By Sean Copeland, Contributing Writer
Many people have already started their resolutions just a week into the new year, and one of the areas consistently on the list of resolutions is finance. Whether you’re looking to (re)build your credit, start savings, earn more money, or buy your first home, financial goals are imperative to achieving these goals.
While finance has always played a part in the success of individuals, households, and communities, finding financial literacy and wellness can often be a daunting task. Resources, educational programs, financial literacy, and neighborhood services are sometimes limited when it comes to educating minority communities. Unsurprisingly, wealth disparities amongst ethnic groups always play a significant role.
According to a report from the Pew Research Center, 68% of African Americans don’t have enough income to sufficiently fund their desired lifestyle. In the same survey, four in 10 Black adults reported an annual income of $100,000 was needed to live the life they want, and 56% said they need less than $100,000 to thrive in their lifestyles. Historically, Black Americans have earned much less than their counterparts, and wealth inequality was the second highest amongst demographic groups as of 2016.
However, hope abounds. Over half of Black adults say they are hopeful that they will earn more money in the future to achieve the lifestyle they want. To combat the historical wealth disparities in the Black community, we’ve compiled a list of tips to build a better path to financial wealth. Elena Colquitt, Founder, Finance Manager, and CEO of MoneyMate by EpocHarvest, provided her expert knowledge to help guide you to a prosperous 2024.
- Build a savings
While it may seem like an obvious fact to know that one should have money saved for emergencies, unfortunately, the concept isn’t as common as it seems. According to CNBC and other reports, about 67% of Americans can’t afford to cover a $400 emergency expense. Inflation is to blame for much of the problem, as rising costs in recent years have burdened many people to continue to live paycheck to paycheck.
Colquitt suggests using the 50/30/20 rule. “Use 50% for needs: allocate 50% of your income to cover essential needs, such as housing, utilities, groceries, and transportation. Use 30% for wants: reserve 30% for discretionary spending on non-essential items and lifestyle choices such as dining out, entertainment, and personal expenses. Use 20% for savings and debt repayment: aim to save at least 20% of your income or use it to repay debts. This category includes contributions to emergency savings, retirement accounts, and other financial goals.”
A good idea is to aim to build savings that cover three to six months of expenses so that you can comfortably live if certain situations like sudden unemployment or other emergencies arise.
“Set up automatic transfers to your savings account as soon as you receive your paycheck. Automation helps ensure consistent savings without relying on willpower.” Colquitt says. “Ultimately, the ‘efficient’ amount to save is one that aligns with your financial goals and allows you to maintain a healthy balance between spending and saving. It’s crucial to find a sustainable savings rate that you can consistently maintain over time.”
However, be aware of interest rates! These can be a hassle and may be more problematic than helpful. “If your savings account earns interest, keeping a higher balance may allow you to maximize interest earnings. However, it’s important to compare interest rates and fees across different accounts to ensure you’re getting the best overall value. If possible, seek guidance from a financial advisor to tailor a savings plan that fits your unique situation,” she continues.
- Seek Financial Planning and Consulting
Receiving financial planning or consulting from a professional advisor is very useful, and basic services can be accessed at your local bank or credit union. Often, these services are free or low-cost if you’re a member and can be valuable when on a budget. Take time to schedule an appointment and talk with an advisor. They can advise and educate you on various matters like CDs, IRAs, mutual funds, and checking and savings while helping you to decide which option is right for you.
For more specialized matters like stocks, investing, and estate planning, try visiting investment and/or private wealth management firms. In addition to in-person services, try using online services as well.
“Explore the online resources provided by the bank or credit union. Some institutions offer educational content, financial planning tools, and calculators to assist customers,” Colquitt says. In addition to these services, she advises utilizing workshops, seminars, and external financial consulting services. “Attend any financial education workshops or seminars organized by the institution. These events may cover a range of financial topics and provide valuable insights. If you require more specialized or comprehensive financial advice, consider seeking services from certified financial planners or external financial consulting firms. These professionals often provide in-depth analysis and tailored solutions.
Before seeking financial consulting, it’s advisable to clarify the scope of services, fees, and the expertise of the advisor. Additionally, individuals may explore various avenues to ensure they receive the level of financial guidance that aligns with their specific needs and goals,” Colquitt suggests.
- Build/Rebuild credit
The basic credit range is from 300 to 850, and a good credit score falls between 670 and 850, with over 700 being considered excellent. It is usually an easier experience to receive a credit card when having good credit. Secured credit cards are often good options for those who have bad credit or who need to rebuild their credit history. Secured credit cards are unique in that they require a deposit to open an account. Most credit card companies have a minimum deposit amount, such as $200, that is then used as the starting limit to open an account. Additionally, there are other ways of building credit through repair programs.
“A Debt Management Plan or DMP is a structured plan negotiated with creditors through a credit counseling agency. It typically involves reduced interest rates and consolidated payments to help individuals pay off their debts. Try credit builder loans: some financial institutions offer credit builder loans where the borrower makes small monthly payments into a savings account. Once the loan is repaid, the borrower receives the saved funds, and the positive payment history is reported to the credit bureaus. Credit repair companies may assist in disputing inaccurate information on credit reports. However, it’s essential to choose reputable companies, as some may engage in unethical practices. Some government assistance programs, such as the Low-Income Home Energy Assistance Program (LIHEAP), may provide financial relief, indirectly helping individuals manage their overall financial situation. Before enrolling in any credit repair program or service, it’s important to research and understand the terms, fees, and potential outcomes. Be cautious of companies promising instant credit repair or asking for large upfront fees,” Colquitt advises.
Additionally, you can monitor your credit report on websites like Credit Karma, which gives you a daily score, suggests credit cards with likely approval odds, and lists active outstanding debts from your credit reports.
- Consider Investing
This area of finance can often be daunting and intimidating for many people, especially in the Black community. Many of us were taught not to take risks via investing and to play it smart and safe. While the idea of investing can be scary, there are ways to introduce the idea in 2024. This can be achieved through areas like stocks, mutual funds, real estate, technology, and more.
Finding an investment that feels sensible takes time, but it can be accomplished. While having savings is key, it usually produces much lower returns in banks or credit unions. Colquitt offers some general tips on how to start investing in 2024.
“Define your financial goals, whether they are short term, such as saving for a vacation, or long term, like retirement. Clear goals will guide your investment strategy. Invest time in learning about different investment options, risk profiles, and market trends. Understanding the basics will empower you to make informed decisions. The earlier you start, the more time your investments have to grow. Also, establish a budget to manage your income and expenses. Investing should be aligned with your overall financial plan. Regularly review your investment portfolio and adjust it according to changes in your financial situation, risk tolerance, and market conditions.”
- Give the Gift of Finance
While it may be tradition to give the latest bath and body products, electronics, or video games for holidays and special occasions, try giving gifts that promote financial wellness and increase wealth amongst family and friends. This is a way to show interest and contribute to someone’s long-term joy, happiness, and success. In addition to gifting, having conversations at the dinner table about wealth and finance is a good way to encourage prosperity amongst those you care about. It’s important to promote the ideals of community, determination, and economics in the Black community, especially among youth. This can even lead to discussions about entrepreneurship and the importance of Black-owned small businesses.
Colquitt suggests gifting financial books, stocks, or even board games like Monopoly. “Consider gifting books on personal finance, investing, or entrepreneurship. Some popular choices include The Millionaire Next Door by Thomas J. Stanley and William D. Danko or The Total Money Makeover by Dave Ramsey. Open an investment account for them or gift a stock in a company they admire. This introduces them to the world of investing and can serve as a valuable long-term asset. Board games like Cashflow or Monopoly can be both entertaining and educational, teaching financial concepts and money management skills,” she says.
In addition to these gift ideas, she also suggests using the classic money jar but with a twist. “Create personalized money jars for specific savings goals such as travel, emergencies, or a dream purchase. These gifts not only show that you care about the recipient’s financial well-being but also provide them with practical tools and resources to achieve financial prosperity,” Colquitt says.
Here’s to building stronger communities through wealth and prosperity in 2024!
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