Billionaire Warren Buffet came up with many effective strategies that got him to where he is today. As a quick recap, Warren Buffet is the chairman and CEO of Berkshire Hathaway, a successful investor, entrepreneur, philanthropist, and speaker. He’s also worth $85 billion USD.
Perhaps most infamous of all of his business and life strategies is the 5/25 strategy. This has helped him and countless others prioritize their time, energy, focus, and money.
Today, we’ll use Warren Buffet’s 5/25 strategy to figure out your financial priorities.
Figure out your financial priorities: Warren Buffet’s 5/25 strategy
First of all, what is Warren Buffet’s 5/25 strategy?
It’s a simple three-step process to help you focus in on what’s most important to accomplish right now and in the future. Or in our case, today, we’ll use it to figure out your financial priorities.
Step one: Write down your top 25 financial priorities.
When it comes to figuring out your financial priorities, the first step is to write it all down. Just as Warren Buffet gets his followers to write down their top life goals and business priorities. Here are some examples of 25 financial priorities:
- Pay off my student loans
- Get out of credit card debt
- Get a 10% raise
- Set aside +10% of income for emergency savings
- Save to buy a house
- Set aside money for retirement
- Purchase monthly healthcare
- Start saving for kid’s education
- Save for an annual trip
- Make $75,000 a year
- Open a tax-free savings account
- Start investing savings
- Establish a passive income stream
- Freelance to make a side income
- Consolidate debt to lower interest rate
- Get out of debt in the next 12 months
- Get a lower interest rate credit card
- Create a joint account for monthly bills
- Connect with a financial planner
- Learn more about finance and investments
- Pay off more of my mortgage
- Create a budget and plan to get out of debt
- Cash flow: Spend less and/or earn more
- Increase investment performance
- File my tax returns
Step two: Circle your top 5 financial priorities
Understanding that you have 25 financial priorities (or life goals) is good, but nothing will ever get done if you have that many items on your list. What your financial situation is will affect your top five priorities.
For example, MoneySense’s contributing editor Bruce Sellery established a Maslow’s Hierarchy of Needs for financial priorities. At the bottom of the hierarchy are the essentials, such as cash flow, or making sure that your income exceeds how much you’re spending. The next level is debt, or getting out of debt and finding a way to stop paying such high-interest payments and so on. Higher on the pyramid is savings, taxes, investments, and finally, optimizing returns.
Based on where you’re at in MoneySense’s Maslow’s Hierarchy of Needs, circle your top five priorities. For example, if spending exceeds your income and you’re in debt, those related items should be circled.
Step three: Focus only on those top 5 financial priorities—and forget the rest
Let’s say that you’ve circled:
- Pay off my student loans
- Get a 10% raise
- Freelance to make a side income
- Consolidate debt to lower interest rate
- Get out of debt in the next 12 months
According to Warren Buffet’s 5/25 strategy, those are the only financial priorities you should focus on. Raise your income to be more than your spending and get out of debt. Focus all of your time and energy on those goals and then, once you’ve accomplished them, do this all again.
You may just find that you’ve moved up in Maslow’s Hierarchy of Needs to be focused on savings and ways to use tax-free savings accounts to increase how much passive income you’re making.
