You may be well aware that Warren Buffett is one of the richest people on the planet, boasting a net worth of $153 billion. What you may not know, is that Buffett is self-made and, additionally, that he practices frugality in a few key ways.
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Buffett still happily resides in a modest house in Omaha that he bought in 1958 for $31,500. He spends $18 on haircuts and $3.17 on breakfast from McDonald’s. Buffett surely isn’t choosing to make these excessively budget-friendly moves because he has to financially — and he does have some lavish habits (hello, $850,000 private jet). He appears to honestly just prefer keeping some things super simple. Is he onto something here? Is simplicity one of the keys to building wealth? It can be.
The Simpler the Budget, the Easier It Is To Follow
Research shows that no matter how much or how little we make, we all benefit from the insightful support that budgeting provides. As we’ve collectively become more financially literate, budgeting methods marketed as “simple” have become popular. You’ve got the zero-based budgeting method, the 50/30/20 budget, the pay-yourself-first budget and so on. By and large, these budgeting methods live up to their images of being simple. And they also have proven to be effective. A simple budget seems to be easier to stick with than a complex one and genuinely helps us out.
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Simple Investing Strategies Pay Off
There is evidence that a simple investing strategy pays off. In fact, Buffett’s strategy is pretty simple, compared to that of some other ultra-wealthy investors. He champions the 90/10 strategy, which integrates long-term thinking, limited risk, low fees and low time management. This approach is certainly paying off for him.
Minimalism Makes Room for Saving and Investing
The minimalism movement isn’t always about reduced spending and financial simplicity, but often it is. For example, the website Becoming Minimalist boasts the lead blog “Simple Living. The Earlier, the Better” and highlights how the simplification aspect of minimalism can help you stave off debt and financial obligations in general. It’s easy to see the tie between keeping it simple money-wise and making room for core wealth-building moves, saving and investing.
You Can Avoid ‘Analysis Paralysis’
Research shows that when we have a lot of options on the table, or a host of decisions to make, we’re susceptible to a psychological phenomenon called “analysis paralysis.” A glut of financial decisions can easily overwhelm us and cause us to overthink to the point where we can’t think straight. A simpler life ideally leads to fewer decisions to weigh and make, which helps prevent analysis paralysis and the increased risk of making a bad money choice.
You’ll Be Less Vulnerable to Lifestyle Inflation
If, like Buffett, you’re used to keeping it simple in key aspects of your life, you’ll be less tempted to succumb to a “keeping up with the Joneses” mentality and you’ll be less likely to be a victim of lifestyle inflation, where you augment your spending as your income goes up. You may start buying nicer or just more things to the point where you’re not saving or investing at the rate you should be. All said, there’s a lot to be said for the “keep it simple, stupid” if you want to be smart about money.
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This article originally appeared on GOBankingRates.com: Warren Buffett’s $3 Breakfast Habit: Is Simplicity the Key to Wealth?
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