The late Charlie Munger, Warren Buffett’s longtime right-hand man at Berkshire Hathaway, famously stated that the hardest part of getting rich is saving the first $100,000.
Financial influencer, entrepreneur and author Ramit Sethi agrees, but he warns that getting from six figures to seven brings a different set of challenges — and it’s no cake walk.
On the bright side, Sethi told his more than 1 million YouTube subscribers that those who reached this elusive milestone have plenty to be proud of — all they need to become millionaires is to adjust their mindsets and strategies to align with their growing wealth.
Make No Mistake, $100K Is a Big Deal
Sethi begins by congratulating anyone who reached six-figure savings for achieving such an important and impressive milestone. It’s the start of what he calls your “rich life,” but he cautioned against continuing on the path that led you here.
“What got you to $100K won’t necessarily get you to a million,” he said.
The frugality, side hustles and debt reduction that savers rely on when first starting out won’t get you much farther — and certainly not to the $1 million mark. That will require adopting what Sethi calls “a strategy for the level that you are at now.”
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Climb the ‘Personal Finance Ladder’ From 6 Figures to 7
Success no longer depends on working longer hours, cutting back on takeout or canceling streaming subscriptions.
“Now, you want to be sure that you’re optimizing and taking advantage of all your tax-advantaged accounts that are available to you,” said Sethi.
Sethi outlines a series of steps that he calls the “ladder of personal finance” to help six-figure savers become seven-figure players:
- Contribute enough to secure your full 401(k) company match
- Pay off high-interest debt
- Open and max out a Roth individual retirement account (IRA)
- Go back to your 401(k) and max out your annual allowable contributions
- Open and max out a health savings account (HSA)
- Invest anything extra in a taxable brokerage account
Follow the ‘December Rule’
Next, Sethi outlines what he calls the “December rule,” which entails increasing contributions by 1% to 2% on each of the aforementioned accounts every December for the new tax year.
“This is going to make you hundreds of thousands of dollars,” he said.
Continue Automating, but for Different Reasons
Sethi says that early on, newbies use automation to build good habits, maintain consistency and ensure they don’t miss payments. Once they hit $100,000, they should still automate — but for different strategic purposes.
“It’s now about using automation to reclaim your time and preserve your decision-making energy,” he said.
The good news is that this can include pleasure spending. For example, by automatically saving $300 per month for fun, you can indulge in a spontaneous but guilt-free splurge — or hire a trainer, take a course or consult a nutritionist — with money your six-figure status affords you.
“Living your rich life is the end goal, not just simply increasing the number,” he said. “If you earn more money, you should be spending more money. Yeah. I said it.”
In short, $100,000 is a huge accomplishment, but it’s no time to rest on your laurels. It’s the beginning of your rich life, but also just the start of your journey toward true wealth.
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This article originally appeared on GOBankingRates.com: The Hard Truth About Going From $100K to $1M, According To Ramit Sethi
