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5 Money Lessons You Can Learn From Costco, According to Personal Finance YouTuber Tae Kim
By Peter Burns,
1 days ago
When it comes to personal finance, there are many role models that you can learn from. Some may look to investing giants like Warren Buffett. Others might see what their favorite ‘finfluencer’ is posting on TikTok. It might be rare to look at a corporation for financial guidance, but some, like Tae Kim, can find financial inspiration through companies that make the right moves.
Kim, a personal finance expert and YouTuber, is a big fan of Costco. In a recent upload to his YouTube channel, he broke down a number of life and finance lessons learned from the wholesale retailer. Here are five of his takeaways .
Part of Costco’s strategy for managing its global operations efficiently is liquidity. As of March 12, 2024, Costco had $10.4 billion in cash and cash equivalents. Having a strong cash position like this allows the company to guarantee it has enough to deal with any issues that come up.
Kim explained that Costco’s business model further strengthened its cash position. Costco’s products arrive on pallets. Employees can quickly unload these pallets and push them out onto the warehouse floor, where they are immediately for sale. This eliminates shipping and storage costs and turns inventory into sales rapidly. Costco’s strategy is to make sure that its products are making money instead of getting stuck in the supply chain, which costs money.
Having cash reserves also helps on the personal finance level. Because no one can predict the future, setting aside a few months of savings in case of an emergency or opportunity is good practice. Keeping healthy savings is one lesson we can learn from Costco.
Costco is an industry giant that ranks third in size, after Amazon and Walmart. In 2023, Costco reported having a total of 871 stores worldwide, with 600 of them open in the U.S. With only five stores open in China and growing demand, many wondered why Costco wasn’t jumping at the chance to expand rapidly throughout China.
Costco’s chief financial offices responded to criticisms by stating they are comfortable with the pace of expansion and don’t need to rush their process. Speeding up and opening more stores could mean compromising quality, losing the trust of Costco members and losing profits. Costco’s slow and steady pace should be a model for your own finances. According to Kim, staying on the path of steadily growing your wealth instead of trying to get rich quickly is one lesson we can take from Costco.
Every Cent Matters
When it comes to pricing, Costco is very exact. Kim points out that Costco management will recite product prices down to the cent instead of rounding to the nearest dollar. This practice is in place because they believe every cent matters, and Kim agrees.
Not being exact when it comes to money can lead to various problems. Incorrectly estimating costs or disregarding a purchase because it’s only a few dollars can be a slippery slope. Keeping accurate records and valuing money even down to the cent will lead to more savings and better finances.
Bet on Yourself
While Costco is a wholesale operation, it has taken steps to try out other areas without depending on outside help. Kim brings up the example of Costco’s chicken sales for its $4.99 rotisserie chicken. In 2023, Costco sold 137 million rotisserie chickens despite not being experts in chicken processing.
Kim explained that Costco used vertical integration to bring the entire chicken operation in-house. Vertical integration is when a company takes over a whole process in calculated stages to save on costs and increase efficiency. Costco’s chicken operation has expanded to the point where it owns a $1 billion compound in Nebraska. Costco can now process over 200 million chickens a week, keeping the price down to $4.99.
In this instance, Costco teaches us that just because you’re not an expert in something doesn’t mean you can’t improve and learn to do it yourself. Kim relates this to investing, saying you don’t need to pay a financial advisor to make your investments. Instead, do what Costco did and educate yourself one step at a time until you can make your own investing decisions and save money.
Keep It Simple
One of the reasons Costco is so successful is because it has limited product offerings. Rather than chase after profits from all areas, the store keeps inventory small and specific to the needs of its customers. Store locations are also simple, built as warehouses where customers can easily find and pick out what they’re looking for.
When it comes to your personal finances, keeping it simple can reduce your stress, make managing your finances easier and help you realize your goals. Rather than overextending yourself in multiple directions to try and make and save as much as possible, choose specific areas that you can improve on and keep it simple.
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