Charlie Munger’s $100,000 Rule: The Wealth-Building Advice Every Investor Needs to Hear

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 blunt and honest. It’s also a stark contrast to the get-rich-quick promises that are so common today.

Munger, who passed away in 2023, said the hardest part of getting rich is putting together that elusive first $100,000. Below, we’ll discuss his advice on how to do it.

The Hardest Step: Building Your First $100,000

Charlie Munger never sugarcoated 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 have a standing start at zero, getting together $100,000 is a long struggle for most people. And I would argue that the people who get there relatively quickly are helped if they’re passionate about being rational, very eager and opportunistic, and steadily underspend their income grossly. I think those three factors are very helpful.”

Walking the Talk: Lessons From Munger’s Early Life

Munger had been 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 else’d have spent that slender income, not invested it shrewdly, and so forth,” he said.

“I just think it was, to me, it was as natural as breathing, and of course I knew how compound interest worked! I knew when I saved $10 I was really saving $100 or $1,000 [because of the future growth of the $10], and it just took a little wait.”

Compounding and Momentum

Waiting and the power of compounding were key elements of Munger’s investment philosophy. And those still apply to wealth accumulation, with the payoff coming after years of struggle.

Once you’ve reached that elusive first $100,000, compounding turns your savings into a snowball running downhill that grows larger with every rotation, provided you give it enough time. Munger often emphasized that after the hard work of saving your initial capital, “the big money is not in the buying or selling, but in the waiting.”

For example, if you’re starting out on a $60,000 annual salary and manage to save $10,000 each year, then invest that $10,000 into an S&P 500 index fund at the end of each year, it could take roughly eight years of disciplined saving to reach $100,000.

After you reach $100,000, though, you can start to really gain momentum. Consider that the average annual return for the S&P 500 is 10%—your $100,000 could now be earning you as much as you struggled to save from your salary all those years.

How to Get Started

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

• Be passionately rational: Be passionate about making even the smallest spending decisions based on long-term goals.
• Be eager and opportunistic: Stay focused on your financial goals to help motivate you, and look for any opportunity to save or make a shrewd investment.
• Grossly underspend: Munger didn’t save his entire earned income over 13 years by indulging. He did it by being frugal (and investing his savings).

Bottom Line

Though demanding real commitment, Charlie Munger’s approach to getting rich was simple. The most difficult step is the first one: accumulating your first $100,000. Hitting this milestone requires sacrifice and relentless discipline. Once you’ve achieved this, the power of compounding and steady investing makes wealth building much more achievable over time. Munger’s advice was clear: there are no shortcuts to lasting financial success.