Charlie Munger spent decades as Warren Buffett’s partner at Berkshire Hathaway. He studied failure as closely as success, and he talked often about the small, repeated mistakes that quietly drain people’s finances.
His advice was blunt. Avoid the obvious errors, and a lot of good things will take care of themselves, which goes a long way toward explaining why people who build real wealth spend money so differently from everyone else.
Below are five places where they keep their wallets shut. Each one ties back to something Munger said in public over his long career.
1. Borrowed Money and Margin Debt
Debt can turn a bad year into a permanent problem. Munger saw borrowed money as something that makes outcomes bigger in both directions while adding nothing to the quality of the decision underneath.
Buffett has passed along one of his partner’s favorite warnings many times, including in a 2018 CNBC interview. Charlie Munger’s version went like this: “Smart men go broke three ways: liquor, ladies, and leverage.”
Buffett later admitted the first two words were mostly there for the rhyme. The borrowing was the real point.
Wealth builders carry this into ordinary life. They pay off their credit cards every month and don’t take on a car payment that eats up a big chunk of their income.
They are especially wary of buying stocks on margin. A margin call can force a sale near the bottom of a decline, turning a paper loss into a real one before the market has any chance to recover.
Paying cash keeps the decisions in your hands. Owing money gives some of those decisions to a bank.
2. Status Purchases Driven by Envy
Much of the spending is aimed at other people. The new SUV in the driveway and the kitchen remodel nobody needed often start with a glance at what the neighbors bought.
Munger thought envy was one of the dumbest emotions a person could carry around. He made the case at the 2003 Wesco annual meeting: “Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun.”
People who build wealth mostly opt out of the comparison game. They decide what they want their money to do and judge their progress by that standard alone.
At the 2022 Daily Journal annual meeting, Munger told the audience he had conquered envy in his own life. He said he didn’t care what anyone else had, and he was 98 years old when he said it.
Someone will always have a bigger house. Trying to catch up with them costs money every single year while the target keeps moving.
3. Get-Rich-Quick Schemes
Hot stock tips and hyped crypto altcoins pull in people looking for a shortcut. So, do online courses promise a full-time income from a few hours of work a week. Building wealth takes time and effort, and there are no shortcuts.
Munger had little patience for this kind of thinking. “The desire to get rich fast is pretty dangerous,” Charlie Munger warned.
He was openly critical of speculative manias, and cryptocurrency drew some of his harshest language late in life. In February 2022, Charlie Munger said, “I certainly didn’t invest in crypto. I’m proud of the fact that I’ve avoided it.” To him, an asset that only paid off if a later buyer paid more looked closer to gambling than investing.
Wealthy people usually accept that serious money comes slowly. They own businesses, real estate, growth stocks, or broad index funds and let those assets compound for 10 or 20 years.
Any pitch promising to double your money by next spring deserves a hard look. Slow growth is dull to watch, and that dullness is usually a sign the plan is sound.
4. Investments They Don’t Understand
Complicated financial products tend to come with glossy brochures and confident salespeople. If you can’t explain in two sentences how the thing makes money, you’re relying entirely on the person who sold it to you.
Munger and Buffett built their careers on staying inside what they called their circle of competence. Charlie Munger boiled the idea down to one line: “Knowing what you don’t know is more useful than being brilliant.”
Wealth builders won’t pay for what they don’t fully understand. That rules out many exotic structured products and any fund where the fees are buried several pages deep.
A long sales pitch is often a warning sign by itself. Plain assets that you actually understand are much easier to hold when markets fall and everyone around you is panicking.
Saying “I don’t understand this” out loud can feel embarrassing in a meeting with an advisor. It’s also one of the cheapest ways to dodge a five-figure mistake.
5. Speculating Randomly with no Edge
Plenty of people trade stocks, options, and crypto on gut feel. They buy because a chart looks exciting or a stranger online sounds sure of himself.
Munger treated every investment as a bet with odds attached. Charlie Munger explained, “You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced.”
Without that knowledge, a trade is a coin flip with costs stacked on top. Taxes and bid-ask spreads chip away at the account even when wins and losses roughly cancel out.
Wealth builders only put money at risk when they can explain why the odds favor them. Berkshire often sat on a large pile of cash while waiting for chances that met that standard.
Conclusion
Munger died in November 2023, about a month before his 100th birthday. His money advice came down to a short list of things to avoid, and he repeated that list for most of his life.
Borrowed money and envy are the two that trap the most people. Speculation, complex products, and random trading cost others a lot of money, too.
He once described Berkshire’s edge this way: “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” Anyone can hold a monthly budget or a brokerage account to that standard, starting with their next purchase.