of people working together for the common good. It is why he believed in “We, the people” and advocated that “if we are industrious we shall never starve; for, at the working man’s house, hunger looks in but dares not enter.”
The eldest Founding Father of the United States was also a firm advocate of the virtues of frugality: “If you would be wealthy…think of saving as well as of getting: the Indies have not made Spain rich, because her outgoes are greater than her incomes.”
For Franklin, frugality and a strong work ethic were necessary character traits for building wealth.
Benjamin Franklin was able to make the contribution he did because he had [financial] freedom.
—Charlie Munger
During his interactions with the audience at the University of Michigan’s Ross School of Business, in 2017, Charlie Munger shared an overview of his early years and how he personally achieved financial independence before really getting involved in business with Warren Buffett. In a blog post, Jonathan Ping discussed how Munger emulated his role model Benjamin Franklin’s virtues:
• Munger was not born into exceptional wealth. He wanted to go to Stanford as an undergraduate, but his father encouraged him to go to the University of Michigan, because it was still an excellent school but was more affordable. Munger dropped out after only one year, in 1943, to serve in the U.S. Army Air Corps.
• Military service, then law school. After World War II, Munger took college courses on the GI Bill and eventually went to Harvard Law School. He got accepted even though he had never earned an undergraduate degree.
• Successful law career. Munger successfully practiced real estate law until he achieved about $300,000 in assets. This equaled ten years of living expenses for his family at the time (he had a wife and multiple kids). At this point, he started doing real estate development at the same time. When this took off, he stopped practicing law.
• Successful real estate development. When Munger achieved about $3 million to $4 million in assets, he wound down his real estate development firm. He was now “financially independent.”
• Decision to become a “full-time capitalist.” This last stage is what led him to his current status as a billionaire philanthropist. Along with his work with Buffett at Berkshire, Munger was the chairman of Wesco Financial, which also grew to be a conglomerate of various wholly owned businesses, along with a carefully run stock portfolio. Wesco Financial eventually became a wholly owned subsidiary of Berkshire Hathaway.
Using Munger’s life as a blueprint, we can observe a pathway toward achieving financial independence:
• Work hard, get an education, develop a valuable skill. Munger didn’t start Facebook from his dorm room or trade cryptos in high school. He served in the military, earned a law degree, and went to work every day for years. At this point, work means exchanging your time for money, but hopefully at a good hourly rate.
• Use that work career and save up ten times your living expenses. Munger dutifully saved as much as he could from his salary, while supporting his family and kids. You probably won’t need ten times that amount if you don’t have a family to support, but you should still plan for the future and target this level of savings.
• To accelerate wealth accumulation, you can take some risk and start some sort of business. You need something that scales, something that is not paid by the hour or the month. Munger pursued real estate development. If you look at people who got wealthy quickly, nearly all of them owned businesses of some type. Still, there are no guarantees. You need to believe that a reasonably calculated strategy based on sound and sensible principles will work. As Steve Jobs once remarked, “You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something—your gut, destiny, life, karma, whatever.” In short, you need to have faith.
• At some point, your investments will earn enough passive income to support your living expenses. This is when you achieve financial independence. It doesn’t matter what you do during the day, because you earn enough money while you are sleeping. Many people choose to continue along one of the paths above: (1) employee-based career, (2) active business management, or (3) actively managing their investments.4
Munger’s life teaches us that just showing up every day and chipping away at it, one small block at a time, eventually yields great dividends. Dogged, incremental progress over a long period of time is the key to success, and this, in essence, is what compounding is all about.
Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts…. Slug it out one inch at a time, day by day. At the end of the day—if you live long enough—most people get what they deserve.
—Charlie Munger
We can learn a lot by observing Munger’s actions. He was not a huge risk-taker. He grew his wealth gradually and never exposed his family to possible ruin. He worked hard for a long time and became extraordinarily rich and famous only later in his life. He primarily wanted to be independent, “and just overshot.”
The Journey to the First Million
Making the first million dollars is often considered to be the hardest, because you don’t know how to do it and because you don’t know if you can do it. Once you have made $1 million, you know you can do it and you even know how to do it. This is why a self-made millionaire who loses all his money because of an unfortunate event can become a millionaire again.
Many people who are considered successful don’t accumulate a million dollars, and it is not because they don’t earn enough to do so. It is simply because they lack discipline. Society glamorizes a consumption-laden lifestyle, and most people follow this path, spending on non-necessities that drain earnings, leaving little in the form of savings. The journey to the first million starts with the very first dollar in savings, and then another, and so on. It is not the first million dollars that is the hardest, it is the first dollar. The most difficult part is getting started.
During my savings and wealth accumulation phase, I was willing to work as hard as I could, for as many hours as I possibly could, to reach this important milestone of the first million. I was trying to save every single dime that I could during this endeavor. I never lost sight of Benjamin Franklin’s teaching: “Beware of little expenses; a small leak will sink a great ship.”
More important, I was constantly investing in myself. I was ferociously intense about learning as much as I possibly could, every day. Once a certain level of critical mass in portfolio value was achieved, compound interest took over and proceeded to amaze me with its magic.
Today, even after achieving financial freedom, I continue to work in a job because I want to, not because I need to. I do it because I just love the work I get to do every day, and I feel a sense of joy in doing what I love and loving what I do. Today, I get a deep sense of fulfillment when I look back at the memories of my challenging times and sacrifices in the past, which eventually helped me earn my first million dollars of profits from investing.
Benjamin Franklin laid down the way to wealth for all of us when he said, “The way to wealth is as plain as the way to market. It depends chiefly on two words, industry and frugality; that is, waste neither time nor money, but make the best use of both. Without
