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On the Road to Wealth – the First $100,000 Was the Hardest

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The following is a guest post from Marie at FamilyMoneyValues.  Marie wants to help families understand the potential consequences of wealth.  She encourages visitors to take the long view and pull all family generations together to nourish the family legacy and wealth. 

Looking back, from the vantage point of having a successful wealth building run, we found that Charlie Munger from Berkshire Hathaway was very correct when he said   ”The first $100,000 is a b****.”

I hadn’t heard the Charlie Munger quote until I started doing some research for this post, but for us the first $100,000 was by far the hardest level to reach.  Why was that?

Why was it so hard to get to $100,000 in net worth?

We were inexperienced.

We married directly out of college and neither of us had done much in the way of working or hustling for money.  We lacked work experience.

We came from lower middle class families and weren’t exposed to investing concepts.  We lacked financial experience.

We thought we could live at the same standard that our parents had spent their lives reaching.  We lacked life experience.

We didn’t earn much.

We chose majors in college that didn’t translate into real life job opportunities.

Since we were inexperienced and had generic degrees, it was hard for us to find jobs in the early 1970’s recession.  The jobs we did find, paid poorly.  We worked long hours to get that poor pay, and didn’t start any side hustles to get extra money.

Hubby actually joined the Army, which at the time was paying his level a whopping $2000 a year.  I was a retail manager trainee – making about $5000 a year, until I quit to join him on post.

We started a family right away.

Once we started having kids, expenses really mounted.  There were cribs, car seats, high chairs, diapers and lots of clothes to buy each year.  We needed life insurance.  We bought a house (after 6 long years of saving up a down payment).  It needed furniture; storm windows; a new roof; a mortgage; plumbing and furnace repairs; lawn care and on and on.

Our cash flow was neutral.

We were very fortunate to have parents who put us through college, or full ride scholarships that did.  So at least we didn’t start life together with loads of debt as a lot of you probably did.

We learned during the Army years to stay ahead of credit card debt.  During those years we charged gasoline throughout the month and found that his entire paycheck was needed to pay off the credit card bill (which we did, in full, even then).  We ate a lot of noodle dinners back then so we could keep the debt down.

Even after he was honorably discharged from the service and into a civilian job, our cash inflow for many years, pretty much matched our expenses for the year.  We would put money aside each payday (even though we could only save $20 – $50 a month), only to have to spend it on the end of the year bills – like life insurance and Christmas.

So, with all these clicks working against us, how did we manage to eventually walk that road to wealth?

How did we eventually get to $100,000 in net worth?

Slowly, very slowly.

As I mentioned above, we were fortunate to not have college debt and we were at least smart enough to avoid credit card debt.

We saved every penny we could.  We ate generic food; we shopped garage sales and thrift stores; we turned down the thermostat; didn’t run the window air conditioner; hand washed the dishes and cars; and just plain avoided buying things we wanted (and sometimes the things we needed).  We used cloth diapers, freeze drying them in the garage in the winter.  He rode the bus to work; we waited six years before buying a house.  We did most of the frugal things you can now read about on personal finance websites.

We banked every dollar we could spare.  Even if we knew it would go out the door at the end of the year, we kept putting those dollars in savings.  He put every birthday check in the bank, I put in every dollar I earned delivering neighborhood newspapers with a baby on my back.  All work bonus’s went directly into the bank.  When the stagflation and high interest rates hit in the 1970’s we struggled to pull together a large enough sum to buy a CD so we could get that high rate of return.

We used installments to build equity.    We used a VA loan to buy a starter home in a somewhat less than desirable neighborhood – but still put up a down payment.    As we paid down the debt, the equity gradually rose, adding to our net worth. We purchased a 40 acre tract of raw land using an installment loan and again built equity as we paid off that loan.  We paid down the car loans as fast as we could, then started saving an equal amount towards the next car we would need.

After 10 years of marriage, we had a net worth of around $40k.  From then on, we started gaining traction, increasing by $17K in 1982 and by another $30K the following year.

We opted to add a second full time job.  I went back to work as a computer programmer (after re-training to get the needed skills).  BUT, we continued to live off one salary (his) – even after my annual salary amount surpassed his.

This put us over $100,000k by the end of my first year working.

We have often pondered what we should have done differently – so that we could learn from our mistakes to try to give solid guidance to our children.

What can you do differently to get to $100,000 net worth faster?

What would we do differently if we started over and retained the knowledge we now have?  Some of these may work for you, some may not, but here is what we would do differently:

  • Work during high school and college – to get some real life experience.
  • Get a clue when choosing a college major – find something you love but make sure you can earn a living with it!
  • Buy used cars – you save money on the purchase and on the sales tax and on the property tax.
  • Wait to get married until you have some work experience – know that you are capable of supporting a spouse and a family before you dive into it.
  • Wait to have children until you have some savings and the income needed for their extra expense – there are enough frustrations and stresses that come with kids, you don’t need the financial ones too.
  • Buy a house as soon as you can to start building equity – 6 years of rent payments with nothing to show – geez.  We should have bought with a zero or low down payment.
  • Never buy an asset (like raw land) that doesn’t produce income AND costs you money to keep.  We eventually sold our 40 acre tract of raw land for about an amount (inflation adjusted) that slightly exceeded the purchase price.  It did force us to save (and made the bank some money) and we did enjoy it.  But we should have been buying a house to live in at that time – instead of paying rent and making loan payments on raw land.
  • Take on more risk – start a business.  We lived in a town without a McDonald’s – we should have tried for a franchise!  I had an in-home day care business – before the big chain child care centers were developed – why didn’t I expand it?
  • Have liquid assets when interest rates are high and invest when the stock market is low – we lived our cash life backwards.  In the 1970’s when interest rates were in the double digit range, we had no savings and were borrowing at high rates.  In this decade, when interest rates are near zero we have lots of cash and no debt – backwards – just backwards.  Find a way to use compounding returns better!

What net worth level did you struggle to reach?  Was increasing your net worth easier after you hit your level?  How did you pull together the assets to reach your level?

Resources:

Seeking Alpha: The First $100,000 and the Power of Compounding
Go Banking Rates:  Why the First $100,000 is the Hardest to Save

Crystal’s Comments:  Thanks for the tips learned from experience!  The first lump is always the hardest.  Good luck with continued success!

 

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27 comments to On the Road to Wealth – the First $100,000 Was the Hardest

  • Getting to $100k wasn’t so bad for me, but the next goal I wanted ($250k) was derailed by the stock market crash a few years ago. I have a feeling that took out a few years from a lot of peoples ‘next milestone’ plans.

  • Let me start off by saying that my wife and I are highly paid professionals. Our parents pushed us into the healthcare field and we are grateful for it, so for us, the first million was the hardest.

    Now we didn’t always make a lot of money. I was a sales rep for a while and my wife was in school so we had debt and not much income. The thing for us was to live within our means. I bought a modest townhome and continue to rent it out. We waited to have children until we were financially stable which helps. One of the biggest returns have been from our retirement accounts. I’ve always known the power of compound interest so I shoveled as much as I could into our 401ks and roth IRAs early to capture the compounding and it has paid off.

    I have more of my road to $1 million on my blog.

  • Getting to $100K will be the hardest for us, especially since we’re focusing on student loan debt now. But eventually we will be there!

  • @Money Beagle. Glad to hear it – our $100,000 would have to be $207,000 in today’s dollars! When did you hit your 100K mark and what would you have to have today to be equivalent?
    @ 1 percent – you did more things right that I did!
    @Michelle – it is kind of amazing to see it happen after you have been pushing and pushing towards it.

  • Thanks for sharing, this was a great article! You’ve been through quite a bit – working through the so called stagflation of the late 70s, the boom times of the so-called “Reagan Revolution” (I attribute lots of it to Arthur Laffer and Paul Volker…), the early 90s Real Estate bust, the Tech Bubble, and now the mid 2000s RE bust. That’s an impressive resume, and to amass a good net worth means you’ve done well in all environments. People of recent working vintage only know a Real Estate boom and bust, heh.

    On one note, you mentioned “Buy a house as soon as you can to start building equity – 6 years of rent payments with nothing to show – geez. We should have bought with a zero or low down payment.” I think in retrospect you would have done fine, but it’s entirely possible that buying in 2012 you might have to endure 1-2 years (or more) of falling home prices. The recent past how shown that when RE falls it falls hard, and counting on RE to be your sole money saving strategy should be rethought. Don’t get me wrong – I bought a house last year, I just went into the purchase with my eyes open. I also bought a fixer so I’d have room to grow by making upgrades, heh.

    Again, thanks for the great post!

  • My married life almost mirrors yours, except we bought a house and had student loans. It has been tough for us to dig out.

    Though we have a positive net worth, I remember when it was negative. In 6 months we will be debt free minus house.

    Then I will make my first dollar.

  • My first $100K was pretty easy because my first house doubled in value in less than 3 years. The equity and savings were over $100k.

    I would disagree on the college major though, you should major in something you really like and enjoy to show really good grades. Itis an achievement in itself. Even something non commercial as English Lit is good if you had really good grades. You have to turn that into something commercial which may mean entering a training program in marketing, advertising or some other discipline. You may make less than the engineers, accountants and computer science majors, but you will eventually catch up.
    My daughter majored in communications and now is a Director of planning for a multi billion dollar company.

  • Hey Marie! You really have made some great points. Congratulations on reaching that milestone. When I was an investment advisor it was amazing what happened to a clients outlook when they hit the first 100k-they knew they were winning and their whole attitude changed. Continued success!

  • Thanks for sharing your insights with us. Definitely agree on the assets that don’t produce. Doesn’t sound like much of an asset to me.

  • We’ve been stuck at the $100K mark for a few years. It is mostly retirement savings. I think teaching your kids to save for retirement very early is a good thing – my husband and I didn’t start early but I had a 401K from a previous job that a coworker talked me into, and our Roth’s have been fully funded for the last 5 years or so.
    Now if you’re talking $100K liquid no retirement…then yes. We have a lot of work to do and it will take us a very long time to get there.

  • @PKamp3 – I agree, your house should not be your sole money saving strategy – but building equity vs paying rent still makes sense to me, even in a market that is (I believe) temporarily down. And yes, it is a l-o-n-g temporary -but I do think it will recover and move up.

    @John – tough as the journey is, I continue to get a feeling of accomplishment for having completed it and you may as well.

    @Krantcents – on the major – you are making my point. Majoring in something that doesn’t add up to a job when you graduate means you are going to pay to get additional training in something that does…doesn’t make sense to me.

    @Steve – so why are you no longer an investment advisor – if you don’t mind me asking?

    @Jenna – yes, unless that non producing asset can be considered an entertainment expense, you might want to avoid spending money on it.

    @Kris – I was just talking $100 K anything! We do have IRA’s but in hindsight think it would have been better for us to put that money into federal and state tax free muni bonds.

  • We’re not there yet, but we’re slowly getting there. We’ll be there in a few years, then once all of the mortgage and other debts are paid, we can put most of our income toward savings.

  • My wife and I are afraid to do our networth. She just got a job last week. We both have graduate school loans and 2 little girls that strip all the money from my pockets as fast as it comes in. Right now our net worth is negative. But I will definately share on my blog the day it becomes positive…..because I am going to have a huggge celebration.

  • I know some folks disagree with bullet number 2, but I tend to agree. My under graduate degree was political science, and believe it or not there aren’t a lot of jobs for political scientists out there. Sure I could have gone to law school (thought about it), or gone into lobbying or politics, but none of those career paths interested me. I did/do have a strong interest in politics, but didn’t really want to work in the field. Political science was more of a theoretical and academic interest to me. Had I given my major more thought I could have saved myself a lot of time and frustration (and of course money). I think it all worked out in the end, but these days, I encourage college bound students to get a little life experience before going to school. Sure Brit Lit is interesting, but what can you do with a Brit Lit degree? How does it translate to putting food on the table after you graduate?

  • $100k was a lot of money in the 70’s. These days I’ll bet some of the highly paid singles out there could hit that in a year or two. I am old enough to remember the 70’s and my father struggling with inflation and constant lay offs and I have to tip my hat to you for succeeding during what was a very difficult time.

  • There’s a lot of great, insightful stuff here, but I really love this point: “We thought we could live at the same standard that our parents had spent their lives reaching. We lacked life experience.”

    I think that a lot of credit card debt stems from recent college grads assuming they can (or deserve to??) live like they did when they were living with their parents, who were probably at the peak of their careers during their kids final years in high school. Most likely you won’t be able to eat at the same restaurants, drive the same kind of cars, and have the latest clothes, etc. in your mid to late 20s as you did in your teens and early 20s when mom and dad were footing the bill. And you’ll appreciate all those things that much more a decade or so down the road when you have worked hard and can afford them.

  • @Christa – don’t forget to count the equity in your house as part of your net worth – Uncle Same does when you die!
    @Christopher – we had little reason to track ours for years, but in a way it is like weighing in every day or at least once a week. The more you know the more in control you are.
    @Kari – I did the same thing with a Psychology degree (BA) – useless!!
    @MoneyInfant – awwww shucks, thanks.
    @Anna – so true.

  • I have always heard that the firs (insert a value here) is the hardest. It makes sense because after that the compounding starts really working. I want to hit $100K a lot sooner than you did (no offense) and hopefully go well past that as well. Of course the road to the poor house is paved with good intentions, so I do have a lot of work to do.

  • Great read. Helps with the motivation to keep up with the struggles to get to those goals.

  • PFM

    great article, good to hear a first hand account, the first 100k was easy for us, both working professionals, maxing out 401ks, investing regularly, it then became harder to get to the next level: kids, job changes, market bubbles, we learned hard lessons on how to diversify, not put all our eggs in one basket, how to look for low cost investments not just high flying stocks, now we’re in a comfort zone, our nest egg is on cruise control

  • Still working on the first 100k, but thanks for the advice. My grandfather always said, “learn from others’ failures and successes, it’s a lot easier than trial-and-error”.

  • Thanks for such a great article!There are very useful advices that I think are easy to realize.I think that saving money is a real art.Because a lot of money spend money and buy things they don’t need or just don’t think what will happen tommorow.And I am sure if you want to get rich you should work just like crazy and to plan all your expenses,to buy things that are really neccesary for you.Also you should be creative, trust in yourself and start your own business.I think that it’s not that hard to live by this simple rules if you really want to be happy with your financial life.

  • Mervin Johanek

    Wealth building is quite difficult but with perserverance it is quite possible. Oftentimes, hardwork and innovation are the two things needed to succeed in business.'”.;;

    Yours trully
    http://www.caramoan.ph“>

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