Here’s how much you can save with ‘Dry January’
See how much money you can save with “Dry January.”
america today
The thought of saving up the $1.5 million that most Americans think they need to retire comfortably seems daunting, but what if you could just focus on that first $100,000?
This is advice from the late Charlie Munger, the billionaire vice chairman and Warren Buffett’s right-hand man at Berkshire Hathaway.
“For most people, the difficult part of this process is the first $100,000,” Munger acknowledged at Berkshire Hathaway’s 1998 annual meeting. “Raising $100,000 is a long struggle for most people, even if you start from scratch.”
But once you hit that milestone, things get a little easier. The reason, financial experts say, is compound interest, or what Albert Einstein reportedly called the “eighth wonder of the world.”
“This is the miracle of compound interest,” says Brad Clark, principal investment advisor and founder of Salomon Financial. “It’s incredible to see what happens after a few years (of saving and saving).”
What happens with compound interest?
Compound interest occurs when: You (delete Your savings will also start earning interest. “Think of it as earning interest on the money you save,” the St. Louis Federal Reserve said.
A popular illustration is often used to illustrate the power of compound interest. Would you rather have a penny that doubles every day for a month, or $1 million now?If a penny doubles every day, you would receive 1 penny on the first day, 2 pennies on the second day, 4 pennies on the third day, and so on.
A lot of people get caught up in the idea of $1 million, but if you have 30 days, that’s a better option. Mathematically, if a penny doubles every day, it will be worth $5,368,709.12 on the 30th day, which is much more than $1 million.
What’s so special about the $100,000 number?
To Munger, who was about to turn 100 years old.th His birthday in 2023, when he passed away, is at the $100,000 milestone, when compound interest really accelerates and your money starts working hard for you.
“Once you get past $100,000, the formula engine finally starts to work in your favor,” he says. “Ten percent of $100,000 is $10,000. All of a sudden, you see the benefit. All of a sudden, it feels like it’s worth the effort.”
But again, I warned that saving your first $100,000 will be difficult.
“You’re going to have to do things that most people wouldn’t do,” he said. “You have to save when it feels pointless. You have to invest when the numbers seem insignificant. You have to ignore the urge to emulate your neighbor who just bought a shiny new car on credit. When you’re young, $1,000 seems like a lot. If you save it, you’ll earn $20 a year. That’s why most people give up. They’re better off buying a toy today than planting it tomorrow.”
Saving $100,000 could be as much as you could earn sitting down in a year as you worked for years and struggled to save from your paycheck. If the interest rate is 2%, $100,000 will earn you $2,000 a year.
If you invested $100,000 in the S&P 500 index last year, you would have earned $17,000. The S&P 500 returned about 17% in 2025.
Will the $100,000 milestone still hold?
More Useful Advisors said don’t get hung up on the $100,000 number. Some believe the figure could be closer to $200,000 after adjusting for inflation over the nearly 30 years since Munger made his first remarks.
In any case, people should focus on: habit Advisers said it was important to save early.
“There’s a bigger question: why and how to save for retirement with dignity,” said Ted Schmelzl, vice president of retirement plan services at The Standard. “Some people may be able to save a lot, and some may not be able to save as much.”
But for everyone, “the place where you develop habits is when you start your career,” Schmelzl says. “Time is the most precious thing. You can’t get more of it, so it’s very important to make use of it.”
The longer your money grows exponentially, the more money you’ll have in retirement.
For example, a 25-year-old who saved $5,000 each year for 10 consecutive years, invested it at 8% interest, and never added a penny more would have more than $787,000 at age 65.
Compare this to someone who saved $5,000 every year for 30 years from age 35 to 65 and invested that money at the same interest rate. That person would have less than $612,000 in cash, more than $150,000 less.
But the reason it’s so difficult in the beginning is because “you start from nothing, and you end up with nothing,” Munger says. “It’s like trying to push a heavy rock from a standstill. Once it starts rolling, the momentum helps.”
When and how should you save?
Advisers said people should start saving as much as they can as soon as possible.
Advisers say that in your first job, your goal is to fill out a 401(k) form, contribute as much as you can, and check off automatic annual increases to collect at least all the money your company matches. Your donation will be automatically credited to your account. No need to think about it.
Munger also said, “Live below your means, save like a pessimist, invest like an optimist, and ignore the fools.” “It’s not complicated, but it’s hard…Discipline is the most precious thing in the world. If you’re under 40 and broke, don’t despair. But don’t kid yourself. You have to save until it hurts. You have to make sacrifices.”
Clark said if Americans save a lot of money when they’re young and before they have children, “there’s no question about it. It’s going to be a lot easier later in life.” This is true not only after retirement, but also during the “chaotic midlife” period, when you have to pay for childcare, babysitting, education, sports, and housing, and you can’t save much. He said the initial savings amount would increase to offset the smaller savings contribution.
Advisers stressed that even if savings contributions are small during slow periods, it is important to continue to build up that fund and increase it again when possible. “Keep your muscles moving,” Schmelzl says.
Discipline is “not sexy advice, but it’s the only advice that matters,” Munger says. “Spend less than you earn. Invest what you save. Be patient.”
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
