by The importance of amassing your first $100,000 cannot be underestimated when it comes to building wealth over the long term. Like Charlie Munger, esteemed investor and Vice Chairman of Berkshire Hathaway Inc.aptly stated at a shareholder meeting in the late 1990s, “The first $100,000 is ab***h, but you have to do it. If it wasn’t bought with a coupon, find a way to get your hands on $100,000.”
Munger’s advice resonates with respected investment and money management experts, who recognize this first milestone as a critical step towards financial prosperity.
The importance of reaching $100,000 becomes even more apparent when you consider that for many investors and savers, their ultimate goal is often much higher. In terms of purchasing power, $100,000 in 1998 is equivalent to about $186,581 today, representing an increase of $86,581 over 25 years. This calculation takes into account an average inflation rate of 2.53% per year during this period, resulting in a cumulative price increase of 86.58%.
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While Munger didn’t give an exact measure of how much the first $100,000 can grow over time, he suggested that leaving it untouched could lead to significant growth. With a modest 5% return on investment, you wouldn’t have to contribute any additional money for 21 years to watch your initial savings grow to $278,596. This illustrates the power of compound interest, as demonstrated by several compound interest calculators.
The lesson to learn here is that what comes before and after that first $100,000 can have a big impact on your financial journey. While there may be no concrete threshold at which $100,000 becomes a more meaningful engine of wealth than $99,999, the psychological significance of reaching six figures versus five cannot be denied. It serves as a desired milestone for salaries and other accumulations of monetary value.
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Reaching the $100,000 mark, especially during your younger years, is no easy feat. However, it provides financial stability that can help you cope with unexpected financial challenges. It inspires confidence to take calculated investment risks, creating opportunities for higher risk, higher reward ventures.
In her book “Damn Right!: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger,” Janet Lowe shares a pertinent quote from Munger. He explains that raising the first $100,000 is the most challenging part of building wealth without seed money. The next hurdle is reaching the first million, which requires consistent underspending of income.
Munger likens the process of getting rich to rolling a snowball down a long hill, emphasizing the importance of starting early and sticking with it for quite some time. Longevity also plays a role in this wealth-building journey.
Getting the first $100,000
It is certainly no sinecure. The skyrocketing cost of living and stagnant wages mean Americans aren’t getting as far as they used to. But that hasn’t stopped many from trying and succeeding. One of the most popular ways lately is by starting your own business or side business. Startups are easier than ever to get started, and often as simple as starting a newsletter, website, creating a product, or even just a social media account and building a following.
Simply taking a few hours a week and building a startup can help supplement one’s income to start saving. For those who don’t have the time or inclination to do so, platforms like StartEngine and Wefunder allow investors to own a stake in up-and-coming startups so investors can get a slice of the pie when someone else gets big.
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This article Billionaire Charlie Munger’s advice: ‘It’s AB***h, but you have to do it. Find a way to get your hands on $100,000 – Why earning your first $100,000 is essential if you want to get rich originally appeared on Benzinga.com
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