One day, in 1990, during the Berkshire Hathaway Shareholder Meeting, a young man asked Charlie Munger – vice chairman of Berkshire Hathaway and one of the wealthiest people in the world – to give him an advice to get rich: he told him he had a very hard time, he failed in getting started and his net worth was not increasing at all.
Then Charlie Munger said:
“The first 100k is a b*tch, but you gotta do it. 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.”
Why the first $100k is so hard?
Your first $100k is such a pain because it purely depends on how much you can save.
When you have less than 100k, you can’t count so much on any of your investment returns.
Assume that you earn a 10% annual return on your investments (ROI) and that you start from a net worth of $0.
How long do you think will it take you to accumulate $100k, if you earn $50k/year and save 20% of it?
About 7.3 years.
Ok, now assume that you saved $100k and still earning $50k/year, saving 20% of it.
You’re earning a 10% annual ROI.
How many years do you think it will take to reach a net worth of $200,000?
About 4.3 years.
Now, the same assumptions, but let’s go from $200k to $300k. How many years do you think it will take?
About 3 years.
And $300k to $400k?
About 2.3 years.
As you can easily see, after $100,000 every increase takes much less time to achieve.
This is the beautiful power of the compound interest, man!
..And that is why Charlie Munger, said “… It’s a b*tch”
There’s no other way to get it, you must literally save every penny you earn to reach as soon as possible your first $100k.
The Magic of the First $100k
Once you hit $100k, you’ll notice a sensible change in your investment return.
Assuming a $100k investment, earning 4%/year in dividends, means that you get paid $4000/year (about 330/month) without doing literally anything.
If these dividends grow at a rate of 8%/year, you’ll bring in 8000$ each year effortlessly.
Your capital will grow more and more, especially if you reinvest dividends every year.
That’s why $100k in the bank is pure magic.
Financial resilience.
With $100k you are not financially independent, but it gives you a certain amount of relaxation, stability, and resilience.
If you get about $350 each month from your investments, you have the option to easily change your job without worrying too much.
If you need to have a break and take some time to travel without working, you have the possibility to do it.
If you want to start a new business, you have enough money to do it.
100k isn’t enough money to retire, but it is a life-changer threshold.
It gives you choices and a beautiful sense of inner peace.
How to get your first 100k?
You simply have to work: put your head down, make a side hustle, be frugal and live simple, eat at home, practice delayed gratification, and be patient.
You must save a consistent amount ( +50%) of your paycheck.
If your job gives you a meager wage, change your job and pick up side hustles.
If your expenses are higher than your income, cut them.
Don’t underestimate the impact of your monthly recurring expenses and subscriptions.
Cut Netflix, don’t buy a new car, cook at home your meals.
These little lifestyle changes seem irrelevant, but they will have a terrific impact in the long run.
This is your way to reach your first $100k.
What are you waiting for?