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At Berkshire Hathaway\u2019s 1998 Annual General Meeting (AGM), Charlie Munger stated:<\/p>\n
\nThe first $100,000 is a bitch, but you gotta do it. I don\u2019t care what you have to do. If it means walking everywhere and not eating anything that wasn\u2019t 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.<\/p>\n<\/blockquote>\n
I imagine Munger did not expect people to continue to take his advice at face value roughly 27 years later. Some people on social media, however, perpetuate this myth.<\/p>\n
These are my thoughts on why we should break the $100000 myth and why we should never ease off the gas a little bit.<\/p>\n
Inflation<\/strong><\/span><\/h3>\n
Using the US Bureau of Labor Statistics CPI Inflation Calculator<\/a>, we see that $100,000 in May 1998 is equivalent to just shy of $194,000 in November 2024; Berkshire Hathaway typically holds its AGM in early May which is why I chose May as my starting month.<\/p>\n
If Munger were still alive, he would likely suggest people do whatever it takes to reach an amount well in excess of $100,000!<\/p>\n
Even if you attain this milestone, it is unlikely it will miraculously transform your life.<\/p>\n
Mismanagement<\/strong><\/span><\/h3>\n
Attaining a particular financial milestone does not guarantee the money will be managed wisely or invested in a way that ensures growth.<\/p>\n
Managing your money is an ongoing process. It does not stop once you reach a milestone.<\/p>\n
You must always:<\/p>\n
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- set objectives and a goal and update when appropriate;<\/li>\n
- create and follow a budget;<\/li>\n
- save and invest;<\/li>\n
- reduce and avoid the wrong kind of debt (eg. car loans, credit cards, payday loans, etc.);<\/li>\n
- view financial education as an ongoing process; and<\/li>\n
- protect your assets (ie. insurance, Will, and Powers of Attorney – Health and Finances)<\/li>\n<\/ul>\n
Circumstances Differ<\/strong><\/span><\/h3>\n
It is impossible to state a set amount that everyone should have saved by a certain age. Circumstances differ. The amount depends on each person\/family, their lifestyle, and objectives and goal.<\/p>\n
How can an arbitrary milestone be the same for a single person and a household with 4 children?<\/p>\n
The cost of living differs depending on where you reside. The cost of living in a mid-sized city in Louisiana is not the same as in New York City. Someone living in Louisiana with an emergency fund that could sustain them for 6 months will require a very different amount than someone living in New York City.<\/p>\n
Lifestyles also differ. One person may lead a \u2018down to earth\u2019 lifestyle. Another may try to impress people they don\u2019t know with money they don\u2019t have. The person with a ‘down to earth’ lifestyle will need a fraction of what the other person will require.<\/p>\n
Incomes differ. Suppose Family A has an annual pre-tax household income of $150,000 and has $200,000 of investments after a period of time. Contrast this with Family B whose combined annual pre-tax household income is $1,000,000 with only $200,000 of investments after the same time frame. Family A has its act together. Family B needs a \u2018check up from the neck up\u2019.<\/p>\n
Life\u2019s Surprises<\/strong><\/span><\/h3>\n
Ask anybody who has experienced employment upheaval or major health issues resulting in horrendous medical bills.<\/p>\n
Imagine owning your principal residence in Florida or California. Once upon a time, you could get insurance coverage. Not so easy anymore, is it?<\/p>\n
Perhaps the plan was to, one day, sell the principal residence with a portion of the sale proceeds being used to fund living expenses during retirement. In the current environment, homeowners in Florida and California are unlikely to get anything close to what they had once anticipated.<\/p>\n
Imagine raising children hoping they will one day \u2018leave the nest\u2019 and only return to visit. An increasing number of children are \u2018moving back home\u2019 for one reason or another; the ‘visit’ is no longer a ‘visit’.<\/p>\n
In some areas, the cost of real estate is beyond the reach of many people. Buying a first home is totally out of the realm of possibility and in some areas, rental accommodation is too expensive. Go on YouTube and look up ‘Tiny Apartment New York’<\/a>.<\/p>\n
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- $1750\/month for an apartment that is the size of a car?<\/li>\n
- Share a washroom with other people living on the same floor?<\/li>\n
- No stove? Washing dishes in the sink where you brush your teeth?<\/li>\n<\/ul>\n
Did any of these people imagine this lifestyle when they were much younger? Maybe but I doubt it.<\/p>\n
Break The $100000 Myth – Final Thoughts<\/strong><\/span><\/h2>\n
I understand what Munger was communicating when he made that statement. Too many people, however, take his advice literally.<\/p>\n
When he said the first $100,000 was a critical hurdle, he was conveying the need to build wealth. The outset of the journey to build wealth will generally be a tough slog. It will seem like an eternity to reach the first major milestone. If you do the right things, no major event derails your life, and you don\u2019t give up, however, you have a reasonable probability of reaching your first major milestone. I use the term \u2018reasonable probability\u2019 because nothing in life is for certain.<\/p>\n
If you attain your first major milestone, the habits formed to reach become ingrained in your psyche. Reaching your next major milestone should not seem so daunting.<\/p>\n
If you create proper habits to reach your first milestone, why would you let your foot off the gas and revert to some of the habits you previously had?<\/p>\n
I suspect that if your surveyed 1000 people who eased off the gas a little and subsequently ran short of money in the future, a significant number of these people would tell you they made a terrible mistake by easing off the gas. We never know what life will deal us in the future but life is a whole lost easier when you have no financial pressures.<\/p>\n
I wish you much success on your journey to financial freedom!<\/p>\n
Note:<\/em><\/strong> Please send any feedback, corrections, or questions to [email\u00a0protected]<\/span><\/a>.<\/em><\/p>\n
Disclaimer<\/em><\/strong>: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation.<\/em><\/p>\n<\/p><\/div>\n