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If you’re trying to build wealth, your first six figures in savings is a huge milestone. That’s according to the late billionaire Charlie Munger.
“It’s a b——, but you gotta do it,” Munger told investors at an annual Berkshire Hathaway meeting two decades ago.
“I don’t care what you have to do — 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. After that, you can ease off the gas a little bit.”
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Munger was focused on the six-figure milestone because he believed that’s where the real power of compounding is unlocked. Once you cross this critical threshold, your money earns more money at a meaningful scale.
Yet, for countless families, the numbers show that even a much lower milestone — like $20,000 — could be the game-changer. Here’s what makes it so powerful.
America’s savings crisis
Munger’s $100,000 benchmark has math on its side. But in reality, most families struggle to set aside six figures as they battle stagnant wages and rapidly rising costs of living.
To put this in perspective, the national savings rate, or amount of disposable income left over after accounts are settled, was just 4.6%, according to the Bureau of Economic Analysis. (1) In fact, 21% of Americans have no emergency savings at all, and 37% say they would struggle to cover an unexpected $400 bill, according to a 2024 survey of 1,192 Americans from Empower. (2)
In other words, many families don’t have a safety net.
The dearth of savings is particularly acute for younger Americans. According to a 2024 report by Fidelity Investments, the median net worth of adults under the age of 35 is just $39,000. (3) That’s well under half of Munger’s $100,000 benchmark.
Fortunately, your personal finances could start changing at a much lower threshold. If you’re young or lack savings, getting to $20,000 could really help shift your thinking.
Read more: Warren Buffett used 8 solid, repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
Saving for the medium-term with certificates of deposit
Another way of securing higher returns is through certificates of deposit (CDs), which lock your money away for a fixed term in exchange for a guaranteed return. Rates vary by term but can exceed 4% for longer durations.
This can make them a low-risk savings option that can yield higher interest than some top savings accounts.
Just remember that CDs are not as liquid as high-yield savings accounts.
A lack of savings severely limits your flexibility. In this situation, your top priority has to be survival, which means you don’t have the flexibility to leave your job in pursuit of a better one, take time off to get educated or take on investments with significant risk.
In other words, you have little to no wriggle room, and that has real consequences on the way you think and process the world around you.
According to a survey of Vanguard customers, people with no emergency savings spend nearly twice as much time thinking about money issues every week than those with at least $2,000 in savings. (4)
A high-yield account, such as a Wealthfront Cash Account, can be a great place to grow your emergency funds, offering both competitive interest rates and easy access to your cash when you need it.
A Wealthfront Cash Account can provide a base variable APY of 3.50%, but new clients can get a 0.65% boost over their first three months for a total APY of 4.15% provided by program banks on your uninvested cash. That’s over nine times the national deposit savings rate, according to the FDIC’s November report.
With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, you can ensure your funds remain accessible at all times. Plus, Wealthfront Cash Account balances of up to $8 million are insured by the FDIC through program banks.
Searching for other ways to save
Beyond saving more money, it’s also worth assessing how you’re spending money. As Munger suggested, you might consider cutting back where you can. That doesn’t have to mean sinking to an untenable living standard, though.
For instance, you might have monthly expenditures that should be re-assessed and trimmed down. Be it subscriptions like Netflix or DoorDash or even cell phone bills and car insurance.
When it comes to saving on the latter, free services like OfficialCarInsurance.com can help find the lowest rates for you.
OfficialCarInsurance.com lets you instantly sort through policies from car insurance providers in your area, including trusted names like Progressive, GEICO and Allstate. With rates as low as $29 per month, you can find coverage that suits your needs and potentially save you hundreds of dollars per year.
To get started, fill in some basic information, and OfficialCarInsurance.com will provide a list of the top insurers in your area within minutes.
If managing a budget feels overwhelming to you, apps like Rocket Money can simplify the process.
Rocket Money tracks and categorizes your expenses, providing a clear view of your cash, credit, and investments in one place. It can even uncover forgotten subscriptions, helping you cut unnecessary costs and save potentially hundreds annually.
For a small fee, the app can also negotiate lower rates on your monthly bills, making it a valuable tool for keeping your finances on track.
Boosting your savings and trimming your expenses can have profound implications for your mental health, too. The Vanguard study also found that going from no savings to $2,000 in savings improved financial well-being by 21%. Those who progressed further and saved up three to six months of living expenses in an emergency fund saw another 13% bump in well-being.
American households spent roughly $77,280 per year in 2023, according to the Bureau of Labor Statistics. (5) That means a $20,000 emergency fund should cover just over three months of living expenses for the typical family.
Once you hit this benchmark, you can think about taking some time off work to invest in education or pursue a better-paying job. You won’t need to focus as much on surviving, and can start focusing on growth and investments instead.
Meaningful compounding
Although it would be great to have $100,000 invested in growing assets, even $20,000 can unlock noticeable growth.
The S&P 500 has delivered a compounded annual growth rate of 10% since 1957. (6) Socking away the first $20,000 you don’t need for other savings goals into a low-cost index fund that tracks this index and adding $1,000 per month could get you to the $100,000 threshold in just under five years if the market remains at historic, favorable levels.
If you were to have sold off your investments in a year like 2022, when the S&P was down nearly 20% year-over-year, you could end up losing a lot of money — investing always carries risk (7).
And that’s why it’s crucial you have a long-term outlook — like Munger and Warren Buffett — when it comes to investing so that you can ride out any stock market volatility.
It’s also important to diversify your investments so that you aren’t over-indexed in any one stock or market. But finding the right stock picks can be tricky, and top-shelf advisor services often have asset under management fees, which are charged as a percentage of the portfolio’s total value.
That’s where robo-advisors like Acorns can come in. How it works is simple: When you make a purchase on a linked credit or debit card, Acorns automatically rounds up to the nearest dollar, and the excess is placed into a smart investment portfolio.
Let’s say you purchase a doughnut for $2.30. Before you’re done licking the sugar off your fingers, Acorns will round the amount to $3.00 and invest the 70-cent difference for you. Just $2.50 worth of daily round-ups add up to $900 per year — and that’s before your savings earn money in the market. This could give you the boost you need to reach that $20,000 benchmark.
Plus, if you sign up now and set up a recurring investment of at least $5, you can get a $20 bonus investment.
Remember, Munger’s magic number is potentially within reach once you’re at the $20,000 milestone.
For anyone starting from scratch, getting to this milestone can offer breathing room — don’t get so overwhelmed by his $100,000 suggestion that you never even start.
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Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Bureau of Economic Analysis (1); Empower (2); Fidelity (3); Vanguard (4); Bureau of Labor Statistics (5); Business Insider (6); S&P Global (7)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.