Warren Buffett, often called the “Oracle of Omaha,” has amassed a fortune worth over $161 billion, making him one of the wealthiest individuals on the planet. Yet long before he became a household name, Buffett was already practicing fundamental money principles that would eventually form the bedrock of his extraordinary wealth.
What’s most remarkable about these principles is their simplicity and accessibility—they aren’t complex investment strategies reserved for financial elites but straightforward rules anyone can follow.
By understanding and implementing the financial disciplines Buffett embraced early in life, you, too, can build a strong financial foundation. Here are the five life-changing money rules that Warren Buffett followed before he got rich:
1. Start Investing Early: The Power of Compounding
“My wealth has come from a combination of living in America, some lucky genes, and compound interest.” – Warren Buffett
“I made my first investment at age eleven. I was wasting my life until then,” Buffett once quipped, revealing his characteristic humor and profound understanding of the importance of starting to invest early.
In the spring of 1942, at just eleven years old, Warren Buffett purchased his first stock—three shares of Cities Service preferred stock at $38.25 per share for himself and three for his sister. This initial foray into investing included a valuable lesson in volatility and patience. The stock dropped to $27 per share, causing some anxiety, especially as his sister reminded him of this daily. When the price rebounded to $40, Buffett sold, making a small profit. However, he later watched the stock climb past $200 over the coming months. This experience, despite its challenges, sparked a lifelong passion for investing that would shape Buffett’s remarkable career.
The mathematics behind Buffett’s insistence on early investing is compelling. The power of compounding gains allows money to grow exponentially rather than linearly. A dollar invested in the S&P 500 in 1942, around when Buffett began investing, would be worth approximately $10,428.98 today. This multiplying effect becomes dramatically more powerful the longer money remains invested.
By his teenage years, Buffett had already diversified beyond stocks. With $25 saved from newspaper delivery routes, he purchased a used pinball machine, installed it in a local barbershop, and reinvested the profits into additional machines. This mini-empire of pinball machines represented Buffett’s early understanding of business ownership and capital reinvestment.
The lesson is clear: Time is the investor’s greatest ally. Even with modest amounts, starting early gives your investments the maximum opportunity to compound. The financial head start Buffett gave himself in childhood formed the foundation upon which his future billions would be built.
2. Live Below Your Means: The Art of Strategic Spending
“Don’t save what is left after spending; spend what is left after saving,” Buffett advises, inverting the typical approach to personal finance. Despite his enormous wealth, this principle of intentionally living below your means has been a hallmark of Buffett’s personal life from the beginning.
Perhaps nothing illustrates this commitment better than his home. In 1958, Buffett purchased his house in Omaha, Nebraska, for $31,500 (approximately $300,000 in today’s dollars), and remarkably, it remains his primary residence. When asked why he hasn’t upgraded to a more luxurious estate, Buffett responds that the house meets his needs perfectly.
His transportation choices follow the same pattern of modest practicality. Unlike many billionaires with collections of exotic vehicles, Buffett has historically preferred mid-range American cars. He once drove a 2006 Cadillac DTS for years before upgrading—to another Cadillac.
This isn’t mere frugality for its own sake but a deliberate financial strategy. By keeping fixed expenses low and maintaining a significant gap between income and spending, Buffett has always ensured he had capital available when investment opportunities arose. This approach created a virtuous cycle: more available capital led to more investments, generating more income and providing even more investment capital.
The practical application for most people is straightforward: prioritize saving over immediate consumption. By reversing the typical order of operations—saving first, then spending what remains—you build financial security and investment capacity.
3. Avoid Credit Card Debt: Stop Digging When You’re in a Hole
“I’ve seen more people fail because of liquor and leverage — leverage being borrowed money.” – Warren Buffett.
“The most important thing to do if you find yourself in a hole is to stop digging,” Buffett has famously stated when discussing debt. His aversion to high-interest consumer debt, particularly credit card debt, has been consistent throughout his career.
At Berkshire Hathaway shareholder meetings, Buffett has repeatedly warned against the financial devastation that credit cards can cause. With interest rates often exceeding 20% annually, credit card debt creates a powerful headwind against wealth accumulation. From a mathematical perspective, earning investment returns high enough to offset such costs consistently is nearly impossible.
Buffett’s approach to debt isn’t universally negative—he distinguishes between productive debt (like a mortgage on a home that appreciates or a loan to expand a business) and consumptive debt (like credit card purchases for depreciating items). The former can build wealth; the latter almost always destroys it.
Buffett has applied this principle throughout his career, often using leverage strategically in business acquisitions but avoiding unnecessary debt. For the average person, the lesson is clear: eliminate high-interest debt as quickly as possible and redirect those funds toward savings and investments once free from its burden.
4. Invest in Yourself First: Develop Your Abilities and Skills
“Whatever abilities you have can’t be taken away from you. They can’t actually be inflated away from you. The best investment by far is anything that develops yourself, and it’s not taxed at all.” – Warren Buffett.
“The best investment you can make is in your abilities. Anything you can do to develop your abilities or business is likely to be more productive,” Buffett has emphasized repeatedly. This principle acknowledges a fundamental truth: your earning potential is directly tied to your skills, knowledge, and capabilities.
Buffett has practiced what he preaches. After studying at the Wharton School of Business and the University of Nebraska, he applied to Columbia Business School to learn from Benjamin Graham, the father of value investing. Beyond formal education, Buffett invested $100 in a Dale Carnegie public speaking course, which he later claimed was the most valuable investment he ever made.
His legendary reading habit—reportedly 500 pages daily—further demonstrates his commitment to continuous self-improvement. Buffett views knowledge as cumulative, with each book or article adding to his intellectual toolkit.
“Read 500 pages every day. That’s how knowledge works. It builds up like compound interest.”
– Warren Buffett
For most people, investing in yourself means allocating time and money resources toward education, skill development, and personal growth. This might involve formal degrees, certifications, online courses, books, or mentorship. The specific path matters less than the consistent commitment to expanding your capabilities.
The financial returns on self-investment often far exceed traditional investments. A new skill might lead to a promotion, a career change, or entrepreneurial opportunities that dramatically increase income. Unlike market investments, these returns typically remain with you for life.
5. Focus on Value Over Price: Understanding True Worth
“Price is what you pay. Value is what you get,” Buffett has stated, encapsulating his investment philosophy in a single sentence. This principle, learned from his mentor Benjamin Graham, distinguishes between an asset’s cost and its intrinsic worth.
In his early investment days, Buffett would pore over financial statements, looking for companies trading below their actual value—essentially searching for dollars selling for fifty cents. This approach, known as value investing, formed the foundation of his investment strategy.
The same principle applies to personal financial decisions. A higher-priced, quality item that lasts for years often provides better value than a cheaper alternative requiring frequent replacement. Similarly, investments should be evaluated based on their long-term potential rather than their current price tag.
Buffett’s approach to business acquisitions follows this same rule. He famously looks for companies with durable competitive advantages, capable management, and reasonable prices relative to their intrinsic value. By focusing on what he gets for what he pays, Buffett has consistently made investments that appreciate substantially over time.
This principle encourages thoughtful evaluation of purchases and investments based on their total value over time, not merely their immediate cost, for everyday financial decisions.
Conclusion
Warren Buffett’s journey to extraordinary wealth began with ordinary principles, consistently applied over decades. By starting early, living below his means, avoiding destructive debt, investing in himself, and focusing on value over price, Buffett built the foundation for his future success long before becoming a billionaire.
What makes these principles particularly valuable is their generality. To implement them, you don’t need unique connections, privileged information, or exceptional intelligence. You need discipline, patience, and the willingness to consistently make sound financial decisions over time.
Buffett said, “The difference between successful people and unsuccessful people is that successful people say no to almost everything.” This applies perfectly to financial success—saying no to unnecessary spending, high-interest debt, and short-term thinking creates the space to say yes to the investments and habits that build genuine wealth.
By following these five principles Buffett embraced before his rise to prominence, you too can create a stronger financial future—perhaps not measured in billions but characterized by greater security, opportunity, and freedom.