There’s a reason Warren Buffett is called the Oracle of Omaha — and it’s not because the Berkshire Hathaway chairman and CEO possesses a crystal ball. Instead, he relies on clear, common-sense insights about what to do — and what not to do — with your hard-earned money. And he’s not all talk, either: Beyond his investing acumen, Buffett is also well-known for living frugally, even residing in the same Nebraska home he purchased back in 1958.
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When Buffett offers advice about things to stop doing with your money, it’s worth your time to listen. He didn’t become a billionaire by chance, and following his advice can help you protect or potentially grow your wealth. GOBankingRates compiled some of Buffett’s wisest warnings about what to avoid doing with your money.
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Getting Into Credit Card Debt
Buffett has strong opinions about credit card debt, calling it a trap that makes it nearly impossible to build wealth. It’s a long-standing belief: In a speech back in 1999, he advised people to avoid credit cards altogether.
He’s alarmed by the high interest rates on credit cards — sometimes as high as 18% or 20%. His concern once led him to famously quip: “If I borrowed money at 18% or 20%, I’d be broke.”
Buffett has said that among the letters he receives from frightened, desperate people, two of the most common issues involve medical debt — which he describes as a tragedy of bad luck — and credit card debt — which he says is easily preventable.
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Not Carrying Cash
You don’t need to run a massive corporation to understand that keeping cash on hand can help you stay disciplined with your spending. Without a clear sense of how much you’ve got, it’s easy to overdo it — buying things you don’t really need because you can’t “see” the money leave your hand. When a better offer or opportunity comes along, you might be tapped out and unable to take advantage.
Buffett’s high-level business dealings have made him appreciate the importance of liquidity. Writing to shareholders, he once explained that Berkshire Hathaway typically maintains at least $20 billion in cash equivalents. Why? He thinks of cash as “dry powder” — resources that let him be patient and act quickly when attractive opportunities arise.
Not Researching the Companies You Invest In
Scroll through social media, and you’ll likely find someone hyping the newest hot stock. You may not know much about the company — or even what it does — but you buy in anyway. Later, the stock fizzles, and you’re left wondering what went wrong.
One of Buffett’s core pieces of advice: Invest within your circle of competence.
In other words, put your money into companies that make products or provide services you understand and whose business models make sense to you. That doesn’t mean staying stagnant — as Buffett’s own evolving approach to tech investing shows.
Initially, he was hesitant to invest in tech, citing the volatility of the industry and his own uncertainty around the products. While this strategy helped him avoid the dot-com crash, he eventually took time to understand the business models behind major companies like Apple, IBM and Amazon — enabling him to invest in tech more confidently and successfully.
Not Learning About Money
To use anything wisely, you need to understand how it works — and money is no exception. Trying to dip your toes into the stock market without knowing how investing works could leave you underwater. Want to avoid crushing debt? Understand how credit cards and interest rates function. Saving for the future? Learn why a high-yield savings account is a better place for idle cash than a regular checking account.
For Buffett, financial literacy helps reduce risk. You’re more vulnerable to poor decisions if you don’t know what you’re doing. Fortunately, in the age of books, podcasts and expert-led social media content, there are more resources than ever to help you get educated.
As Buffett’s longtime partner Charlie Munger once said: “Go to bed smarter than when you woke up.”
Not Planning for the Long Term
It’s tempting to react emotionally to short-term market swings — especially during a downturn. But panic selling can lead to costly mistakes. In tough times, high-quality assets may be undervalued and dumping them too soon can mean missing out on future gains. You also lose the compounding benefits that come with long-term investing.
That’s why Buffett has said his favorite holding period is “forever.” His belief in keeping an eye on the long-term also informs one of his best-known pieces of investing advice: “Be fearful when others are greedy and greedy when others are fearful.”
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This article originally appeared on GOBankingRates.com: 5 Things Warren Buffett Wants You To Stop Doing With Your Money