Why The First $100k is the Hardest (MIND BLOWING!) Compound Interest & Charlie Munger

In this video I answer the question of why the

first

hundred thousand dollars are the

hardest

. I will show you that with the magic of

compound

interest

, the

first

hundred thousand dollars is 26 times necessary to become a millionaire, since every 100 thousand becomes faster after that, I believe. That's crazy but also very motivating. I'll do the numbers to show you exactly why this is so. Charlie Munger, the vice president of Berkshire Hathaway, famously said that the first hundred thousand dollars are gone, but you have to do it. I don't care what you do. 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 100,000 after that, you can relieve some gas. This is all thanks to

compound

interest

. I know. I'll get comments saying he said this in the 1990s, so it would be a lot more in today's dollars, so using an inflation calculator a hundred thousand dollars 25 years ago would be worth about 176,000 today. This is just a guide because I used a few different inflation calculators and they all came out with a different amount depending on what percentage they were using, but I will say that these calculations are less about the actual amount and more about how compound interest works.

You could increase or decrease the quantities proportionally. and the time periods would remain the same

charlie

munger

has also said that accumulating the first hundred thousand dollars from scratch with no startup capital is the

hardest

part of building wealth, making the first million was the next big hurdle to achieving it. A person must constantly spend less than he earns to get rich, he explains, it's like rolling a snowball, it helps to start at the top of the hill, start early and try to roll that snowball for a long time, it's okay, so let's see how exactly this works to begin with.

Let's see how long each

100k

would take by contributing 10,000 a year and I'm going to use a return of 7 for this compound interest example. I should mention that the information in this video is for entertainment and general purposes. Just information, not financial advice, you can read my full disclaimer in the description box below, so these compound interest calculations were done using Excel, so in this formula the annual contribution was added as a lump sum and compound interest was added at the end of the year, so in our example of contributing ten thousand dollars a year, it would take seven point eight four years to reach that first hundred thousand dollars and the next hundred thousand dollars would take less time and would take five point one zero years.

Now let's see how. how long does it take to reach the next hundred thousand dollars, well, the third hundred thousand dollars would take three point seven eight years, which is less than half the time it took for the first hundred thousand dollars in this scenario for this amount to reach the million dollars. 30 years and of course if you're enjoying this video don't forget to give it a thumbs up or leave a comment because it really helps support my channel. I have been tracking our progress to a hundred thousand dollars and beyond using shareight. is a portfolio tracking tool that I use and love.

There is even a free plan if you have less than 10 holdings which I have used for many years and if you decide to sign up for the 12 month plan using my link you will save yourself four months off. annual premium plan purchase price, so now let's take a look at the breakdown of each hundred thousand dollars and how long each hundred thousand dollars took. We've already seen the first three hundred thousand dollars, so now let's look at the fourth. it took three point zero one year five hundred thousand dollars it took two point five years six hundred thousand dollars it took two point one four years seven hundred thousand it took 1.87 years 800k took 1.66 years 900k took 1.49 years and 1 million took 1.35 years and I find it even more interesting to look at these amounts as percentages and I can't believe it takes more than a quarter of the time to reach the first hundred thousand dollars.

This is

mind

-

blowing

and once a person reaches 300,000, they are more than 50 of the way there. Becoming a Millionaire The best part about looking at these percentages is that you can apply them to different amounts, you can apply them to save a hundred dollars annually to get a thousand dollars and then eventually ten thousand dollars, or you can also apply them to save one. thousand dollars a year to reach ten thousand dollars and then eventually one hundred thousand dollars and the best part is also that these milestones could happen even faster, very often someone may start off saving a certain amount but over time they can increase their savings.

This means that over time that ten thousand dollars a year could increase to fifteen thousand or even twenty thousand dollars and I have made a table outlining some additional amounts since the more you contribute, the faster each hundred thousand dollars is needed. IM not going to do it. check out all these numbers so if you want to take a closer look just pause the video now at the top it shows different contributions up to 30k per year and then the number of years for each

100k

goes down each column and If you're not an Excel expert, you can also do some projections using a compound interest calculator, you can add whatever your regular deposits are, so I've used five thousand dollars here and then you can change the interest rate to whatever you prefer and then choose the number of years I chose 40 years because that's how long it would take for the amount to grow well, it's a little less than a million dollars, but how nice is that only 200,000 would be regular deposits and the rest would come. from compound interest then you could just mouse over the graph until the total amount reaches 100k and in this example it reached 100k after 13 years which would be 32.5 percent of the total journey and then you can continue mouse over to see how long each $100,000 takes and in this example the $200,000 took seven years or 17.5 of the total journey and if you add them up, that's 50 percent of the total journey to becoming a millionaire and now let's take a look to those third parties one hundred thousand dollars.

Well, it took 4.5 years, much less time than the first hundred thousand dollars. In these examples, the tipping point seemed to be that once performance equaled the amount contributed, it really started to take off. I hope you found this video useful and motivating to stay. the course thanks for listening don't forget to subscribe and you can also find me on instagram and facebook