Warren Buffett may be nicknamed the “Oracle of Omaha.” But when you examine his methods, the most successful investor in the world seems less like a financial soothsayer than like a guy who does his homework and sticks to a small set of core principles.
If you’re not familiar with the Nebraska-based billionaire, Buffett is both the CEO and the largest stakeholder in Berkshire Hathaway—a multinational holding company that owns or is heavily invested in GEICO, NetJets, Kraft Heinz Company, American Express, Coca Cola, and many other well-known brands and companies. At one time, Buffett was the wealthiest person in the world.
Suffice it to say, you could learn a lot about money from this dude. Here are five lessons to get you started.
LIVE BELOW YOUR MEANS
For a guy worth billions, Buffett drives a modest car and lives in a nice but not extravagant house. Even at an early age, he grasped that spending more does not equate to greater happiness.
Research backs him up: A study from Princeton found that your emotional well-being—basically, your happiness and contentment—track alongside your income until you make $75,000 a year. After that, more money doesn’t equate to a greater wellbeing.
Some guys spend their whole lives trying to earn more and more cash, despite the toll it takes on their personal life and hobbies. A big paycheck is great. But by living below your means, you’ll stress less about a massive mortgage or car payment, and you’ll probably find more time to do the stuff that makes you happy.
“PAY YOURSELF FIRST”
You hear this quote thrown around a lot in investment workshops, and Buffett is one of its biggest proponents. It basically means you need to first set aside the money you want to save for yourself, then figure out how to live on what’s left over—not the other way around.
So whether you’re saving for retirement or a tour of Europe, figure out what you need to put away each month to reach your goal. Subtract that amount from your paycheck, and you can feel free to spend the rest however you please.
SWEAT THE SMALL STUFF
Buffett famously invested in a company whose owner had once counted the sheets of toilet paper in a 500-sheet roll to find out if he was being swindled. Buffett figured any guy who was that meticulous about his cash would take good care of his company.
To this day, Buffett’s still known as a guy who pays attention to minor details—the stuff other investors would ignore.
Ask yourself if Buffett would invest in you based on your spending habits. If you’re not keeping track of your small expenditures, start. You’ll be less likely to get into big money trouble.
INVEST IN COMPANIES, NOT STOCKS
In his 2014 letter to his company’s shareholders, Buffett wrote, “Games are won by players who focus on the playing field—not by those whose eyes are glued to the scoreboard.”
His point: By watching a company’s stock price or valuation—especially on a day-to-day basis—you can get caught up in trends and lose track of why you invested in the company in the first place.
Ignore the daily chatter, and keep your focus on what the company your invested in does—and whether their business is likely thrive or dwindle.
REINVEST YOUR PROFITS
Buffett doesn’t sit on his profits. He reinvests them so they have the potential to keep earning money for him.
Whether you just got a raise at work, or you made some money on a stock investment (or March Madness pool), don’t just spend those earnings on stuff. As soon as you do, they’re history. Instead, keep them working for you.
Buffett could have retired a millionaire in his early 30s. Instead, he put a big chunk of his money into Berkshire Hathaway—the company he would eventually run, and that would make him a billionaire.