Charlie Munger: Why the First $100K is the Toughest

At a Berkshire Hathaway shareholder meeting in the 90’s, a young guy asked Charlie Munger his advice on creating wealth. He said his net worth was not increasing as fast as he’d like.

Charlie Munger responded, “The first 100,000 is tough, but you gotta do it.”

Then he goes on to say, “I don’t care what you have to do—if it means walking everywhere and not eating anything that wasn’t purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.”



Chasing Your First $100K:

I’m also chasing my first $100K and can definitely say it’s tough. I say it’s tough, but in reality it’s probably tougher because of my lack of patience rather than the actual difficulty. Especially after developing good habits around saving, earning and investing.

So why does $100K feel so far away? Why does it feel like it’ll take forever?

Because when you don’t have much money, the majority of increases in your net worth come from your savings rate, not investment returns, so your money isn’t working for you as much.



Here’s an example to help explain the numbers:

Let’s say your net worth is $10,000, and it’s all invested in the stock market. If you have a healthy return of 10% that year, you’ve gained $1,000 increase in net worth.

Ultimately, $1,000 gain is not much.

However, if you get a roommate and your rent lowers by $300 a month, you’ll save $3,600 a year.

$3,600 savings is a 36% increase in your net worth.

And if you can get a $5K raise, that’s a 50% increase in net worth.



Savings Rate is more important Investment Returns (In the Beginning):

In the beginning, when you’re trying to reach $100K quickly, you need to do whatever you can to spend less and earn more, because your savings rate is much more important than investment returns.

While a lot of people focus on their investment returns, this effort usually doesn’t pay off until you’ve accumulated a good amount of wealth.

In the meantime, saving a few hundred a month on rent or buying a used car with cash, can mean huge relative increases to your net worth that will beat the market every time.

While reaching $100K seems difficult, the journey will teach you good saving habits that will propel you through the next tough challenge – taking $100K to $1M.

[JasonPark]

So true. $100k seemed impossible to reach but once I got there, the snowball started to roll. You don’t shouldn’t be spending seeds of wealth, it’s the opposite - you should save and cultivate them.

[bhavinshah]

If he gave this in 90's for a 100k then its 200k in 2020

[JMX-]

Its definitely possible, I did it myself over a number of years. You end up enjoying the challenge and sacrifice and after a while wouldn’t want it any other way. Hope you’re close to your goal 👍🏻

[lifeyang]

I agree that the 1st journey of $100k is the toughest. With most people living paycheck to paycheck, any savings is unimaginable, let alone $100k. The next journey of $100k to 1 mil $ should be an easier journey than the 1st journey. The last journey of milti-millions $ should be the easiest journey.

[JamesCallahanTheDoOverShow]

Do you have the year of which BH meeting this is from? Or a link to the video? Thanks so much...

[RK]

First $100, 000 isn't hard. The first million is the hardest.

[MrArkBrian]

5 year plan = Max out your 401k (several companies allow you to go to up to 24%, and most match up to 6% for a total of pre-tax contributions of 30%). As of 2021 contributing the max to your 401k will cut off at $19, 500 a year which in just over 5 years alone will be $100k.You can speed this up with a “little risk” though. Most 401k plans offer a Target Date Fund, but also offer the option of selecting other funds.Aim for an index fund that mimics the S&P 500. Even a slight risk say 90% contributions to the retirement fund/10% in a 500 Index Fund can increase your goal when the market is performing.Once you reach $100K in that 401k the effects of compounding interest become visible.

[keithsclassicgarage]

I skrimped for years to buy multiple houses, in my 30's, and work in my retirement part time. Keep building wealth!

[JOTAERREMILLION]

If u work all 7 days of the week u wont be denied

[necelashawn]

Less than 1minute already hitting the like button great inspirational advise!

[clownanaround]

I have 8 months and invested 16k so far.

[ronneldeleonbulnddeo]

Did u got ur 100k?

I got 20k, im 32 yrs old, its really hard man

[ather]

is it $100k liquid cash or entire net worth?

[IsmailSirajeIttembe]

bro how fur with the 100k goal of yours?

[investinglearningmachine]

It’s so tough to reach 100k by myself, luckily I have a rich parent 🤣🤣