Tracy Neely, 47, of Decatur, Georgia, wants to give her 4-year-old son, Turner, more than a good life. She wants to give him a financial legacy that he will be able to pass down to his children and grandchildren. To accomplish this goal, in 2014 Neely left her corporate finance job to buy a Zaxby’s restaurant franchise in Okeechobee, Florida. “I wanted to establish a business Turner could operate and continue to expand, and ensure a sound financial foundation,” she says. In making this move, Neely showed her understanding that there is a clear difference between having a steady income and building wealth. Black families lag behind other races when it comes to the latter.
A 2016 report by the Institute for Policy Studies found that if average Black family wealth grows at the same pace as it has over the past three decades, it would take us 228 years to amass the same amount of wealth that White families have today. The good news is, we have the power to turn those numbers around. Neely is using a mixture of sound financial habits, entrepreneurship and real estate to generate wealth and transfer it to the next generation. You, too, can do the same.
CREATE A SOLID CUSHION
When Neely was a child, her mother stressed the importance of having a savings account and placing aside some of her allowance. “By 8 I was riding my bike to the local bank to make deposits,” she says. Today she’s starting to plant the seeds by teaching her son to save coins in his piggy bank. Developing this type of inclination ideally happens when you’re a child, says Lola C. West, managing director of WestFuller Advisors, LLC, a wealth management firm in New York City. Here’s how
to instill such a mind-set in yourself and your family.
Prioritize retirement. “Start putting money in your 401(k) from the day you get your first job,” West recommends. Contribute as much money as you can and determine your budget from what’s left.
Know your numbers. Keep a running tab of such basics as your net worth, the amount of debt you have and your credit score, says Alanna McCargo, vice-president of the Washington, D.C.–based think tank Urban Institute’s Housing Finance Policy Center. That way you’ll always know where you stand and where your finances can use improvement.
Involve the kids. Parents can start to nurture a money-growing philosophy in their children by giving them an allowance beginning when they are as young as 5 or 6, West says. Instruct children to sock away a part of it. “Before they know it, they will have some money saved,” she says. “That’s very empowering, but more important, it is building a habit.”
USE YOUR INSURANCE
Insurance can be an integral part of a strong financial plan. Here are some ways it can keep funds accumulating in your family.
Transfer wealth through life insurance. Not only can life insurance pay for your burial and provide living expenses for a spouse and dependents, but it can also be used as a wealth-building tool. Last year, 63 percent of Americans owned life insurance in order to pass wealth or leave an inheritance, according to insurance research firm LIMRA.
Protect yourself with long-term care insurance. In 2016 the average cost of a semiprivate room in a nursing home was $6,844 per month—or $82,128 per year, according to the U.S. Department of Health and Human Services. Keep your family’s money in the bank by purchasing long-term care insurance to avoid shelling out so much.
Plan for disability. While no one expects to be out of commission, if something happens and you’re physically unable to work, that can take away from your ability to maintain wealth, let alone pass it down. Disability insurance typically provides a portion of your income if you become sick or disabled. You may be able to get it from your employer, according to the Insurance Information Institute.
BOOST YOUR BOTTOM LINE
Neely bought her first home in her late twenties but didn’t stop there. She purchased another four-bedroom home at a foreclosure auction for just $12,000. Not only did she build wealth through equity but she was also able to bring in another stream of income by renting out her property. Home ownership is the single biggest way that Black families build wealth, says McCargo. It can also influence the habits of future generations. Get started now!
Educate yourself. Misleading information and predatory lending were factors in the 2008 housing collapse, McCargo suggests. A home ownership counselor vetted by the U.S. Department of Housing and Urban Development (HUD) can help you avoid pitfalls and guide you through the home buying process.
Improve your credit. With good credit, you receive lower interest rates on everything from a house to credit cards to a car. That means you spend less money for those things and can put more toward accumulating assets, McCargo says. Credit scoring company FICO recommends that you increase your credit score by paying bills on time, eliminating debt and only opening credit accounts you need.
Consider down payment -assistance. A major barrier to home ownership is coming up with a down payment, says McCargo. However, many of us don’t realize you can buy a home without overwhelming your budget. “There are a lot of down payment assistance programs and grants out there,” McCargo says.
CONSTRUCT WEALTH WITH ENTREPRENEURSHIP
Black women should follow in the footsteps of African-American female pioneers like Annie Malone and Madam C.J. Walker, each of whom built empires creating solutions for Black women’s hair, says Kezia M. Williams, chief executive officer of The Black upStart, an initiative to train Black biz owners in Washington, D.C. “Entrepreneurship is wealth insurance for Black women who aren’t interested in convincing corporations to pay them fairly for what their labor is worth,” Williams says. These tips can improve your odds of succeeding.
Leverage your job. Whether it’s money, skills or a valuable network, there’s likely something your current gig can offer that can smooth your way to becoming self-employed. “Corporate America allowed me to save and have the financial backing to invest in my own business,” Neely says.
Look into franchising. “It’s the best-kept secret for building wealth because you do not have to have a lot of money, depending on the franchise you choose,” says Towanda Bryant, an entrepreneur coach and a franchise consultant based in Arnold, Maryland. In fact, according to Bryant, some franchise fees can be as low as $5,000 to $10,000. Another plus for franchises: Some entrepreneurs find it easier to get a loan for a franchise because the business model is already proven.
Put yourself in a position to borrow. Strive to have a credit score of 680 or higher, Bryant suggests. A lender may also want you to have savings in the bank equal to about 10 percent of the amount you plan to borrow.
MOVE WEALTH THROUGH ESTATE PLANNING
To ensure that her son is able to benefit from the wealth she has amassed, Neely has established a trust, a legal vehicle that minimizes estate taxes and lets her specify how and when her assets will be distributed. “A lot of people think that a trust is just for the wealthy, but it’s not,” says Neely. “It’s for anyone with assets that they want protected or preserved.” But transferring wealth requires preparation. “If you die without any kind of plan, the state that you live in has a plan,” says attorney Lori Anne Douglass, a founding partner at Douglass Rademacher, a law firm specializing in estate planning in New York City. That means your assets might end up in the hands of someone unintended, such as an ex-husband or distant relatives you don’t know. Here’s how to ensure your funds reach the intended recipient.
Put your legal documents in place. Once you have any assets, create a will, Douglass says. Anyone over 18 should also have a health care proxy and financial power of attorney, which allow you to designate someone to make health and financial decisions if you become incapacitated.
Be thoughtful about naming beneficiaries. Make sure the people listed on retirement accounts and life insurance policies as beneficiaries are the ones you want to inherit your assets. If your circumstances change, such as through divorce or marriage, update your accounts.
Seek professional advice. If you inherit property, such as a family house, you may lose it if you fail to pay certain taxes. An estate attorney can help you make sure you fulfill any legal obligations.
Building wealth and transferring it to the next generation requires thought, dedication and planning, but it can transform your family’s financial future. “Many people of color didn’t grow up with trust funds,” West says. “But we are beginning to create a generation who will be able to start that process. And once it gets started, it continues.”
This article originally appeared in the October issue of ESSENCE. Subscribe to ESSENCE now.