Why The First 100k is the Toughest: Charlie Munger Investing

Hello guys, I hope you are having a great day. In this video, we're going to take a look at one of Charlie Munger's most famous quotes. The quote talks more specifically about how the

first

hundred thousand dollars are a pain, more specifically us. Let's take a look at why and how exactly the

first

hundred thousand dollars a person earns are always the hardest. Charlie Munger has years and years of experience and education from being an officer in the military to making money. He is a Harvard Lawyer and has over 10 years of experience working at an investment firm where he earned over 20 a year, but is best known for being the vice president of Berkshire Hathaway and Warren Buffett's right hand man. man, he is currently worth around $1.6 billion and has currently been able to accumulate a net worth of around $1.6 billion, so a little backstory back in the 1990s, Berkshire Hathaway was celebrating their annual meeting when a young man approached Munger and asked him how he could best build his wealth, the man complained that he was having a hard time getting started and when he couldn't grow his wealth as fast as he expected, that's when the dealer he responded with one of his most famous quotes, his first.

A hundred thousand dollars is a pain, but you have to do it. He goes on to say something along the lines of 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. a way to get a hundred thousand dollars, after that you can ease off the accelerator a little bit, so obviously we can all relate to this, we've all tried to do something or start something, and when you start you know you're a little bit motivated because it's a new idea and something new that you want to try and implement, but over time you start to lose that resilience to continue because you feel like you haven't been able to. in some ways exceeds what you expected, so in order to try to save your first hundred thousand dollars it can be quite complicated, more specifically because the amount of money you are earning for that hundred thousand dollars will mainly come from your savings even though If you are saving your money and

investing

it, you will get very little return on your investment during this time when you are trying to accumulate that first hundred thousand dollars.

Now let's go ahead and take a look. In an example on how to save your first 100,000, let's say you want to achieve this goal in about a five-year span and during this time you were to steadily and consistently save money each month to work toward this goal now while If we're doing this since year zero through year five, let's say you also get about a five percent return on your investment each year, if all cases are true, you'll need to save about eighteen thousand dollars per year or about fifteen hundred per month to be able to reach your goal and that is, if all cases remain true, you may not be able to get a good five percent return on your investment, it could be one of those years where it's a really difficult year and, In fact, you end up losing money on your investment, but let's say you can save and get a return on your investment of about five percent.

All cases are valid. At the end of the five years, you saved about 104 thousand dollars of your money of that hundred and four thousand dollars because most of it is savings, but you have something that is a return on your investment, you would actually have about 89,000 that they would come from just you saving your money or in other words, if you want to look at it more from a percentage point of view, about 86 of the money. that you saved comes directly from your savings and the other 14 comes from the return of your investments over the last five years and that money has been growing for you.

Now let's go ahead and say that maybe you earn a little more than that and can actually save. a little more aggressive because you are determined to move forward and achieve your goal of one hundred thousand dollars within a certain period of time, so for this example let's go ahead and say you want to save one hundred thousand dollars, let's say three years from now. We will keep all variables the same, where you will still earn a good five percent return on your investment as you increase your investments from year zero to year three, even if you were to earn at least a minimum of With an investment return of five percent each year you are saving, you would still need to save about thirty-one thousand dollars a year to achieve your goal of saving one hundred thousand dollars in the first three years, which would also be roughly equal to about two thousand six hundred. dollars, so you have to save monthly for three years to be able to save the hundred thousand dollars.

Now this may sound a little more confusing because it sounds like okay, you're saving more aggressively, so as you save more, you might as well have that money invested more, but how to invest time is actually your friend, you want to give it more time so it has more time to grow and develop further and continue to accumulate for x amount of time. Now let's say you understand it better. in the stock market and you can get a return on investment of about 12 per year, even with a return of 12 on the money you are saving from year 0 to year 5, you will still have to save over fifteen thousand dollars per year to reach minus a hundred thousand dollars, so clearly, no matter how much you can earn on your returns from year zero to year five, whether it's five percent, one percent, or even twelve percent, you'll still have to save a significant amount of money.

To achieve your six figure goal now let's say you can go ahead and save that hundred thousand dollars. It's been five years and you can save a hundred thousand dollars in your portfolio and are making good money. Now let's say you have that money invested in investments that return dividends or more or less with the hundred thousand dollars that you have bought shares of a company or a part of a business where, because you are a shareholder of that company, they go ahead and come back. money back into your pocket as a sort of thank you for being a shareholder, by the way, I'll go ahead and be sure to add a link to the video somewhere up there that breaks down in more detail how stocks perform if you were to invest your portfolio investments that returns dividends with a return of about four percent annually on that hundred thousand dollars, you could earn about three hundred and thirty dollars a month for that entire year, so each month that passes you would earn about $330 passively now, maybe that It might not seem like a lot to some people, but this allows for some kind of flexibility so that people can maybe work less or not necessarily have to save as much because now you're making an extra 330 every month in your paycheck or technically.

Speaking, you're earning an extra three hundred and thirty dollars of positive cash flow. You can also look at it from the angle of let's say you have a hundred thousand dollars of cash waiting in your investment portfolio. Go ahead and go all in. Let's say a company that you really want to invest in you really believe is undervalued and you think that consumer behavior will make it skyrocket even more even though it's very low right now, you do everything you can with that hundred thousand dollars and let's say that you earn a return of 30, well, in a year with a return of 30, you will have earned approximately 30,000, clearly 30,000, which is a good amount of money to earn with a year of investments, I mean, for most people, that's possibly a salary or with that. thirty thousand dollars, you can go ahead and reinvest it more and now you have a hundred and thirty thousand dollars a year later and you can keep

investing

it and let it grow even if you got a thirty percent return on, say, ten thousand. dollars, you would only make about three thousand dollars in that year, in addition to the ten thousand dollars that you originally invested in, now both making three thousand dollars and thirty thousand dollars are great because you are still earning a good thirty percent return, but take time for your money to grow, so when Charlie Munger says that your first hundred thousand dollars is a pain, but you have to do it, it's because you need some kind of principle, a good amount of principles too, not just a thousand or two one thousand three thousand you need to go ahead and save a good amount of capital so that the capital money can go ahead and work for you and according to the dealer you feel that one hundred thousand dollars is the right amount for where you can allow it to grow over time. some time and it can actually generate substantial returns for you and allow some kind of flexibility in your life, so let's say you currently don't like the job you're in, now you can go ahead and give it a try. find another job because you have a good amount of money that is working for you and be able to generate that good cash flow and take care of yourself, maybe take care of any expenses that you have, like food or rent, anyway, as Charlie Monger says .

The first hundred thousand dollars will be a pain, but you have to do it, so no matter what, keep working and trying until you save your first hundred thousand dollars, it won't be life-changing because you have a hundred. thousand dollars now you are a millionaire and you will never have to work again no, you only have about a hundred thousand dollars but you have enough to allow some flexibility and a kind of relaxation in your life to be able to go and do other things that you want to be able to grow and do grow your investments, so as you work toward your first hundred thousand dollars, make sure you continue to continually and consistently save every paycheck you receive to reach that first hundred thousand dollars.

You can achieve that flexibility in your life and no matter what, just be patient, you will get there as long as you keep working towards it. I hope you enjoyed today's video, thanks for watching.