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Rupert Hargreaves
Rupert Hargreaves
Articles (954)  | Author's Website |

Charlie Munger's Tip for Building Wealth

Some thoughts on delayed gratification

June 14, 2019

Earlier this year, Berkshire Hathaway Chairman and CEO Warren Buffett (Trades, Portfolio)'s right-hand man, Charlie Munger (Trades, Portfolio), spoke with Wall Street Journal reporters Nicole Friedman and Jason Zweig for six hours over dinner in his home. In this marathon interview, Munger spoke on many different topics, offering his thoughts on everything from payday lenders to the future of capitalism and Berkshire, and the life of Jack Bogle.

Munger also offered his thoughts on the idea of delayed gratification and how it is easy to live a good life if you live within your means and save.

The ability to delay gratification

Before he became an investor, Munger worked as a lawyer after graduating magna cum laude with a J.D. in 1948 from Harvard Law School.

During the first half of his legal career, Munger worked at the law firm Wright & Garrett, which later changed its name to Musick, Peeler & Garrett. In 1962, he partnered with two other legal professionals to form Munger, Tolles & Olson LLP where he worked as a real estate attorney. Pretty soon after founding his own legal business, Munger gave up practicing law and started his investment partnership, which he ran from 1962 to 1975.

According to the interview, during the 13 years he practiced law, Munger earned a total income of $300,000, or $23,076 per annum.

He didn't rush to spend this "slender" income. Rather than living beyond or even up to his means, Munger spent only a fraction of his income, saving the rest for the future. As he describes:

"The first 13 years I practiced law, my income [from practicing law] was $300,000 total. At the end of that 13 years, what did I have? A house. Two cars. And $300,000 of liquid assets. Everyone else'd have spent that slender income, not invested it shrewdly, and so forth."

According to my calculations, $300,000 in today's money is worth around $2.5 million. That's a sizable amount of savings even by today's standards.

Munger went on to say that saving "was as natural as breathing" to him and he also understood the power of compound interest:

"I just think it was, to me, it was as natural as breathing, and of course I knew how compound interest worked! I knew when I saved $10 I was really saving $100 or $1,000 [because of the future growth of the $10], and it just took a little wait. And when I quit law practice, it was because I wanted to work for myself instead of my clients, because I knew I could do better than they did."

An easy lesson

There are many lessons we can learn from Munger's comments and interviews, but this has to be one of the easiest.

For most people, finance can be a confusing topic, but it does not have to be. The first stage on your journey to building wealth is saving more than you spend. It is as simple as that. Munger is a billionaire today, but he hasn't always been, and as the example above shows, he was able to build a small fortune in his early life just by following a few simple rules.

Anyone can follow these rules, and you don't need to be a genius to work out that if you want to build wealth, you need to save more than you earn. Even Munger, who many consider to be one of the greatest thinkers alive today, started out using this approach.

I firmly believe that the best lessons in life are the simple ones. To me, this is one of those simple lessons that are so easy to implement; it would be silly not to. Delayed gratification and compound interest are extremely powerful tools every investor can benefit from.

Disclosure: The author owns shares in Berkshire Hathaway.

Read more here: 

Big Investors Buy Micron: Is It Undervalued? 

Warren Buffett: To Be Successful You Need to Change With the Times 

Why Warren Buffett Started Managing Money for Other Investors 

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

Visit Rupert Hargreaves's Website

Rating: 5.0/5 (4 votes)



Paulofest - 4 months ago    Report SPAM
I read his book. very interesting thoughts he expounds. Regarding investments - I decided to buy property in Europe. Here at new.flatfy.md is one of my favorite prperty options. It is better to invest money in a new building, since its liquidity is higher.

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