A “Rock of Gibraltar” Financial Position

Berkshire Hathaway, Warren Buffett’s investment vehicle turned conglomerate, has achieved mind-blowing feats since Buffett began transforming the struggling textile mill in 1965. Even many casual observers know the highlights: Berkshire’s stock trades for nearly $800,000 per share, while no other company’s per-share price comes close. Its annual meeting has drawn well over 50,000 people from all over the world to a rock concert-like extravaganza in Omaha. The average company’s annual meeting is a rote, lukewarm coffee-powered snoozefest. Perhaps most unbelievably, Berkshire now sits on approximately $400 billion in Treasuries. Yes, this is effectively the company’s emergency fund. In perspective, Berkshire’s Treasury position is large enough to buy roughly 95% of the individual companies in the S&P outright at market value.

Given those remarkable factoids, I’d forgive anyone for assuming that studying Berkshire Hathaway's finances won’t yield many actionable insights for everyday people, even high-earning lawyers. But that’s a mistake.

One of Berkshire’s most important financial lessons for the rest of us is maintaining a Rock of Gibraltar-like balance sheet. Berkshire operates at immense scale, but the rock-solid principles that have made the company practically unshakable for decades can do the same for any individual or family. Studying its attributes will help you not just build wealth but build virtually indestructible wealth.

If you’re a high-earning lawyer reading this, you can and should aim for a financial position this secure. And if you internalize the Berkshire ethos and apply it early in your law firm tenure, you’ll be in a prime position. With a clear roadmap to achieving enduring wealth, you’ll make the long, stressful nights at the firm more bearable. And practically, adopting this mindset will 1) make sticking around at the firm much more lucrative, or 2) make the firm much easier to quit if you ever feel so inclined. Either way, you win.

Mind the avalanche

Building rock-solid finances starts with addressing bad debt. Credit cards and other high-cost debt compound at 15% to 25% per year. $10,000 on a credit card at 20% interest grows to more than $24,800 after five years. Few households can survive that avalanche of negative compounding. A reasonable mortgage that’s modest relative to one’s income is fine. Financing frivolous consumption is not.

Financially strong families carry little unproductive debt. When they do borrow, they aim for the proceeds to generate returns: for example, real estate that produces rent or an educational path for their kids smartly chosen to build not just critical thinking skills, but also real-world, marketable skills.

Borrow from a position of strength, always

Buffett is predictably cautious about debt, and the discipline I’m preaching to you mirrors the discipline he’s preached to shareholders. His partner, Charlie Munger, liked to say there are only three ways a smart person can go broke: liquor, ladies, and leverage. Munger admitted the first two were on the list mainly because they start with the same letter. The real killer is the third. Buffett has watched brilliant people vaporize fortunes this way, leading to his blunt conclusion: it is nearly impossible for a wealthy person to go broke without borrowing money.

Buffett counsels that you should not risk what you do have and need for what you don’t have and don’t need. Tape that maxim to your refrigerator. It can explain curiously bad behavior all the way from high finance, like the fall of Long-Term Capital Management, a Nobel Prize winner-led hedge fund that imploded, down to everyday financial blunders. If it’s as useful for you as it has been for me, it’ll save you tons of money on questionable purchases and “opportunities” that you’re better off without. Buffett has skipped deals a lesser investor would have leaped at, accepting worse short-term results rather than pledging Berkshire’s survival for a few extra points of return. Munger once noted the company would likely be worth twice as much had the two of them used aggressive leverage. Buffett’s answer, in effect: Yeah, so what? It might also be worth nothing; so, no thanks.

Despite Buffett’s caution, Berkshire is not allergic to borrowing. Rather, it’s allergic to the wrong kind of borrowing: the company hates due dates and a lender who can call a loan at the worst possible moment. Ironically, though, the whole Berkshire enterprise runs on an enormous amount of other people’s money. Berkshire’s insurance businesses collect premiums today and pay claims years later, and Buffett (and now his team) invests that “float” in the meantime. Better still, insurance float, which is Berkshire’s investment lifeblood, carries no covenants and no maturity dates. It may seem abstract, but float is really just borrowed money, reimagined, put to work for Buffett on his terms. He’s “borrowing” in a lucrative, law-of-large-numbers-protected way, and only from a position of strength. It’s genius, really.

To achieve Buffett-esque financial success, you should borrow only from a position of strength—or not at all. This should be easy for lawyers to grasp, even if you have to reverse-engineer the insight from your own mistakes. Remember borrowing a quarter-million dollars to finance three years of school, for a career you'd hardly known firsthand? Of course you do. You're forty-three years old, and you only stopped paying for it last Tuesday. It happens to the best of us, but that was borrowing from weakness in its purest form. Too often, it works out fine, which is exactly why it's so easy to do again when it comes time to pay for a house or buy into a partnership. But the real skill is avoiding debt. If that’s not possible, you must at least notice, before you sign, who has the leverage: you or your counterparty.

The stockpile

After you’ve slayed the high-interest debt monster, next comes stockpiling boring, low-yielding cash, sitting where you can reach it. It isn’t meant to earn much, if anything; it’s there to provide freedom when something goes wrong. Inevitably, something will.

If your balance sheet has already achieved or is nearing Rock of Gibraltar status, you don’t necessarily need a large, specifically earmarked emergency fund. (And you don’t need the personal equivalent of $400 billion in Treasuries!) But twelve to twenty-four months of living expenses, held in liquid savings, seems right for most families. That’s a lot of money to keep idle, but remember: we are building a fortress in this exercise. The oft-repeated three to six months emergency fund rule of thumb, I think, is based more on what’s possible for most people, not what’s impenetrably ideal.

Two years of expenses in the bank should remove nearly all panic from most people’s financial lives. When markets drop, or life delivers a surprise, that reserve prevents forced, panicked selling. Cash buys you the time to make good decisions instead of desperate ones, and Buffett put it best: cash, like oxygen, is “never thought about when it is present, [and] the only thing in mind when it is absent.”

Your Noisy Cricket

Berkshire’s use of cash, like its use of debt, offers many lessons. Despite the comically sized pile of T-Bills, seemingly hoarded to somehow withstand Armageddon, Buffett has grumbled that he would happily part with $100 billion in a day if he could find something reasonably priced and worth buying. But he can’t, so he waits. In the past, this patience has looked timid or old-fashioned until the moment it looks brilliant.

In the depths of 2008, the entire financial system nearly collapsed. Subsequently, Buffett’s phone line—basically 9-1-1 when markets are in dire straits—rang off the hook. In short order, he wrote a $5 billion check to save Goldman Sachs; a $3 billion check to save General Electric; and later, in 2011, he swooped in with yet another $5 billion check to save Bank of America. Each deal, done on unbelievably favorable terms, included preferred stock paying a fat dividend. He could act as the buyer of last resort precisely because he preserved his ability to pounce. Your two years of expenses won’t let you rescue a Wall Street bank, but it is a smaller version of a very powerful weapon. This financial Noisy Cricket, if you will, gives you options your more highly leveraged colleagues can only dream of.

Drivers, start your (financial) engines

With no bad debt and ample reserves, you can start investing. Which is great, of course, because investing is the engine of wealth building. For individuals, investing starts inside tax-favored accounts: specifically, a 401(k), an individual retirement account (IRA), a health savings account (HSA), and a 529 educational account. For most, the right investments are a diversified mix of stocks and bonds held through low-cost index funds. But for those willing to do real work—that of an intelligent, disciplined, long-term investor—individual securities can be an option. Provided, however, that, at a minimum, you focus on great businesses at reasonable prices, helmed by managers who run their businesses the way Buffett keeps telling everyone to. (Shockingly few heed his advice.) In short, don’t bother boarding any rocket ships “to the moon.”

Do as I say, don’t do as I do

It’s ironic that the greatest stock picker ever spends most of his breath cautioning against picking stocks. In 2007 Buffett bet a million dollars that a plain S&P 500 index fund would beat a hand-picked basket of hedge funds over a decade. He let the pros choose the funds and gave them ten years to prove their worth. The index returned about 126 percent; the funds averaged well under half that, after their handsome fees.

Buffett can pick the individual winners; as a busy law firm lawyer, you almost certainly cannot. (Moreover, at a large enough firm, your firm’s trading policy may even restrict trading windows so thoroughly that sporadic stock picking is a fool’s errand.) Buffett advocates that individuals drawn to stock picking live within their “circle of competence” by knowing the boundary of what they understand and refusing to invest a dollar outside it. For nearly everyone, their circle of competence does not include divining which biotech or AI darling will win. If you do venture into individual stocks, do it with a small slice of your money and no illusions.

Insurance: boring but brilliant

Insurance is unglamorous. It’s easy to scoff at as you sail through your daily life feeling well-paid and invincible. Even I, a CFP® writing this article, was underinsured until my mid-30s. And this situation was rectified only after I received an insurance license. Still, owning the right insurance policies is foundational to sound finances. Life, disability, health, and liability coverage are particularly critical. They exist so that one catastrophe can’t undo a decade of careful planning. Insurance isn’t meant to make you rich. It’s meant to keep a catastrophe, a verdict, or a death from making you poor. Do yourself a favor and grasp its importance sooner than I did.

Lessons from a wonderfully weird love affair

However unglamorous it may seem, Warren Buffett loves insurance the way normal people love pizza and ice cream. This love affair began in 1951, when Buffett learned that his mentor and teacher, investor Benjamin Graham, was a director of GEICO. To learn more about the company, Buffett took the train from Columbia University to its Washington, DC, headquarters. Arriving in Washington on a Saturday morning, Buffett was dismayed to learn the doors were locked. (I’m not sure why this was so surprising. Did white-collar workers routinely work Saturdays in the 1950s?) He kept pounding on them until a janitor let him in. When Lorimer Davidson—GEICO’s CEO, fortuitously in the building that day—found out Buffett was Graham’s student, he spent four hours discussing GEICO and the insurance industry with him. Buffett was rapt, sparking his half-century passion for the insurance business that led him to purchase GEICO, General Re (reinsurance), and National Indemnity Company (property and casualty).

Of course, Buffett is passionate about insurance because he loves the profits from selling it. Nonetheless, there is a lesson that retail insurance buyers can learn from one of its all-time great underwriters and sellers.

Berkshire will write a policy covering a massive, ten-figure loss and turn away seemingly “safer” business it considers mispriced, all so the company will survive even if the world stops for a while. This is also your job as a discerning policy shopper: insure the catastrophes that would end the story—somehow your income dries up, you’re sued, or you or your spouse dies early—and don’t sweat the small stuff you can absorb yourself. Few things are more senseless than insuring every consumer electronic or airplane ticket you’ve ever purchased while skipping or procrastinating on, say, a much-needed own-occupation disability policy or an umbrella policy. As a consumer, your job is simple: play the insurance game as intelligently as Buffett would play it as an underwriter.

Lawyers, please get your kids some shoes

Estate planning is not just a rich person’s game. Any family with dependents needs an estate plan that includes a will, named decision-makers in case of incapacity, and a plan for moving assets to the next generation. It’s easy to think that, by postponing or altogether skipping those documents, you can avoid hard choices. But you can’t. Instead, you pass the buck to the probate system, which is expensive and public. Worse, it knows nothing about your family or your wishes for your loved ones.

At high-net-worth levels, particularly as individuals approach the estate tax threshold ($15 million for individuals and $30 million for married couples in 2026), trusts and tax-efficient transfer strategies matter. But even at modest net worth levels, proper legal documents spare your family chaos and expense while they’re grieving. It’s worth noting that I’ve met too many attorneys, years into their careers, who don’t have basic estate documents executed. Talk about the cobbler’s kids having no shoes.

Simplicity as sophistication

Buffett’s estate planning goal is leaving behind a plan his spouse and children understand and agree with. He has no use for needless sophistication, and the plan is shockingly plain. In his 2013 letter, he laid out investment instructions for his widow’s trust, directing the trustee to put 10 percent of the cash in short-term government bonds and 90 percent in a low-cost S&P 500 index fund. His reasoning is that “[m]y widow will not be an expert on stocks.” While it’s important that your estate documents avoid too-clever-by-half tactics that confuse or alienate those you love, sufficient sophistication is essential, and Buffett has never skimped on hiring top-notch lawyers, particularly from Charlie Munger’s esteemed firm, Munger, Tolles & Olson.

Perhaps the greatest gift you can give your family on estate matters, Buffett suggests, is a clear conversation while you’re still alive. Regardless of your net worth, he recommends sitting your family members down well in advance and explaining why you’ve done what you’ve done in your estate plan. While generous, this move is not purely altruistic. It gives you a platform to share your philosophy on money, allows people to react to the bequests in real time, and it also provides a moral effect, making beneficiaries feel like they have an obligation to speak now or forever hold their peace if they don’t like certain parts of the plan. Regardless of the motives, clear communication should make the asset transfer process smoother and more human.

A Subaru and a lake cottage, for the win

Finally, Rock of Gibraltar finances require spending discipline. Plenty of households earning $500,000 live paycheck to paycheck because they spend $490,000 of it. You know the tells without me naming them. These people’s possessions are impressive, and the talent that bought them is real. The security is not.

Now picture another household that earns $300,000 and spends $180,000. They drive a Subaru and vacation at a Lake Michigan cabin instead of Turks and Caicos. Their net worth is $3 million: a paid-off $1.2 million house, $2 million in diversified investments, $200,000 in cash, and a rental property worth $800,000 that throws off $50,000 a year. They have no debt other than a small mortgage on the rental. Their liquid net worth, plus their rental cash flow, covers nearly seventeen years of spending. If you're scoring at home, that ratio, liquid net worth divided by annual expenses, is your “untouchability quotient” (and there are other less polite names for it, too). Run the math on your own household.

A $31,500 house and McDonald’s for breakfast

Buffett, in his personal financial life, is this household to the extreme. He still lives in the stucco house on Farnam Street in Omaha that he bought in the 1950s for $31,500. And with habits like driving himself to work and eating a $4 McDonald’s breakfast, he’s perfectly comfortable on his $100,000 salary, unchanged since the 1980s.

Buffett will spend on what’s important to him, though: he uses a Berkshire-owned private plane and he’s joyously described watching college football on his 85-inch television. Perfectly reasonable indulgences, I’d say, for a guy who’d have $400 billion today if he hadn’t already given much of his wealth to the Gates Foundation.

Buffett’s net worth multiplied by a factor of millions while his personal spending barely moved. That gap, separating vast earnings from meager consumption, fuels the whole fortune: all the big ideas about insurance float and owning what is essentially a perpetual money machine in Berkshire Hathaway trace back to the patient restraint he exercises in his personal life.

To be sure, you might want to enjoy your money a bit more than he does. Fair, and you do not need to clip McDonald’s coupons. But the principle that your spending shouldn’t chase your income separates real financial strength from merely looking the part, and Buffett from everyone else.

Simple, but not easy

Warren Buffett always had better financial options than being a law firm associate; after all, the man “retired” a millionaire at 25. But if, for some reason, he was a law firm associate, I believe I’ve correctly described how he’d approach the experience financially.

For what it’s worth, following the spirit of everything he taught me from afar, it’s, more or less, how I played the situation. And it worked out pretty well, minus a regret and an unconscionable delay or two. If you follow Buffett’s lead, as I did, you’ll make great use of your time at a firm, no matter how long you spend there.

It’s simple to do, but it won’t be easy. Because a Rock of Gibraltar financial position is not flashy, you’ll face temptation to do something sexier with your money. Resist that temptation. Staid but spectacular finances should not win you bragging rights at the cocktail party. And the supreme value of this sort of financial position is not that women will want you and men will want to be you (or vice versa). It's that it's damn near impossible to displace.

The Subaru-and-Lake-Michigan folks running a miniature Berkshire Hathaway know this. They will never park $400 billion in Treasuries or write a rescue check to Goldman Sachs, but they don't need to. The principles that keep Buffett's trillion-dollar fortress standing are, scaled to the size of a single household, exactly the ones that keep theirs standing. They will do the same for yours, too, if you build it.