Warren Buffett's Strategy for Success

By Markets Fool.com

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Warren Buffett, Steve Jobs, and Bill Gates have all said that focus was the most important factor in their success. While it's easy to say that focus is important, a story by Scott Dinsmore of Live Your Legend shows how Buffett put this into practice in his own life. Read on for how you can as well.

Warren Buffett's strategy for success
We haven't been able to independently confirm the story, but it goes like this: Scott met a friend of one of Warren Buffett's pilots, who claimed the following was Warren Buffett's process for pursuing success:

  1. Write down the top 25 things you want to accomplish in the next few years or your lifetime.
  2. Choose the five that are most important to you. This is not supposed to be easy.
  3. Make a list of concrete steps to reach your top five goals.
  4. Make a new list with the remaining 20 items from your top 25. This list is your "avoid at all cost list." No matter what, you must completely ignore these 20 goals until you have accomplished your top five.

Focus in life
It's hard enough to accomplish the top five things you want to do in your lifetime. Too often, people get distracted by work, side projects, and habits that don't help them get closer to their goals. While distractions are bound to arise, you need to constantly refocus to make sure your short-term work and habits are contributing to your long-term goals.

One of my favorite reminders of this comes from Warren Buffett's business partner Charlie Munger, who said, "A majority of life's errors are caused by forgetting what one is really trying to do."

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You need to regularly assess the direction you're moving in to make sure you're heading toward where you want to be. It's also just as important to say no to things that don't help you achieve your long-term goals. While many people in the U.S. are obsessed with productivity and getting more done, never confuse being busy with making progress.

Steve Jobs, Warren Buffett, and James Altucher are all strong proponents of the idea that success in life requires focus, which has more to do with saying no to things than with saying yes.

It works the same way in finance.

Financial focus
To be successful financially, you need not only an investing plan, but also an "avoid at all costs" list.

By " investing plan" I mean a one-page document in which you commit to following a certain path with your investments. If you draft a plan that you understand, you are far more likely to follow it. And defining what you won't do is just as important as defining what you will do. That makes it far easier to filter all the noise and focus on what's important to your strategy.

To prioritize the Buffett way, write down your top 25 financial goals, ranked in order of importance, and then focus on just the top five. For example, here's my list:

  1. Financial freedom: I want my investments to earn enough that I can live off of them and they will still grow.
  2. Good health insurance: I never want to risk my life or finances by going without good health insurance.
  3. A debt-free life
  4. Money to raise a family how I want
  5. The means to pay for my kids' college education so that they don't start out in debt

Here are some goals I need to set aside:

  • Invest in a house
  • Donate significant amounts of my income to causes I care about
  • Buy a car
  • Save money to spend on nice things when I'm feeling down
  • Buy a vacation home
  • Have a new car every three years
  • Buy an engagement ring (diamonds are a racket)
  • Invest in a second home
  • Take an international vacation every quarter
  • Invest in a plane
  • Invest in real estate in a foreign country

These are all other people's examples. The easiest way to hit your top five financial goals and more is to 1) stay focused on them and 2) make more income.

While saving money is nice and can help, you're better off learning how to make more income, rather than going through hardship to save more money from your current income. This is because, no matter how much money you make, you can probably only save 10%-50% of your income each year. However, if you manage to make more money, then you can save more money without having to save a bigger percentage of your income; in other words, you won't feel the increase in your savings.

If you maximize your income, then your savings will compound even faster over time until you achieve financial freedom. The key is not to get distracted by all these other financial goals that people create as they start to make more money.

The path to financial freedom
Creating an "avoid at all costs" list certainly won't be easy. Success is often compromised by urgency; people frequently get discouraged because of how long it takes. The saying goes that people overestimate how much they can do in a year but underestimate how much they can do in 10 years.

By focusing on building your income and investments, you can set yourself on the road to financial freedom for the rest of your life.

Successful investing is simple, but that doesn't mean it's easy. Remember that the future is always uncertain, so there's never an obvious time to invest. But by having a strategy and sticking to it, you're setting yourself up to succeed in an area where most people are mediocre at best.

The article Warren Buffett's Strategy for Success originally appeared on Fool.com.

Dan Dzombak can be found on Twitter @DanDzombak, on his Facebook page DanDzombak, or on his blog. He has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.