Charlie Munger Said You Must Save $100K To Build Wealth: 10 Tips To Do So

10/05/2024

Your Retirement Nest Egg Grows

Former Berkshire Hathaway co-chairman Charlie Munger, who passed away in November 2023, once told his shareholders that the secret to building wealth is amassing that first $100,000.

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“I don’t care what you have to do,” he said. “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.”

While that may sound like a lot of money to save up, it is feasible with some solid strategies. Here is advice from experts on the best ways to save that amount of money, so you can take it to the next level through investing.

1. Manage Your Cash Flow

First, it’s crucial to embrace budgeting and cash flow management according to John F. Pace, CPA and tax partner with Pace & Associates, CPAs.

“[In] my work with a Forbes 400 families’ financial planning…[we] meticulously tracked financial inflows and outflows, identifying areas where expenses could be minimized,” said Pace. “For your savings goal, use this approach by creating a detailed budget and sticking to it, channeling surplus funds into high-yield savings or investment accounts.”

2. Cut Back and Focus on Essentials

Like Munger, Justin Godur, founder of Capital Max also suggested that saving $100,000 often requires ruthless frugality.

“I cut out all non-essentials like eating out, unnecessary subscriptions and impulse purchases,” said Godur about when he decided to save up his first $100,000. “Living frugally isn’t glamorous, but it’s effective. By focusing only on what I truly needed, I saved more than I imagined possible.”

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3. Increase Income With Side Hustles

In the process of saving, Godur looked for ways to increase his income.

“I freelanced online, offered tutoring, and even tried out gig economy jobs like ride-sharing. These side hustles added up quickly, and the extra income went directly into my savings. It’s amazing how small, consistent efforts can snowball into substantial savings over time.”

4. Create a Diverse Investing Strategy

Growing money requires more than just saving. The next step is investing, said Pace. His experience is with having diverse investment strategy.

“We managed assets to maximize returns while mitigating risks — this included everything from real estate to market securities,” said Pace while overseeing a tax group at U.S. Trust. “For someone aiming at saving $100K, start with low-cost index funds or ETFs which provide broad market exposure. This helps in compounding gains over time without the need for extensive stock market knowledge.”

5. Invest for the Long Haul

Godur also recommended investing with a long-term perspective. The more lead time you give yourself, the better.

“I chose low-cost index funds and contributed regularly,” said Godur. “The power of compound interest is truly remarkable. By reinvesting dividends and staying the course, my money grew steadily, pushing me closer to my $100K goal.”

6. Automate Your Savings

Pace advised on automating your savings.

“This was a strategy I appreciated when managing tax planning for high-net-worth individuals,” said Pace. “Automated contributions to investment accounts ensure consistent growth in your investments and help in keeping disciplined despite market fluctuations or personal bias.”

7. Adjust Your Timeline

Time is also a crucial piece of getting to a $100,000 savings goal, according to Hao B. Dang, CFA, and investment strategist at Consilio Wealth.

“If a 20 year old is thinking of retirement, then we have a really long time horizon,” said Dang. “If that same 20 year old wants a car in one year, we’re looking at a very short horizon with limited investment considerations.”

8. Work Backwards

Once you establish the goal, work backwards with the expected rate of return, said Dang.

“A young person retiring in 40 years can look at what the S&P 500 did during the last 40 years to get an idea of what range of expected returns they can hope to achieve,” he explained.

9. Utilize Tools

Dang recommended using simple tools, such as an excel spreadsheet and a financial or savings calculator online. These resources can help you find out how much is needed in a lump sum or monthly savings to achieve the goal with the amount of time and rate of return.

10. Seek an Employer Match

Employer matching funds are another great way to build income, though these are often retirement specific funds.

“Some common matches I see are 50% of a 6% contribution, or a max of 3%. It doesn’t sound like much but can turn a 6% contribution to a 9% contribution each year,” said Dang. “Once the eligibility period starts … set it to automatically contribute 6%.”

“Normal people tend to struggle with spending, especially with higher costs for everything,” Dang added. Like Pace, he suggested an automatic contribution because “they don’t miss the money as much if they don’t see it.”

Saving up $100,000 isn’t easy, but every little bit along the way will encourage you to work harder toward that ultimate goal.