When the world glorifies quick returns and aggressive leverage, Warren Buffet is a pioneer of taking his time to view the long term value in an investment before making a move. His winning wisdom offers a grounding perspective on what truly builds wealth showcasing a stance on patience, prudence, and discipline. While he has never issued a formal rulebook on debt, his decades of shareholder letters, interviews and investment decisions make his position crystal clear: debt, when misused, is wealth’s greatest enemy. Below are seven of his most enduring principles on debt, drawn from his own words and investing legacy.
1. “I’ve seen more people fail because of liquor and leverage.”
Buffett has often emphasised that leverage, which is borrowed money, is one of the fastest ways to financial ruin. Taking on unnecessary debt with a high interest component, especially for consumption or speculation, can create long-term financial fragility. His advice is to live within your means and avoid debt unless absolutely essential. “You really don’t need leverage in this world. If you’re smart, you’re going to make a lot of money without borrowing”, is something he strongly emphasises.
2. “Never risk what you have and need for what you don’t have and don’t need.”
Buffett warns against borrowing to invest in the stock market. While leverage might amplify returns in theory, in practice it increases vulnerability. Market downturns can force borrowers into panic selling or insolvency. He also warns against overspending and urges investors to grow wealth slowly and safely, without betting everything.
3. “The problem with debt is it can be ruinous when things go wrong.”
While debt does have its benefits like lowering tax liability, Buffet believes that in both business and investing, one should steer clear of high-debt companies or companies which are not steady for the long term. He always prioritises long term stability over impulsive purchases. His firm, Berkshire Hathaway, has consistently avoided over-leveraging, preferring cash reserves over risky debt. His rule of thumb is that if a business can’t survive a downturn without borrowing heavily, it’s not built to last.
4. “Cash combined with courage in a crisis is priceless.”
This quote highlights the importance of having financial resources and it also emphasises the value of being prepared and able to capitalise on opportunities that arise during crises. Buffett prefers businesses and individuals to maintain strong cash flows rather than rely on loans for growth. He champions the idea that reliable earnings and internal funding create true resilience, especially when the unexpected hits.
5. “If you’re paying 18% interest on your credit cards, the smartest investment you can make is paying them off.”
High-interest personal debt, especially credit cards, which is plastic money and accumulates debt and provides a false sense of freedom, is something Buffett calls a “financial cancer.” Before thinking of investing, he suggests wiping out such debt completely. It eats into wealth and often leaves investors unguarded against market downturns as there is a high-interest component that needs to be catered to first. So even if using debt, always pay off the interest first and on time.
6. “You don’t want to be in a position where the world is raining gold and you’re not holding a bucket.”
This emphasises the importance of being prepared and ready to take advantage of opportunities when they arise, much like catching falling gold. Buffett often says that being debt-free allows you to act when opportunity knocks. Too much debt limits flexibility and peace of mind. Financial freedom, to him, means being ready and able to act, not being tied up with liabilities that demand constant attention.
7. “Debt is like driving with a dagger on the steering wheel.”
While Buffett isn’t absolutely against debt, he uses it sparingly and only when the return is certain and the risk is controlled. He usually questions the necessity of it before deciding to employ the use of debt, which enables him to avoid unnecessary spending. In some cases, such as low-interest financing for productive, income-generating assets, he acknowledges that smart, measured debt can accelerate growth. But even then, caution is king.
Warren Buffett’s philosophy is simple: use debt with extreme care, or better yet, avoid it altogether unless there’s a clear and manageable upside. In his world, wealth isn’t just about what you make, it’s about how well you protect it. For individuals and businesses alike, adopting Buffett’s debt discipline isn’t just a safe move, it’s a smart one
Written by Teertha Ravichandran
