five or so years and only own 10 total. That's all I need."

3. Mitt Romney hunts for cheap flights

While you may know Mitt Romney mostly for being a former presidential candidate, he is also the co-founder of the private equity firm Bain Capital. Through his work as a management consultant and private equity investor, he has a high net worth — estimated at $230 million by Forbes when he ran for office back in 2012.

Not a stranger to the finer things in life, you would expect Romney to stick only with premium buys. While he has purchased six-figure Warmblood horses, he also loves finding bargains. According to The New York Times, he is obsessed with scoring cheap flights on JetBlue. A longtime adviser to Romney supported that claim by stating that, when asked to change a flight, Romney hesitated and responded, "Well, it's a cheap flight. It's a middle seat, but I got a great JetBlue rate."

4. Jack Bogle eats PB&J sandwiches for lunch

One of the few investors with better returns than Warren Buffett is John "Jack" Bogle, founder and retired CEO of the Vanguard Group. If the Vanguard name sounds familiar, it's most likely because you own one of its low-cost index funds in your retirement or investment account. And you wouldn't be alone: Just the Vanguard 500 Index Investor Shares fund [Nasdaq: VFINX] has $292.36 billion in assets as of February 2017!

As the pioneer of low-cost passively managed index funds, Bogle believes that the key to making it big in investments is to aggressively minimize fees. And he sticks by this belief in life as well. Many publications have recounted that his go-to lunch food is peanut butter and jelly sandwiches. He began bringing a PB&J sandwich and an apple when he first started Vanguard because he refused to pay the prices charged in his own cafeteria. And when he does have to order there, he sticks with a simple grilled cheese sandwich.

5. David Cheriton cuts his own hair

A common daydream of individual investors is to uncover the next Microsoft, Facebook, or Apple, become the first one to invest in that moneymaker, and be set for life. Stanford professor David Cheriton happens to be one of those investors that hit the jackpot when in 1998, he wrote a check for $100,000 to Google founders Larry Page and Sergey Brin. Today, that investment makes up the bulk of his estimated $4.2 billion net worth.

As of 2012, the "Billionaire Professor" had invested over $50 million across 17 startups and companies, and continues to invest. To this day, he continues to plunk down checks in several other companies, such as AISense and ThreatSTOP.

With such an investing pedigree, you would think that he wouldn't mind splurging a bit on a nice haircut once a month. For over three decades, Cheriton prefers to cut his hair himself. "It's not that I can't fathom a haircut," said Cheriton. "It's just easy to do myself, and it takes less time," he confessed to Forbes. Since the professor is adept at making good calls, probably nobody would argue with him on this one.

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Buy Your First Stock(s) or Fund(s)

Matt Bell — Wed, 10 Aug 2016 09:30:35 +0000

So you're ready to start investing. That's great, because it's never too early. The sooner you start investing, the more you'll be able to take advantage of the power of compound interest. Here's how to get started.

Open an Account

In order to invest, you'll need an investment account at a broker such as TD Ameritrade, Schwab, Vanguard, or Fidelity. Prominently displayed on their sites, you'll find "open an account" buttons.

After clicking, you'll have to decide whether to open a taxable account or a tax-advantaged account, such as an IRA. If your purpose for investing is to build a retirement nest egg, you'll probably want to open an IRA. Keep in mind, however, that IRAs have relatively low annual contribution maximums. If you want to invest more than $5,500 per year, a taxable account would be necessary.

After entering some personal information, you'll need to fund the account, usually with an electronic transfer from your checking account.

Of the brokers just mentioned, only TD Ameritrade has no minimum required amount for opening an account. The others require $1,000 to $2,500, although some allow you to open an account with less if you sign up for automatic monthly contributions. At Schwab, the monthly commitment is $100. Shop around to find a broker that best meets your needs.

Choose Your Investment Vehicle

There are two primary types of stock market investments — stocks and mutual funds.

Buying individual stocks probably sounds like a fun way to get started with investing. There's something inherently appealing about the idea of owning a piece of some of the most famous companies in the world, such as Amazon, Facebook, and Apple.

However, while investing in stocks might be exciting, mutual funds have some advantages over stocks. When you buy the stock of one company, your money isn't diversified at all. The performance of your portfolio is completely dependent on the performance of that one company. If the company has a bad year, your portfolio will have a bad year.

However, if you invest in 10 companies and one has a bad year, some of the other ones will likely have good years, which may more than offset the one company's losses. That's why making sure your portfolio is diversified is so important.

In order to be adequately diversified, you would need to buy stock in many companies. But when you're starting out, you probably don't have all that much money to work with — which is why you may want to consider using a mutual fund.

When you buy shares of a mutual fund, your money is inherently diversified. That's because a mutual fund is a pool of money from many investors that the fund manager invests in many companies (there are also bond funds, real estate funds, etc.). Buying a single share of a mutual fund gives you instant diversification.

Decide What to Invest In

One of the easiest ways to invest for your retirement is to choose a target-date mutual fund. With such funds, you just choose the one with the year of your intended retirement in its name (Fidelity Freedom 2040, for example, or Schwab Target 2035). The fund will be designed in a way that the fund manager believes is appropriate for someone with your investment time horizon.

If you're 30 years old and plan to retire when you're 70, you would choose a 2055 fund (most target-date funds are offered in five-year intervals, so you choose the one that's closest to the year of your intended retirement). Such a fund would likely be mostly invested in stocks and a little bit in bonds. As you get older, it will automatically change that investment mix to become appropriately more conservative.

Many mutual fund companies offer such funds. Here are the target-date offerings from Schwab, Fidelity, and Vanguard. TD Ameritrade doesn't have its own mutual funds, but offers target-date funds from several mutual fund companies.

Look for no-transaction-fee (NTF) funds, which means there will not be a fee associated with buying the fund, and be sure to check the fund's minimum required investment amount.

Invest

Now you're ready for action. After logging onto your account, look for a button that says "trade" or "buy and sell." You buy or sell mutual funds in one place, and stocks in another.

To buy a mutual fund, you'll need to look up and then enter its "ticker" symbol — the four- or five-letter abbreviation for the fund's name. Then enter the amount you'd like to invest and click "buy."

Of course, there's more to know about investing and there are many different ways to invest. But this simple tutorial will get you started.

Welcome to the world of investing.

Have you gotten started investing? What are you waiting for?

This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: