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

The Wise Charlie Munger:


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 > 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.


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