
October 29, 2024
No one likes to hear that “It takes money to make money,” but the old adage has never rang more true—because the sooner you get to $100,000, the faster you’ll get to that next $100,000 and beyond.
From barely affording rent in your twenties to jealously scrolling friends’ travel photos on Instagram, it’s easy to think about all those moments in life when we could have used a trust fund. But as much as we may wish we had that nepo-baby security to rely on (and boy, do we ever), we also know that at the end of the day, wishing won’t get us anywhere productive.
What we do know is that Charlie Munger’s $100K theory can take us far (like, really, really far)—so much so, that the financial titan’s infamous words actually inspired many of the principles that Basic Capital was founded on:
"Find a way to get your hands on $100,000. The first $100,000 is a bitch, but you gotta do it."
So, while we may not currently be in a place financially to spontaneously soak up the sun on the beach, we do have access to tools that can get us there faster than the average brokerage account can.
Why is $100k such a magic number?
While saving is an important tactic for wealth generation no matter your income or tax bracket, to get to a place where your investments are truly working hard for you, you need a substantial sum that can build off itself.
While some modern analysts argue that $100K in today’s market isn’t what it once was when Munger gave his initial advice in the 1990s, many still believe it to be the magic number where the snowball effect really comes into play.
What is the snowball effect?
The snowball effect in investing is based on the popular image of a snowball rolling down a snowy hill. Push that small snowball down the hill, and the further it travels, the faster and bigger it grows.
It’s not that dissimilar to how your money works when invested in the market.
The snowball at the top of the hill begins its journey slowly, and doesn’t gain real momentum until it’s well on its way downward. Your investments act very much the same way—investing a few dollars here and there is all well and good, but when you’re able to put substantial capital toward your investments, so that it can take advantage of the stock market’s annual return, you earn more money, much faster, thanks to compound interest.
That means, the sooner you get to $100,000, the faster you'll get to that next $100,000 and beyond.