Try to escape a conversation about money.
Whether it’s a new poll showing that blacks aren’t prepared for
retirement, actress Kerry Washington urging women to be “financially literate,” or Jay-Z rapping about generational wealth – conversations
about money are all around us.
Honestly, these are topics that I’ve avoided like Trump speeches for
years based on bad financial choices from the past. But burying my head
in the sand won’t change anything and, the truth is, black women are
winning in business. It can’t be said enough that we’re the fastest
growing group of entrepreneurs in this country and our businesses
generate $51.4 billion in revenues. Those are the kind of numbers that motivate a girl to get it together. That and my kids. I want to give them a better life than I had and enough money to
never have to struggle when I’m gone. So, how do I get there?
to financial advisor Lola C. West,
who has been educating people about money for over 20 years, building
the type of wealth that can be passed down to future generations is
easier than we might think. In fact, a lot of it has to do with
awareness and the right mindset. Fortunately, she’s broken down some gems about building generational
wealth that can strengthen our financial literacy IQ exponentially,
whether we’re new to the conversation or just brushing up. So, in the
spirit of sharing, here’s the Woke Woman’s Guide To Building
It’s Never Too Late To Start Saving
It’s never too late to start building wealth. First, you have to know
how much it costs to be you. If you spend more than you make, then you
have to look at your daily habits and create a budget. At least,
10% or more of your income should go into a savings that you don’t
touch, and it’s critical to have at least six months of living expenses
saved up in case you lose your job.
Also, the first day you start a job, take out the max (in 2017,
$18,000 per year, and $24,000 for 50 years of age and over) for your
retirement account. By taking out the maximum amount, it could put you
into a lower tax bracket, which could save you more money. You could also speak to a financial advisor about setting up an SEP IRA. A
Simplified Employee Pension Individual Retirement Account allows
entrepreneurs, or anyone with freelance income to open an account and
make tax-deductible contributions. Like a traditional IRA, the money in a
SEP IRA is not taxable until withdrawal and business owners can
contribute up to 25% of income, or $53,000, whichever is less.
Educate Your Kids About Budgeting and Good Money Habits
We have to look at the conversations we have at home about money and
what we are teaching our children. For example: giving a child as young
as five years old a $5 weekly allowance can build their understanding of
money. 1/3 of that money could go to a savings account, 1/3 could be
for philanthropy, and 1/3 for spending….NO CANDY!
By taking a child into the bank, they understand this is an
institution. An ATM does not leave that impression. Explain that if you
buy something with a credit card today, a bill will be at your doorstep
in 30 days, and if you don’t pay on time there are late fees. You can
also give them things to budget. For example: give them the amount of
money you plan to use for back-to-school clothes and let them help make
the list based on how much you have to spend.
Invest In Your Child’s Future
Also, establish a 529 College Fund
account when your child is born, and every birthday, Christmas, and
holiday that your child gets money – at least 50% of it should go into a
savings vehicle. If you have significant assets or a child with special
needs, establishing a trust with the support of a qualified estate
attorney can be a powerful way to foster the longevity of assets and/or
protect the welfare of your child throughout their lifetime.
Multiple Streams of Income and Diversifying Investments
I always use the analogy that if you’re in an elevator that has three
cables and one of them breaks, the other two will still hold it up.
It’s the same with multiple streams of income. If one stream doesn’t
work, the others should help balance. It’s also the strategy behind
diversifying investments between three asset classes: stocks, bonds and
cash. Stocks are the equity that you buy when a company is selling shares. You can buy one, two, or many. Bonds are considered fixed income.
For instance, a company says if you give me $1,000, I will pay you 4
percent interest for the year. At the end of the year, I will give you
back your $1,000 and you will have received $40 for letting us use your
Cash is the money you put in a bank that they pay you interest on.
Interest rates for savings accounts are low now, but save anyway! You
continue to earn because of the compounding effect of interest, which is
interest on top of interest earned when you don’t withdraw your money.
People often ask if buying a house is still a good investment? Yes.
Because it allows you to build equity. You build equity in a house as
you pay down your mortgage. The less you owe on the property, the more
equity you have. When you have equity in your home, you can “borrow”
money against it – we call that refinancing your home. The danger is
mortgaging your home to its market value. You will then have no equity
in your home. Property is one of the main assets that are passed from
generation to generation.
Deeds And Setting Up A Will
A deed and a will are very important. A deed establishes ownership of
a piece of property. If you and your partner buy a house, it’s
important that both names be on the deed so there are no issues when
transferring the property to someone else. Because of the complexity of
federal and state laws, we recommend working with a qualified estate
attorney to draft your will to lessen the possibility of family
conflict. Be specific in terms of what you want each child to have, even
children you don’t wish to leave anything, so that your will won’t be
contested. For example: each child should be mentioned by name and left
something, even if that sum is $1, so it is clear that the child was not
forgotten, and he or she can’t contest your will.
Study Wealth Building
One of the best ways to build the wealth you desire is research.
Attend workshops, study online, find a mentor, etc. There’s a great book
called 50 Billion Dollar Boss: African American Women Sharing Stories of Success in Entrepreneurship and Leadership that
I strongly recommend because it highlights how successful black women
worked through the challenges of creating their businesses. When you
look at generational wealth beyond dollars and cents, it’s also our
stories of resilience that we want to pass down to future generations.
Lola C. West is a co-founder and managing director at WestFuller Advisors.