Charlie Munger Once Said Everything Gets Easier After the First $100K — Is It True, and What Does It Mean?
Written by
John Csiszar
Edited by
Levi Leidy
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The late, great Charlie Munger, who ran Berkshire Hathaway with billionaire Warren Buffett until his passing, was famous for insightful quips about the markets and investing. One of his oft-repeated bits of wisdom is that the first $100,000 you save is the most difficult, but from there, it gets much easier.
But is this bit of folk wisdom true? And what point was Munger really trying to make about saving and investing when he said it? Read on to learn more.
What Did Munger Actually Say?
Before breaking down what it means, here’s a look at Munger’s exact quote regarding the issue: “The first $100,000 is a b****, 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.”
Now, Munger uttered this nugget in the mid-1990s, meaning the $100,000 he was referring to would be closer to $200,000 today. But regardless of the amount, the two-pronged principle behind it remains true.
Insight 1: Training and Psychology
Fundamentally, saving and investing is “easy.” All you have to do is avoid spending your entire paycheck and divert some money every month toward your savings and investment accounts.
But the reality is not as black and white.
Besides the fact that many Americans live paycheck to paycheck, investing is an emotional process. It can be hard to consistently set aside enough money to build long-term wealth when there are so many demands on your funds.
One month, for example, you might have an unexpected car repair bill, while the next might be your favorite niece’s wedding. After that, you might have an excessively high power bill, followed by an increase in your adjustable-rate mortgage. Even with a day-to-day budget, it seems like there’s always something additional clamoring for your money.
This is why saving your first $100,000 is such an accomplishment. If in spite of all the demands on your money you still manage to set aside $100,000, you’ve shown you have the financial discipline to save and invest for your future. With this type of mindset, it becomes easier to continue building wealth.
Insight 2: The Mathematics of Interest
The simple mathematical truth of investing is that the more you have, the more you can earn. If you have $5,000 in the bank, a 10% return gets you an additional $500. But if you have $100,000 saved, a 10% return generates $10,000, or 20 times as much. If you had $1 million saved, you’d earn $100,000 per year. Once you’ve accumulated these larger sums, they go to work for you without you having to lift a finger.
Larger sums also reduce the time it takes to build even more wealth. It might take you 10 years to save your first $100,000, if you set aside $10,000 per year. But if you invest that $100,000 at, say, a 7% annual return while still saving $10,000 per year, you’ll earn your next $100,000 in less than five years.
The Bottom Line
There’s nothing inherently magical about the sum of $100,000. However, it’s nevertheless a powerful first step for those looking to build wealth.
Once you’ve saved $100,000, you’ve proven you have the discipline to set aside money and not spend it on discretionary “wants.” The sum itself can also be a motivator to bank even more. But perhaps most importantly of all, once you reach that six-digit sum, the mathematics of interest kick in and you can start generating some serious money. All it takes, according to Charlie Munger, is getting to that first $100,000.
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