Why The First $100,000 Is The Hardest (And Advice To Make It Easier)

Video Length: 00:07:55

Charlie Munger, billionaire investor and Warren Buffett's right-hand man, has said that achieving your first $100,000 is the most difficult part of building wealth. Of course, Munger isn't alone. A lot of people have shared this insight over the years. And I concur 100%. I started investing in early 2010 after moving from Michigan to Florida for better job prospects, easier car-free living, and the absence of a state income tax. I was 27 years old and about $30,000 in debt at the time. From that point, it took me three full years to get to my first $100,000 at 30 years old. That was saving and investing with 100% effort, all while making about $40,000-$50,000year at my day job. I mean, we're talking eating ramen noodles every day, waiting for the bus in the rain, and getting five hours sleep per night because I was up all night researching investments.

But my portfolio is now worth of thousands of dollars. And it gets easier and easier as time goes on. In fact, my portfolio has increased by a six-figure amount since just December. But getting to this point required me to hit that first $100k. Today, I want to give you three big reasons why hitting the first $100k is the hardest, and how you can overcome these challenges. The first reason why hitting the first $100k is the hardest is because it requires actual investing. The key here is to start. Believe it's possible. Put together your business plan, which will include how much you need to save and invest.

Then get busy with it. As Maya Angelou said: "Nothing works unless you do". So get busy working. If you keep doing what you've always done, you'll have what you've always had. I grew up on welfare in Detroit. My dad split when I was eight. My mom gave me up for adoption when I was 11. I don't have a college degree. Never had a high-paying job. Didn't have a spouse to help me. I was broke for the majority of my life. $100k wasn't going to fall as manna from the sky. I knew that if I didn't change my ways, I'd broke forever. This will require you to make massive changes in your life. Instead of spending 100% or more of your income, you'll have to start saving and investing 50% - or more - of it. You'll have to start fawning over stocks in the same way a lot of people fawn over material possessions.

This means viewing the stock market as and stocks as . Researching stocks will replace researching consumer goods, and spending money on investing will replace spending money on consumer goods. The third reason? Compounding doesn't start to really kick in until that first $100k is reached. Albert Einstein has called compound interest the eighth wonder of the world. As powerful as compounding is, though, it takes a nice chunk of capital in order for compounding to make a material difference. I mean, compounding $5,000 at a market average annual rate won't turn into $100k until more than 30 years have gone by. Charlie Munger noted that once you hit the first $100k, you can ease off the accelerator. That's because compounding can start to kick in and do its magic.

Speaking of magic, compounding $100k at a market average 10%/year for 20 years turns into almost $675,000. I mean, you could start young, just get to $100k, then live life on cruise control thereafter. That's how important that first $100k really is. In order to build your compounding snowball, you first have to accumulate the snow - or capital - and put in that effort to pile it all up, form it into something, and then start to roll it down a hill. But the bigger this snowball gets and the faster it starts to roll, the less effort you have to put into it. At a certain point, you don't even have to push at all - it'll become this monstrosity that grows bigger and rolls faster, all by itself, at a rate you could never accomplish by yourself.