Buffett’s right-hand man revealed the wealth lessons most people ignore

As Warren Buffett’s legendary right-hand man at Berkshire Hathaway, Charlie Munger spent decades building a $2.6 billion fortune. Munger’s advice on how to start building wealth was frank and honest. It’s also a stark contrast to the get-rich-quick promises so common today.

Munger, who died in 2023, said the hardest part of getting rich is making that elusive first $100,000. Below, we’ll discuss his advice on how to do just that.

The hardest step: building your first $100,000

Charlie Munger doesn’t sugarcoat the reality of starting to build wealth. He famously said:

• “The hard part of the process for most people is the first $100,000. If you’re starting out flat at zero, raising $100,000 is a long struggle for most people. I would argue that people who get there relatively quickly are helped if they are motivated to be rational, very motivated and opportunistic, and spend their income very steadily. I think those three factors are very helpful.”

Walking the Talk: Lessons from Munger’s Early Life

Munger was there. He once told the Wall Street Journal that in his first 13 years as a lawyer, his total income from practicing law was $300,000. At the end of those 13 years, he had $300,000 in liquid assets, plus a house and two cars.

“Everyone was going to spend that little income, not invest it smartly, etc.,” he said.

“I think for me, it was as natural as breathing, and of course I knew how compound interest worked! I knew that when I saved $10 I was already saving $100 or $1,000.” [because of the future growth of the $10]”It only took a little bit of waiting.”

Compound and momentum

Waiting and the power of compounding were key elements of Munger’s investment philosophy. These still apply to wealth accumulation, where the payoff comes after years of struggle.

Once you reach your first $100,000, which is an unattainable amount, doubling turns your savings into a snowball that descends and gets larger with each cycle, provided you give it enough time. Munger often emphasizes that after working hard to provide initial capital, “the big money is not in buying or selling, but in waiting.”

For example, if you start with an annual salary of $60,000 and manage to save $10,000 each year, and then invest that amount in an S&P 500 index fund at the end of each year, it could take approximately eight years of disciplined saving to reach $100,000.

After you reach $100,000, you can start to really gain momentum. Keep in mind that the average annual return for the S&P 500 is 10%, and your $100,000 could now earn as much as you’ve been struggling to save from your paycheck all those years.

How to start

Let’s analyze the second part of Munger’s comment about saving the first $100,000:

• He is With enthusiasm sane: Be passionate about making even the smallest spending decisions based on long-term goals.
• Be careful and opportunistic: Stay focused on your financial goals to help motivate you, and look for any opportunity to save or make a smart investment.
• Significant underspending: Munger did not save all of his income earned over 13 years by indulging in food. He did this by being frugal (and investing his savings).

Bottom line

Although he demanded real commitment, Charlie Munger’s approach to getting rich was simple. The hardest step is the first step: accumulating your first $100,000. Achieving this feat requires sacrifice and relentless discipline. Once this is achieved, the power of compounding and consistent investment makes building wealth more achievable over time. Munger’s advice was clear: There are no shortcuts to lasting financial success.