Why Your First $100k Is The Hardest (Mind-Blowing Maths Revealed)

Summary

This video explores the financial wisdom of Charlie Munger, emphasizing the challenge of saving the first $100,000 and the power of compound interest that makes subsequent wealth accumulation easier. It illustrates the time it takes to reach milestones with a consistent investment strategy and an 8% annual return. The video offers practical advice on setting 90-day goals, budgeting, reducing expenses, increasing income, and the importance of an emergency fund. It highlights the benefits of automated investments and the long-term gains of investing, urging viewers not to give up on their financial journey.

Takeaways

• 😀 Charlie Munger emphasizes the difficulty of accumulating the first $100,000 but suggests that it gets easier after this initial milestone.
• 📈 The video demonstrates the power of compound interest, showing that reaching the first $100,000 is the hardest part of wealth accumulation.
• 💰 Investing $100 a week at an 8% annual return takes 12 years to reach $100,000, but only six years to go from $100,000 to $200,000, highlighting the acceleration of wealth with compounding.
• 🚀 Once the first $100,000 is achieved, reaching $1,000,000 becomes more feasible, as the time to grow from $900,000 to $1,000,000 is significantly shorter.
• 🔢 The first $100,000 requires a significant time investment, but the subsequent growth to $1,000,000 is faster due to the effects of compounding interest.
• 💼 The video suggests setting 90-day goals as a strategy for achieving financial milestones, supported by scientific research on habit formation.
• 📊 Breaking down larger financial goals into smaller, more manageable increments can make the process of saving seem less daunting and more achievable.
• 🏦 Creating and regularly reviewing a budget is crucial for understanding and controlling spending habits, which can lead to significant savings.
• 🚲 Small daily savings, like making coffee at home, can accumulate to substantial annual savings, contributing to wealth accumulation.
• 📈 The script encourages viewers to consider increasing income through job changes or side hustles, as new employees and frequent job switchers tend to earn more.
• 💡 Setting up an emergency fund is recommended to provide a financial cushion and prevent the need to withdraw from investments during market lows.
• 🌐 The importance of long-term investing is underscored by historical data showing the significant growth of investments over 30 years compared to short-term savings.

Q & A

What is Charlie Munger's perspective on accumulating the first $100,000?

Charlie Munger believes that accumulating the first $100,000 is challenging and requires significant effort and frugality, but it's a crucial step towards building wealth.

How does the script suggest the process of wealth accumulation changes after reaching the first $100,000?

The script indicates that after reaching the first $100,000, the process of wealth accumulation becomes easier due to the power of compound interest, allowing for more significant returns on the increased investment.

What is the time frame for reaching the first $100,000 if one invests $100 a week with an 8% annual return?

It would take 12 years to reach the first $100,000 by investing $100 a week with an 8% annual return.

How much time would it take to go from $100,000 to $200,000 under the same investment conditions?

Under the same conditions of investing $100 a week with an 8% annual return, it would take six years to go from $100,000 to $200,000.

What is the role of compound interest in wealth accumulation according to the script?

Compound interest plays a significant role in wealth accumulation as it allows the investment to grow at an increasing rate over time, making it easier to accumulate wealth after the initial $100,000 is reached.

How does the script motivate viewers to get to their first $100,000 by breaking down numbers by percentages?

The script motivates viewers by illustrating that the first $100,000 takes a third of the time to achieve, similar to the time it takes to go from $500,000 to a million, emphasizing the significance of this initial milestone.

What is the recommended approach to setting financial goals according to the script?

The script recommends setting 90-day goals instead of yearly goals, as 90 days is a scientifically-backed timeframe for habit formation and allows for more frequent goal setting and achievement.

How can one save $10,000 in a year by breaking it down into smaller, more manageable amounts?

By breaking down the goal of saving $10,000 into quarterly ($2,500), monthly ($833), weekly ($192), and daily ($27.40) amounts, it becomes more manageable and achievable.

What is the importance of reviewing one's budget and expenses regularly as suggested in the script?

Regularly reviewing one's budget and expenses is important to identify areas of unnecessary spending, realize the value derived from expenditures, and make adjustments to save more effectively.

How can reducing small daily expenses, like buying coffee and breakfast out, lead to significant savings over a year?

Reducing small daily expenses, such as saving $15 a day by making coffee and breakfast at home, can accumulate to significant savings of $5,475 in a year.

What are some of the ways suggested in the script to save on the three biggest expenses: housing, transport, and food?

The script suggests negotiating rent or switching to a more competitive mortgage rate for housing, using public transport for transport, and planning meals and eating at home more often for food.

Why is it recommended to have an emergency fund when starting to invest in the stock market?

An emergency fund is recommended to ensure that one does not have to withdraw money from the stock market during a downturn due to unexpected expenses or job loss, which could lead to losses.

What is the potential long-term impact of investing $10,000 in different types of shares over 30 years according to the script?

Investing $10,000 in US shares 30 years ago could yield $176,000 today, in Australian shares it could be $138,000, and in international shares it could be $87,000, illustrating the power of long-term compound interest.

What is the benefit of setting up automated investments as mentioned in the script?

Setting up automated investments allows money to work for the investor without the need for manual intervention each month, ensuring consistent investment and taking advantage of dollar-cost averaging.

Outlines

00:00

💰 The Challenge of Saving the First $100,000

Charlie Munger, Warren Buffett's partner, emphasizes the difficulty of saving the first $100,000 but encourages persistence despite the sacrifices required. The video explores the math behind saving this amount, illustrating that it's harder to reach this milestone due to the time compound interest takes to accumulate. It shows that investing $100 weekly at an 8% return would take 12 years to reach $100,000 but only six years to double it, highlighting the power of compound interest. The video also provides motivation by breaking down the savings into percentages, demonstrating that the first $100,000 takes a third of the time to achieve compared to other milestones. It suggests increasing investments to speed up the process and ends with a personal note to Bob, encouraging viewers to use a free net worth tracker provided in the description.

05:02

🚀 Strategies for Reaching $100,000 Faster

The video script offers practical advice on reaching the $100,000 milestone more quickly. It starts by recommending goal setting, particularly 90-day goals, which are supported by scientific research as an effective time frame for habit formation and achieving goals. The script provides a detailed example of breaking down a $10,000 savings goal into smaller, manageable amounts. It then suggests creating a budget to review income and expenses, which can lead to significant savings by identifying unnecessary spending. The video also discusses ways to reduce the three largest expenses: housing, transport, and food. It encourages viewers to increase their income through salary negotiations or job changes, citing statistics that show the benefits of doing so. Additionally, it promotes starting a side hustle based on personal skills and advantages. The script also highlights the importance of setting up an emergency fund for financial security and market volatility, recommending automated investments to ensure consistent growth. It concludes with a mention of a free investing cheat sheet and a prompt for viewers to engage with the content.

Keywords

💡Compound Interest

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. It is a fundamental concept in finance that demonstrates how money can grow exponentially over time. In the video, the concept is used to explain why accumulating the first $100,000 is challenging, but after that, the growth accelerates due to the effects of compounding. The script mentions that the first $100,000 takes the longest to achieve, but as the investment grows, the interest earned each year increases significantly, making wealth accumulation easier.

💡Investing

Investing refers to allocating resources, such as money, with the expectation of generating an income or profit. In the context of the video, investing is a key strategy for accumulating wealth, particularly the first $100,000 and beyond. The script provides an example of investing $100 a week with an 8% annual return, illustrating the power of consistent investment over time.

💡Net Worth Tracker

A net worth tracker is a tool or application that helps individuals monitor and manage their financial worth by tracking assets and liabilities. The video suggests using a net worth tracker to calculate and visualize one's financial progress towards the goal of $100,000. It serves as a motivational tool to help individuals stay on track with their financial goals.

💡90-Day Goals

90-Day Goals are short-term objectives set over a period of 90 days, which is considered an optimal timeframe for habit formation and achieving tangible results. The video emphasizes the importance of setting 90-day goals as a strategy to break down larger financial goals, such as saving $10,000 in a year, into more manageable and achievable milestones.

💡Budgeting

Budgeting is the process of creating a plan to manage one's income and expenses, ensuring that spending aligns with financial goals. The video script highlights the importance of creating and regularly reviewing a budget to identify areas of unnecessary spending and to save more effectively towards the goal of accumulating $100,000.

💡Emergency Fund

An emergency fund is a reserve of cash set aside to cover unexpected expenses or financial hardships, such as job loss or medical emergencies. The video explains that having an emergency fund is crucial before starting to invest, as it prevents the need to withdraw from investments at an unfavorable time, which could lead to losses due to market volatility.

💡Side Hustle

A side hustle refers to an additional job or venture outside of one's main employment, used to earn extra income. The video suggests starting a side hustle as a way to increase income, which can then be used to accelerate the accumulation of the first $100,000. It encourages viewers to leverage their unique skills and advantages to find profitable side hustles.

💡Automated Investments

Automated investments are contributions to an investment account that are made automatically on a set schedule, without manual intervention. The video recommends setting up automated investments as a way to ensure consistent investment activity, which can be particularly beneficial for growing wealth over time and reaching the goal of $100,000.

💡S&P 500

The S&P 500, or Standard & Poor's 500 Index, is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is often used as a benchmark for the overall performance of the stock market. The video uses the annual returns of the S&P 500 to illustrate the variability of market returns and the importance of a long-term investment horizon.

💡Habit Formation

Habit formation is the process of developing regular practices or behaviors over time. The video script cites scientific research suggesting that 90 days is an effective timeframe for habit formation, which can be harnessed to establish beneficial financial habits, such as consistent saving and investing, to reach the goal of $100,000.

💡Wealth Accumulation

Wealth accumulation is the process of increasing one's net worth through savings, investments, and other financial strategies. The video's main theme revolves around wealth accumulation, specifically the challenge of reaching the first $100,000 and how subsequent wealth growth can be accelerated through compound interest and smart financial planning.

Highlights

Charlie Munger emphasizes the difficulty of saving the first $100,000 and suggests extreme measures to achieve it.

The video aims to demonstrate the math behind reaching the first $100,000 and whether it is indeed the hardest milestone.

Investing $100 a week at an 8% annual return illustrates the time it takes to reach various financial milestones.

The principle of compound interest is highlighted as the reason why accumulating wealth becomes easier after the first $100,000.

The motivational aspect of breaking down financial goals by percentages is discussed to show the relative ease of wealth accumulation post-$100,000.

The impact of increasing weekly investments on the time it takes to reach the $100,000 milestone is examined.

The importance of setting 90-day goals, backed by scientific research, is presented as a method to change financial habits effectively.

A practical example of breaking down a $10,000 savings goal into smaller, manageable amounts is provided.

The video encourages viewers to create a budget, review income and expenses, and make adjustments to save more.

The benefits of reducing spending on non-value adding items and the impact on savings and investments are discussed.

The potential savings from making small lifestyle changes, such as brewing coffee at home, are quantified.

The significance of housing, transport, and food as the three biggest expenses and strategies to save on them are explored.

The video suggests increasing income through job changes or asking for a raise, citing statistics on the benefits of doing so.

The concept of a side hustle is introduced as a means to leverage unique skills and unfair advantages for additional income.

The necessity of establishing an emergency fund for financial security and its role in enabling long-term investments is explained.

The volatility of the stock market and the importance of an investing time frame of at least seven years are highlighted.

The long-term benefits of investing, especially the power of compound interest over 30 years, are illustrated with examples.

The video promotes the use of automated investments and introduces a platform called Perla for regular investing.

A free investing cheat sheet is offered to viewers, along with a call to action to engage with the content.

Transcripts

Charlie Munger, Warren Buffett's

right-hand man, famously said,

"The first 100,000 is a

b***h, 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."

But let's see if he's

actually right or not.

In this video, I'm going to show you the

maths behind getting

to your first 100,000.

And we're going to discover whether

getting to your first

$100,000 is the hardest or not.

If you invest $100 a week with an 8%

annual return, it would take you 12 years

to reach your first 100,000.

But to go from 100,000 to 200,000, it

would only take you six years.

And to go from 900,000 to a million, it

would only take you one year.

So it looks like Charlie Munger was

actually right when he said your first

$100,000 is the hardest.

In this example, once you reach your

first $100,000, you're actually one third

of the way to a million dollars.

And the reason why is

because of compound interest.

The first $100,000 is the hardest and it

always takes the longest.

But once you reach your first $100,000,

it gets easier because it gets easier to

make more money as you

have more money invested.

In this example of investing $100 a week,

you can see that in the first year with

an 8% annual return,

you would only make $400 in interest.

But in the last year, leading up to that

$1 million, you would make

over $70,000 in interest.

And the reason why is because you would

have already had $900,000 invested.

And because of this, even if you are

investing the exact

same amount every year,

because you have so much more money

invested, you make a

lot more money in returns.

What I find really motivating about

getting to your first $100,000 is when

you actually start breaking these numbers

down by percentages.

Using the same example, we can see that

the first $100,000 took a

third of the time to achieve.

But to go from $500,000 to a million

dollars, it takes about a

third of the time as well.

So this really goes to show that the

first $100,000 really is the hardest.

And once you achieve this hurdle of

getting to your first $100,000, it gets

so much easier to build wealth.

So don't give up.

We love you, Bob.

And if you would like to calculate your

own network, you can check out my

completely free net worth tracker.

And of course, the more that you invest,

the faster you can potentially

reach your $100,000 milestone.

For example, if you invested $200 per

week instead of $100 per week, you could

reach your $100,000 goal in eight years

instead of 12 years.

And if you invested $400 per week, you

could reach your

$100,000 goal in five years.

Just remember that anything that we talk

about in this video is general financial

advice only and doesn't constitute

personal financial advice.

You can read my full financial services

guide in my description.

So now we know the maths behind why

getting to your first

$100,000 is the hardest.

Why it gets so much easier once you reach

your first $100,000 milestone.

Let's go through some ways on how you can

reach your first $100,000.

The first step is to

start creating some goals.

I never completed any of my

goals until I started doing this.

Instead of setting yearly

goals, I now set 90 day goals.

And 90 day goals are

actually backed up by science, too.

Scientists have actually researched this

and what they found is that 90 days is

the perfect time frame that you can

actually start to change your habits.

And the reason why I think 90 day goals

are so much more powerful than setting

yearly goals is because if you set goals

every single 90 days,

you can essentially achieve four times as

many goals in a year as if you just set

goals at the beginning of the year.

Plus, I think it's a good amount of time

to actually get some

meaningful goals done,

but not too long that you completely

forget about the goals that you set at

the beginning of the 90 days.

An example of a goal to help you get

closer to your first $100,000 is saving

$10,000 in one year.

You could start by breaking this big goal

down into smaller pieces.

$10,000 in one year is $2,500 quarterly,

$833 monthly, $192 weekly and daily,

that's just $27.40 per day.

And if you're enjoying this video so far,

don't forget to give this video a like

and subscribe to this YouTube channel.

The next step is to create a budget and

review your income

and expenses regularly.

I'm not going to lie, the first time I

did this, it was really confronting

because what I realized was

I was actually spending a lot more money

than I thought I was.

And something else that I realized was I

was spending a lot of money on things

that didn't really bring me value.

Not only has this enabled me

to save more and invest more,

but I've also gotten a lot more value and

enjoyment out of the

money that I'm spending.

One of the changes that I made to my

expenses after reviewing my budget was

that instead of buying a coffee and

breakfast every single day,

I instead bought a coffee machine so I

could make my coffee at home and also

made my breakfast at home too.

This small change may have only saved me

$15 a day, but $15 a day

adds up to $5,475 in a year.

And this money has enabled me to travel

more and also invest more.

And if you would like a completely free

tool that can help you track all of your

investments in the one place,

you can check out ShareSight.

I personally love using ShareSight

because I do have a lot of different

investing apps and brokers,

and ShareSight enables me to put all of

them in the one place so I can see the

total returns for my portfolio.

It calculates my capital gains,

dividends, and it even

produces tax reports.

So if you would like to check out

ShareSight for yourself, I've got a link

in my description below.

It's completely free

for up to 10 holdings.

And if you go on a premium plan using my

link, you'll actually get an

extra four months for free.

The three biggest expenses people have

are housing, transport, and food.

So if you can find a way to save more

money on these three biggest expenses,

then this can save you a

lot of money in your budget.

Some ways you can save on housing is

either negotiating your rent or switching

your mortgage to a more

competitive interest rate.

You could also choose to

move somewhere more affordable.

To save on transport, you

could take more public transport.

And to save on food, you can start

planning your meals more

and eating more at home.

Something really important to note is

there's only so much we can

really cut out of our budget.

So the other lever we can pull is to

increase the amount of money that's

coming into our bank accounts.

And the way that we can do that is by

asking for a raise or switching jobs.

Did you know that new employees are

actually paid on average 7% more than

existing employees doing the same job?

And this can really

compound over a lifetime.

Studies have also shown that employees

that switch jobs more frequently

earned 50% more over their lifetimes than

people who stayed in the same job for

long periods of time.

So if you haven't gotten a pay rise for

more than a couple of years,

maybe it's time to look for a better

offer or at least ask for a pay rise.

The worst thing that

could happen is they say no.

Another way you can increase your income

is by starting a side hustle.

There are so many

different side hustles out there,

but I think it's important to really

consider what your unique skills are and

what your unfair advantages are.

And you can really use these

advantages to your advantage.

So once you're on top of your finances,

the next really important step is to set

up an emergency fund.

An emergency fund is from three to six

months of living expenses

saved in cash in a bank account.

And this is so that you have some money

to rely on just in case

any emergencies pop up.

For example, if you lose your job or if

any unexpected expenses pop up.

I personally keep my emergency fund in a

high interest savings

account called YouBank.

They currently have a

five percent interest rate.

And the only requirement to get this high

interest rate is to deposit

two hundred dollars per month.

And if you would like to

try YouBank for yourself,

you can use my code

QUEENY30 for a thirty dollar bonus.

The reason why it's also important to set

up an emergency fund is if

you want to start investing,

it's a really good idea

to have this in place,

because as we know, the stock market goes

through highs and lows.

And if we invest money into the stock

market that we actually need to live

and we actually need to take out, we

could end up taking our money out at a

bad time in the market.

And let me show you an example to

illustrate my point.

The average return for the S&P 500 is

around 10 percent per year.

But not every year is

a perfect 10 percent.

Some years it can be more

and some years it can be less.

For example, in 2023, the annual return

for the S&P 500 is 13.81 percent.

But in 2022, the annual return was

negative 19.44 percent.

In 2021, the return was 26.89 percent.

And in 2020, the

return was 16.26 percent.

I mean, can you imagine if

you invested $10,000 in 2022,

but you later needed to take that $10,000

out of the stock market,

you could have made a loss of $1,900.

But if you were able to leave your money

invested in the stock market

because you had an emergency fund set up,

then you would have

almost made your money back.

And because of this

volatility in the stock market,

that is why it's recommended to have an

investing time frame

of at least seven years.

And this is because these

returns can really compound

when you do leave your money invested for

long periods of time.

If we invested $10,000

into US shares 30 years ago,

we would have $176,000 today.

If we invested $10,000 into Australian

shares 30 years ago,

we would have $138,000 today.

And if we invested $10,000 into

international shares 30 years ago,

we would have $87,000 today.

And when you compare that to leaving

$10,000 into a bank account,

we would only have $34,000 today.

And that is the power

of compound interest

and leaving our money

invested for long periods of time.

What I personally do is I set up

automated investments.

So then my money is just working for me

without me having to actually think about

making my investments each month.

And the platform that I use to invest

regularly is called Perla.

And if you would like to

try Perla for yourself,

you can use my code

Queenie for a $20 credit.

I've also created a completely free

investing cheat sheet,

which you can check out

down in the description below.

And write us a comment

below with the word money in it,

just so we know you watch

this video all the way through.

Thank you so much. See ya.