TWI #46 - The First $100K is a B****, But You've Gotta Do It!

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Welcome to The Weekend Investor, a weekly newsletter where I provide actionable ideas to help you build a wealthier, healthier, and happier even if your time is limited.

Today at a glance: 

• Why the first $100K is a bitch.
• The Initial Struggle: A launchpad for Wealth
• The Power of Compounding
• A Shift in Financial Thinking
• Seven Tips for Getting to $100K
   

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“The first $100,000 is a b****, 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.”

 - Charlie Munger

Charlie Munger's insights illuminate the path of wealth creation.

As Warren Buffett's respected collaborator, Munger noted that the initial $100,000 is both the toughest sum to gather and a crucial landmark on the road to financial success.

This idea encapsulates a deep reality emphasizing the challenges and potential in amassing wealth.

This newsletter will delve into Munger's concept, investigating why the first $100,000 serves as both a significant obstacle and a fundamental foundation on the journey toward financial autonomy. Then, I will give you seven tips for getting to your first $100K.

The Initial Struggle: A Launchpad for Wealth:

For many individual investors, reaching this milestone can be an intimidating endeavor, demanding dedication, perseverance, and time.

Initial hardships often encompass student loan management, modest entry-level salaries, and unforeseen financial obstacles.

These difficulties are a necessary experience, equipping you to navigate the intricate realm of financial decision-making and management.

Surmounting these barriers, however, cultivates indispensable skills and behaviors, nurturing a prudent mindset that yields lifelong financial benefits.

The Power of Compound Interest:

Munger's idea hints at the power of compound interest. Getting the first $100,000 is important not only as a sizable amount but also as a starting point for fast growth.

After reaching this point, compound interest speeds up, making wealth grow even faster.

This lines up with Munger's focus on patience and a long-term outlook on investments.

The initial $100,000 kickstarts this compounding process, shifting from slow growth to impressive wealth multiplication.

Checkout my newsletter on compounding here.

A Paradigm Shift in Financial Thinking:

To get to your first $100K you should also change how you view money.

Striving for the first $100,000 encourages smart spending, saving, and careful money choices.

This disciplined phase often makes people rethink how they spend and plan for the future.

Focusing only on things you want now can hold back our long-term financial security.

By putting the initial $100,000 first, you build a foundation for more freedom and choices that match your dreams.

Conclusion:

Charlie Munger's statement about the first $100,000 being hard to earn but vital for wealth building aligns with the difficulties and chances in the journey to financial success.

This big step is not just about money; it teaches important money skills, starts compounding, and changes how we manage money.

 As people work through the challenge of getting this key amount, they start a process that can bring lasting financial security and make their big dreams come true.

Next, I'll give you 7 tips on getting to your first $100K fast. Keep reading. 

Roadmap to Your First $100K

1. Figure Out How Much You Can Safely Save Each Month

Start working towards your $100,000 goal by looking at your money situation.

See how much you can save each month after checking your income and necessary costs like rent and groceries. Be careful not to save too much that you can't keep up with.

Use apps like YNAB (my personal favorite) or Mint to help understand your money better. They connect to your bank and track what you earn and spend. This helps make a smart plan to reach your $100,000 goal.

2. Automate Your Savings

To keep moving toward your $100,000 savings goal, automate your savings. Set up regular deposits into your savings or investment account, like a 'set-it-and-forget-it' plan. You can do this weekly or monthly, putting a fixed amount each time.

This helps stop accidental spending and keeps you making steady progress.

Use a high-yield savings account to save more. These accounts give better interest rates than regular ones.

The Citi Bank High Yield Savings is a good choice because it's free and doesn't need a minimum deposit.

Another option is UFB High Yield Savings, with a strong 5.25% interest rate now. Earning more interest helps you get closer to your goal.

3. Maximize your employer-sponsored savings and investment accounts

Don't forget about your 401(k) or HSA to hit your savings goal. You put money in before taxes, and you can't easily spend it elsewhere. It goes in automatically.

Retirement accounts have limits set each year by the IRS. For 2023, it's $22,500 for a 401(k). If you max out every year, you'd reach $100K in about five years.

Maxing out isn't easy with life's expenses. A smart move is to use your employer's match (if available) for free retirement money.

Remember that an employer match is a risk free 100% return on your money. 

Everyone should at minimum do this. 

4. Save your tax refunds and work bonuses

You might see a big tax refund or work bonus as an excuse to splurge (and sometimes, that’s exactly what you should do), but you should at least consider putting that extra money into a savings or investment account to bring you closer to your goal.

5. Pay off existing debt

Getting rid of credit card debt can speed up your journey to save $100,000 by freeing up money that used to go to interest. Paying off debt means you can use that cash for your savings goal.

If you're dealing with high-interest credit card debt, a balance transfer credit card might help. These cards often start with 0% interest for a while (though it goes up later).

During this time, you don't get charged interest, so more of your payments go towards lowering what you owe.

Pro Tip: Another option and benefit to having a 401K is that you can borrow up to 50% of your account. 

Use this money to pay off your credit card debt, then pay yourself back with interest. 

I would never advocate doing this unless you can get a better return on your money. 

Paying off a 24% interest credit card and paying yourself back with 5% interest is a 29% return. 

6. Seek a raise or some other way to increase your income

When aiming for a big savings goal like $100,000, it's important to look at how much money you make now. While you can only cut costs so much, you shouldn't make yourself unhappy by saving too much.

If you earn more money without spending more, you can save a lot more.

This makes the goal feel easier.

You could ask for a raise in your current job or find a higher-paying one.

Also, doing extra jobs on the side can help you make more money.

Having these talks carefully and at the right time, whether asking for more money in your job or finding a new one, can open up more financial possibilities and bring you closer to your $100,000 goal.

7. Stay committed to your goal

Saving your first $100K is no easy feat and you’ll almost certainly need to make some sacrifices — whether it’s going out to eat less or skipping that vacation or not buying that dress.

Just avoid depriving yourself of the things that bring you joy for the sake of saving money, as that can lead to burnout.

Also remember that the journey won’t be linear; you may have a surprise expense that pops up and forces you to use your emergency fund. 

Or, you may decide that to be happy, you need a graduate degree or a wedding or any number of major life changes that cost a significant amount of money.

You may take a step backwards on your journey to $100,000, but you can always pick up where you left off.

Just try not to take 10 steps back. 

Check out my Newsletter issue on how losses work geometrically against you. Here

Bottom Line

Accumulating your initial $100,000 will undoubtedly present a substantial hurdle.

In addition to implementing practical strategies like saving tax refunds and automating savings, cultivating an adaptable and resilient mindset is crucial.

If you believe that the eventual rewards outweigh the current difficulties, stay motivated and bear in mind that progress isn't a sprint but a journey of steady determination.

What happened this week?

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