Charlie Munger, the legendary investor and Warren Buffett’s right-hand man, has shared timeless wisdom over the years. His mental models help people make smarter, clearer decisions in all areas of life. Here are five models, explained in a way that anyone can use:

1. Inversion

Sometimes, the best way to solve a problem is to think backward. Instead of asking, “What should I do to succeed?” ask, “What would cause me to fail?”

Here’s how you can apply inversion:

• Identify your goals: For example, you might want to save time for self-improvement.

• List the habits that sabotage your progress: Like endlessly scrolling through social media in bed.

• Create an “I Don’t Do” list: Instead of saying, “I’ll reduce screen time,” say, “I don’t scroll social media in bed.” This clarity makes the commitment stronger.

Thinking about the things you shouldn’t do often provides sharper focus than simply listing what you should do.

2. Second-Order Thinking

Most people stop at short-term thinking, but winners ask, “And then what?” This is second-order thinking: seeing beyond the immediate effects of a decision.

Take starting a new workout routine as an example.

• First-order thinking: “It’s painful and inconvenient.”

• Second-order thinking: “Over time, I’ll get healthier, have more energy, and feel better about myself.”

The short-term negatives often hide the long-term positives. This mindset helps you make better choices by thinking through the consequences of your actions.

3. Circle of Competence

Ever feel the pressure to have an opinion on everything? Munger’s Circle of Competence encourages you to embrace what you don’t know.

• Be comfortable saying, “I don’t know enough about this yet.”

• Focus on your strengths and expertise. Don’t waste time pretending to be an expert in areas you aren’t.

• Delegate or avoid tasks outside your competence, while making an effort to expand your skills through learning.

Staying within your circle of competence not only reduces mistakes but also frees up your energy for areas where you excel.

4. Opportunity Cost

Every “yes” you say to something is a “no” to something else. Time and energy are finite, so before committing to anything, ask yourself:

• “What am I giving up by saying yes to this?”

• “Is this really the best use of my time, money, and effort?”

Understanding opportunity costs makes you deliberate with your choices. It’s not just about saying no—it’s about saying yes to what truly matters.

5. Compounding

Small, consistent actions lead to massive results over time. This principle applies to money, skills, knowledge, and even relationships.

• For knowledge: Read 20 pages a day.

• For skills: Practice for 20 minutes daily.

• For relationships: Have at least one meaningful interaction every day.

The math is simple: A 1% improvement every day results in being 37 times better in a year. Tiny steps add up to extraordinary outcomes when compounded over time.

These mental models, shared by Charlie Munger, are simple but powerful tools to navigate life’s decisions. Whether you’re managing your career, relationships, or personal growth, applying these principles can help you make choices that align with your long-term goals.

Credits: These insights are beautifully summarized by Ben Meer (@SystemSunday).