Charlie Munger: How to Get Rich Starting at $0

Sew a lot of videos out there claim they will help make you rich, but these five wealth building principles from Charlie Munger actually will. When you type in the words "how to get rich" in YouTube or in the Google search bar, you get flooded with all sorts of get rich quick schemes. The search results are full of people trying to make themselves rich by selling you some overpriced course on anything from how to day trade penny stocks to how to supposedly make millions selling your own online course.

These get rich quick schemes don't actually work. Instead, my goal with this video is to discuss a set of wealth building principles that you can begin applying to your own life today. These principles don't come from me; they come from billionaire and legendary investor Charlie Munger. Munger is the vice president of Berkshire Hathaway, a company currently valued at roughly 600 billion dollars and better known as Warren Buffett's right-hand man.

So, I'm not joking when I say I have spent hundreds of hours studying Charlie Munger. I have watched nearly every interview he has given and every piece of publicly available writing he has produced over his nearly 100 years here on Earth. I'm going to boil down all of these countless hours into the five principles you need to know to start building wealth today. These principles have been extremely beneficial in my life, helping me hit half a million dollar net worth having just turned 25 years old last month, and I know you will find them valuable too.

Staying in the spirit of this video, I'm not packaging this information into some course and selling it for a thousand bucks. I'm giving it all to you for completely free in this video, so all I ask for in exchange is that you subscribe to the channel because a ton of work goes into making these videos.

Now let's get into the video. Charlie Munger is now regarded as one of the best businessmen and modern-day thinkers, but this definitely wasn't always the case. Munger didn't come from money, and his life wasn't a straight path to success. At 29 years old, he was divorced, broke, and had multiple kids to support. He has since gone on to become a billionaire and is now one of the most highly respected businessmen in the world.

So here's the five wealth building principles I learned from studying his life. The first principle is one of my all-time favorite Munger quotes: "Fish where the fish are." Now I will admit this doesn't sound all too insightful or life-changing at first, but let me explain. Again, Charlie Munger was asked during one of the famous Berkshire Hathaway meetings what advice he had for someone who wants to be successful. His answer? "Fish where the fish are."

What he's saying here is that if a fisherman wants to catch a lot of fish, it's important for him to be fishing where there are a lot of fish to be caught. The fact that there are even fish in the water is more important than even the skills of the fishermen. This is an analogy that applies to real life and to someone who desires to be successful.

To demonstrate this point, let's use two hypothetical people; one named John and the other named Steve. Both John and Steve are extremely smart—like graduating from Harvard with two degrees in just three years with perfect grades kind of smart. Let's also say they are extremely hard-working, willing to work 80 hours a week towards accomplishing their career goals, and let's say they're both extremely honest in their business dealings.

This combination of intelligence, hard work, and honesty is a pretty strong recipe for success. Since they both share these great traits, they should both be wildly successful, right? Well, not necessarily. There is one other huge factor at play. Let's say John tries to start a gasoline-powered car business. This is an industry that is notoriously competitive. The industry is also in decline and will likely over time go the way of the horse and buggy as people transition to electric vehicles.

To use Munger's analogy, John is not fishing in an area with a ton of fish. But on the other hand, let's say Steve enters the software industry. This is an industry that is growing incredibly rapidly with many extremely profitable companies in the mix; Steve is fishing in an area with a ton of fish.

Who do you think has a better chance of being successful? Even though both of the people in our example are equally smart, hard-working, and honest, my money would be on Steve because he's fishing where the fish are. Or put another way, the industry that he chose to enter is overflowing with opportunity. This hypothetical example was actually inspired by a true story.

Charlie Munger's business partner Warren Buffett once told the story about one of his college classmates. Buffett had a friend in college that was more intelligent and much more hard-working than him; however, his friend decided to enter the steel business. The steel industry was, and still is, super competitive. All of the companies made a commodity product that was indistinguishable between the different companies. As a result, companies had no choice but to compete on price, and profits in the industry suffered as a result.

To use Munger's analogy, Buffett's friend was fishing in an area with no fish to be caught. On the other hand, Buffett went on to enter the investment business, and we all know how that turned out. While Buffett's friend was smarter and way harder working, he was less successful than Buffett simply because he wasn't fishing where the fish are.

The next wealth building principle from Charlie is to be a learning machine. Here's what he had to say: "I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up, and boy does that help, particularly when you have a long run ahead of you."

Imagine if you wanted to start your own finance and investing YouTube channel. If every day you dedicated one to two hours studying how to grow on YouTube, your odds of success would skyrocket. Over time, you would develop a huge base of knowledge that would give you a real edge against your competition. The more you learn, the more your YouTube channel grows, and the more money you make from it.

I recently saw an interview with YouTuber Mr. Beast. Mr. Beast has over 100 million subscribers and is the most well-known YouTuber on the platform. He even received an offer recently from someone to purchase his entire YouTube channel for a billion dollars. Mr. Beast said when he first started out, he would study how to grow on YouTube and make great videos for hours every day. He did this for years. Talk about being a learning machine!

It's no surprise he accomplished what he has. Just like compound interest can have an incredible impact on your wealth over time, the same concept applies for knowledge, and you can start applying this concept of being a learning machine at your current job. Let's say you're a salesperson and are paid on commission. If every day after work you go home and study sales techniques and practice your sales pitch, before you know it, your sales skills will have improved dramatically. You will be making more sales and more money as a result.

At nearly 100 years old, Charlie Munger has seen many different people start out with nothing and achieve success. And wow, if you go back to his earlier quote, being a learning machine is more important to being successful than your natural intelligence or even being extremely hard-working.

The next principle from Charlie Munger is so important that it actually made an entire video on it. You can check that out here. This principle is the concept of getting to your first one hundred thousand dollars saved and invested as quickly as possible. Here's what Charlie Munger had to say when asked how someone could more quickly start building wealth: "The first one hundred thousand dollars is a bitch, but you gotta do it. 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 one hundred thousand dollars. After that, you can ease off the gas a little bit."

Charlie Munger said this in 1994, so that one hundred thousand dollars is more like two hundred thousand in today's money due to inflation, but the concept still stands. Once you have a large sum of money like one hundred thousand dollars saved and invested, the wonders of compound interest start to kick in. Let's say we only have ten thousand dollars in an investment account, and let's say this portfolio is able to generate a 12% annual return over a 15-year time period.

At the end of those 15 years, we would have nearly fifty-five thousand dollars, with nearly forty-five thousand of that coming in the form of investment returns. Not a small sum of money by any means, but instead, let's say we followed Charlie's advice and were able to hit the 100,000 mark. Instead of having fifty-five thousand dollars at the end of the time period, we would have a whopping five hundred and forty-seven thousand dollars, four hundred and forty-seven thousand of which would have come in the form of investment returns.

Fifty-five thousand dollars is a nice sum of money; don't get me wrong, but five hundred and forty-seven thousand dollars is truly life-changing. This is why getting to your first one hundred thousand dollars is so important. Once you hit this milestone, you have enough critical mass that you will be able to see the wonders of compound interest at work.

The next principle from Charlie Munger is one of my favorites. This is how the quote-unquote normal person can get very rich. This principle is to own equity. Let me explain what I mean. The vast majority of Charlie's multi-billion dollar fortune is in one stock: Berkshire Hathaway. Charlie's been employed by Berkshire for nearly 50 years, and if you had to guess Munger's annual pay from being vice president of Berkshire, what would you guess? Maybe 10 million or 25 million? Heck, maybe even 50 or 100 million? Not even close. Charlie only makes a hundred thousand dollars a year in his role at Berkshire.

Most software engineers and investment bankers coming right out of college make more than he does instead. And even more importantly, Munger owns significant equity in Berkshire. Equity is just a fancy way of saying stock. Munger owns nearly two billion dollars in Berkshire shares. Notice how Charlie Munger's wealth comes not from his salary but instead from increases in the value of the stock yields in Berkshire.

This is a principle that you can look to start applying today that can make you really rich as you look for jobs. It can be very beneficial to look for jobs that give you equity in the business in addition to your normal paycheck. Every share of stock in the business you receive makes you a larger and larger part-owner in that business. As a part-owner of that business, you are entitled to a portion of the value of the business and the profits the business makes.

Employees in the tech industry frequently get relatively large amounts of stock in the company they work at. There are plenty of stories of people who joined a fast-growing company, and by the time they've been at that company for years, they are multi-millionaires just based on how much the stock they received has increased in value since they have been there. This isn't just limited to the tech industry.

I personally work at a large finance firm in an investment analyst role. While I don't currently receive stock in the company as part of my pay, within the next few years, I will. Every share I receive of stock makes me a larger part-owner of that company, meaning as the company does well and the stock price increases, so does my net worth. Don't think you have to work in a quote-unquote prestigious industry to be in a position to receive a part of the profits of the company you work at.

If I was a plumber, for example, I would call around local plumbing companies until I found a small plumbing company with an owner who is looking to retire or wanted more free time to grow the business. I would then offer to run the business for him or her in exchange for part ownership of that business. Trust me, this is very possible. A few months ago, I had to get a new roof on my house. A salesman for a local roofing company came out to give me a quote on how much it would cost me.

Being curious to learn about new businesses, I naturally started asking him questions about the business's operations and the roofing industry in general. Come to find out, the salesman was so valuable to the company he worked at that the local roofing company actually made him part owner of that company. He even said that the amount of money he makes from his split of the profits of the company actually exceeds his salary as the head salesperson. This guy is probably a millionaire simply because he was wise enough to negotiate equity as part of his pay.

Before we get to Charlie Munger's next principle, I want to provide some background. Munger has talked a lot about this concept referred to as Occam's razor. This idea is focused on how everything should be made as simple as possible, but no more simple. The ideas essentially have the simplest solutions tend to be the best. I say all of this because the next Charlie Munger wealth building principle is pretty darn simple. This principle is underspend your income.

In all fairness, you may be thinking something along the lines of "duh, that's so obvious," and my response to that is yes, it is obvious, and it is a very simple concept. But staying in the spirit of Occam's razor, usually the simplest ideas are the most powerful. No matter how much you make, if you spend as much as you make, you will never become wealthy.

Believe it or not, twenty percent of people who are making two hundred fifty thousand dollars or more are still living paycheck to paycheck despite their high income. Wealth is literally just the difference between what you make each month and what you spend. The bigger you can make that difference, the more wealthy you become. That's what all this boils down to at its most simple level.

Munger has said many times that one of the surest ways to make your life miserable is to consistently overspend your income. He frequently tells the story of legendary composer Mozart. Mozart is usually regarded as one of the greatest minds of all time. It is a pretty safe assumption to say that he had an amazing combination of pure talent and work ethic. He just had one pretty big flaw: he had a habit of regularly overspending his income.

Mozart is probably one of the most well-known and famous musical talents ever. However, in the story Munger tells, Mozart was quote "utterly miserable" the majority of the time, and this misery was a result of him always overspending his income. In the always colorful words of Charlie Munger: "That was Mozart. If Mozart can't get by with this kind of asinine conduct, I don't think you should try." Charlie has always had such a great way with words.

Okay, so let's go through the list of wealth building principles from Munger one more time as a review: fish where the fish are; be a learning machine; get to your first one hundred thousand dollars as quickly as possible; own equity; and underspend your income. The combination of these five principles can truly supercharge your wealth. If you enjoyed this video, make sure to subscribe to the investor center because it's my goal to make you a better investor by studying the world's greatest investors. Also, check out this other video on Charlie Munger because it's full of wisdom from Munger that I'm sure you will find valuable. Talk to you again soon.