Why the First $100,000 is so Hard (And the Next is Easy)

charlie munger famous billionaire investor and vice chairman of berkshire hathaway believes that the first 100 thousand dollars is the hardest to amass it's not just him though many people who have grown their wealth believe this to be true and the same thing is often said about achieving the first million once you reach one hundred thousand dollars the next one tends to come much more quickly before you know it you have two hundred thousand dollars three hundred thousand dollars and four hundred thousand dollars then once you hit the million dollar mark the second one is right around the corner and it seems to take a fraction of the time as the first this is reassuring for those of us that feel like their wealth is growing slower than they like but why exactly does it get easier let's see why it takes a disproportionately long time to reach the 100 000 mark and discuss some things you can do to speed up this process so you become wealthy years sooner my name is chris and i help teach people about money personal finance and investing if you're interested in improving your financial future make sure to subscribe to the channel and hit the like button if this video is helpful one obstacle many face is the process of actually beginning to invest investing can seem like a low priority and it continually gets pushed to the back burner before you know it you're scratching your head wondering how you're going to retire how many people do you know that would start investing if only they had more money when they start making more money they'll invest saying you'll invest when you have more money is like saying you'll put wood on a fire just as soon as it starts producing heat you don't invest because you have too much money you invest because you want more money risk is also a common excuse most of us know a coworker or friend that has reason that investing is too risky so they avoid it entirely as is the case with many things in life taking the first step is the hardest when the finish line seems so far away it's easy to push something off to sometime in the future achieving the first 100 000 requires you to do the heavy lifting meaning the majority of your money needs to be personally contributed by you once your portfolio reaches a sizeable amount compound interest begins to work wonders even though the returns as a percentage don't necessarily increase the returns in dollar amounts become much larger for example if a five thousand dollar investment earns a ten percent return in one year that's only five hundred dollars and it's hardly noticeable five hundred dollars could easily be made just working a few extra hours once in a while and when thought of in this way can seem insignificant when a one hundred thousand dollar investment earns a ten percent return that's ten thousand dollars and that's a great start to replacing your salary once it reaches one million dollars a ten percent annual return is one hundred thousand dollars that's a large amount that is much more than many people earn at their jobs and seeing this huge growth is exciting people say that when their portfolio gets to be worth one hundred thousand dollars they can really notice the progress of their investments once the snowball gets rolling the rate at which it grows accelerates as your portfolio grows to a large amount the progress is extremely satisfying and that excitement can speed up the process put another way you'll begin looking for ways to grow your portfolio more quickly because the rewards are substantial you might look for ways to increase your income so you can contribute more to these investments you might also look for ways to earn better returns so the growth will accelerate instead of going out to eat and spending 100 in the matter of a couple of hours you'll think twice realizing how powerful compound interest is will make you more carefully consider your purchases this is because you'll realize how much that 100 will grow and continually reward you if it's invested and it will be harder for you to part with for example you spend 100 on a meal out and that money is gone forever if you had invested that money it could reward you ten dollars the first year it's invested eleven dollars the next year and twelve dollars the next of course 100 isn't a large amount of money but it's the habit of saving 100 in different categories on a regular basis that will add up as you become wealthier you have more options and this will become more and more obvious when you have one hundred thousand dollars saved there are many things you can do that someone living paycheck to paycheck cannot if you have the opportunity to take another job with a potentially higher income or more room for improvement but the pay isn't steady you have the savings to take that risk your job might pay fifty thousand dollars per year but an opportunity arises it's likely to pay one hundred thousand dollars or more per year but it's commission only if you need that fifty thousand dollar paycheck taking this type of risk isn't practical maybe you've always wanted to start a business and have never had the capital or money to fall back on the new business could make you millions of dollars but if you can't begin it's a lost opportunity perhaps an amazing opportunity presents itself in real estate you have the chance to purchase a home way below market value but it's going to be a big risk when you have money saved up this might be a risk worth taking while it's not always ideal to cash out your investments the fact is that you at least have the option if you need to or for once in a lifetime opportunity presents itself someone who has only a little bit of money saved is so much more limited in what they can do adding to the idea of being able to take advantage of more opportunities when you have more money you can take on more risk with your investments if you see potential in a stock it's easy to be more speculative when you have extra money and it's not going to ruin you financially if that investment doesn't work out you'll hopefully still have other investments a friend of yours could present an opportunity to invest in a new business venture and you're not going to go broke if it doesn't work out someone with little money save doesn't have the option to invest in something like this if you're still working on the hundred thousand dollar milestone there are some ways to speed up the process since the majority of these funds are going to be money you personally contributed you need to focus on increasing the amount you're saving this will be the best way that you can accelerate the process in order to save more money on a regular basis you need to increase your income this could be done either with another job on the weekends or a couple nights per week where that extra cash can be deposited directly into savings consider starting a side business that would bring in some extra income be careful when spending on unnecessary items do you really want to spend 100 on dinner out or would you rather reserve that for special occasions and save more money instead remember watching pennies like this is only temporary until you reach your goal and you can ease up a little bit stay away from large car payments for vehicles that are simply unnecessary as these expenses are common reasons people never reach one hundred thousand dollars never mind one million dollars once you become familiar with the process of saving and investing it will be easier to just continue doing what you're doing by the time you obtain a substantial amount of money you'll be used to finding ways to earn extra money and put that into savings you'll also be used to being more deliberate with your purchases and really think whether or not they're necessary or if it would be more rewarding to put it into savings furthermore you'll be comfortable with taking risk in the process of investing through different market cycles and you might even learn how to take full advantage of them once you reach the 100 000 mark you can let off the gas a little according to charlie munger although the first million is the next milestone it becomes easier as the majority of your investments will likely be the result of compound interest instead of money you need to personally go out and earn next time you're stressed about the difficulty of increasing your net worth know that it becomes easier more enjoyable and more rewarding as time goes on

Channel: Chris Invests

Views: 1,505,913

Keywords: Why the First $100000 is so hard (and the next is easy), why the first $100000 is so hard, the first $100000, the first $100000 is the hardest

Id: 21UZR4mrlOs

Length: 8min 12sec (492 seconds)

Published: Sun Nov 21 2021