10: Warren Buffett's Golden Rule, and How Frugal Entrepreneurs Can Apply It

In episode 10 of The Frugal entrepreneurs podcast, you're going to learn about Warren Buffett's Golden Rule, which is:
" Rule number 1: never lose money. Rule number 2: never forget rule number one".

You'll learn 5 ways to apply this concept as an entrepreneur.

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Episode Transcript

Speaker 1 (00:00):
Welcome to the Frugal Entrepreneurs podcast. I'm your host, Miles,
and this is episode ten and I took a break
for a while, but I decided that I'm going to
try going forward again. And what better way to kick
off restarting the show than by talking about war and
Buffets Golden Rule and how frugal entrepreneurs can apply it.

(00:25):
Because I don't know about you, but I am a
pretty big fan of Warren Buffett, So let's talk about
one of his greatest quotes of all time, which is
rule number one, never lose money. Rule number two, never
forget Rule number one. This is a quote with an
exceptionally clear meaning to me at least, that tends to

(00:46):
be forgotten by many modern investors and entrepreneurs. And the
meaning is simple, be radically intentional about spending, preserve your capital,
and play long games with your money. I think about
this quote almost daily as a frugal entrepreneur because it's
so powerful yet so easy to understand and apply. Here

(01:08):
are five ways you can apply the Golden Rule as
a frugal entrepreneur. One think like an investor and not
a spender. Warren Buffett prefers to allocate capital. Instead of
spending money, focused frugal entrepreneurs do the same thing. Instead
of asking can I afford this, you can ask what

(01:28):
will this return? Whether it's your software or advertising or
hiring help, every dollar needs to have a measurable purpose.
If it doesn't move the needle in your business, it's
not an investment, it's an expense, and that means you're
losing money. So, as an action step, before any purchase,

(01:48):
write down your expected ROI, which your return on investment,
and if you can't find one, skip it. Now. Let's
move to number two, which is to avoid hidden losses.
You often won't even realize you're losing money, and this
is what we can call silent losses, like subscriptions you

(02:09):
don't use, advertisements that don't convert, projects that eat time
but never ship, and clients that drain energy but don't
pay well. And these are all examples of slow leaks
that sink businesses. So as an action step, you can
audit your expenses and your time every quarter ask yourself

(02:33):
what's actually giving me an advantage and a return on
my investment? Then cut the rest with ruthless intent. Three
is to build a margin of safety. Warren Buffett loves
the concept of a margin of safety, which is a
cushion between you and disaster in your business or investments.

(02:55):
For entrepreneurs, this means keep cash reserves like three to
six months of expenses, don't go all in on one
client or product, and test small and validate before scaling big.
And remember, being frugal does not mean you're being cheap.
It means you're staying in the game long enough to
win and being radically intentional with your spending. So as

(03:19):
an action step, if a big opportunity could wipe you
out if it fails, then scale it down and test
it first. Validation is everything, and then iteration is what
keeps you moving forward in business and helps you adapt. Four.
Value preservation is greater than flashy growth. Warren Buffett doesn't

(03:43):
chase hyped up meme stocks or trendy investments. Instead, he
plays the long game and focuses on his strategy that
has always worked for him. Frugal entrepreneurs can learn from this.
Don't focus on growing fast, focus on growing sustainably. Which
makes me think of the quote I learned from Tim Ferriss,

(04:03):
which is slow is smooth and smooth is fast. At
the end of the day, it's better to have slow,
consistent cash flow than rapid growth that crashes and burns.
As a next action step, this is more of something
to think about, which is focus on repeat customers, slash

(04:26):
recurring revenue subscriptions, long term relationships, and assets that protect
your income when things get rough. And number five, Last,
but not least, remember every dollar you do not lose
is a dollar you do not have to earn. This
is something that most entrepreneurs know but rarely talk about
or apply, which is the fact that avoiding losses has

(04:47):
the same impact on your bottom line as making more money.
If you save one thousand dollars a month in unnecessary costs,
that's like adding twelve thousand dollars a year to your
profits without working harder. Some people call this reverse passive income,
which has become one of my favorite financial terms. So
for final thoughts, now you know how to apply Warren

(05:09):
Buffet's two rules, which form one golden rule. Warren Buffett's
quote is about disciplined, intentional investing, and as entrepreneurs, we
can apply it by staying frugal, lean and focused. Frugal
entrepreneurs who live by rule number one and rule number
two thrive in business. So the next time you're about

(05:32):
to spend, invest or expand, ask yourself, will this help
me keep rule number one? Because, as Warren Buffett will
remind you, rule number one never lose money, and rule
number two never forget Rule number one. Thank you so
much for listening to the Frugal Entrepreneurs podcast. Check out

(05:55):
Frugal entrepreneurs dot com for more resources and subscribe up
to the show. Follow the show, break the show. All
that jazz I appreciate it. You're awesome. Have a fantastic day.