Kara Pérez is the founder of Bravely Go, a financial platform focused on feminist economics and inclusive personal finance.
Manage Your Money Right
It starts with managing the money you’re earning right now. Money management is the most important part of building generational wealth. Yes, even more important than the investment accumulation part! Why? Because if you can’t manage your money, you will lose your money. There are enough lottery winners who overnight became multi-millionaires and then lost everything to prove that if you don’t have a good handle on managing money, you’ll never be wealthy.
Managing money looks like having a monthly budget AND a long-term wealth-building plan. So maybe right now you make $10 an hour, but you have plans to get your degree and start earning triple that in three years. You need to know how to manage that $10/hour so that you can manage that $30.
Monthly Budgeting Tips
Find a budget style that works for you; You can use an app, spreadsheet, or a notebook to do your budgeting. What really matters is that you track your spending, saving, and investing each week, so that you know where every dollar is. It’s also good to set up a “money date” and make it fun for you. A money date is 30 minutes you set aside each week to track your spending. And if you have a boo, you can do this with them. I do it with my partner, even though we don’t share bank accounts. Put on some Bad Bunny, have a nice drink, and review your spending, saving, debts, and investing. Remember, don’t judge yourself! Building wealth will take some time. Hating yourself for not moving faster, or comparing yourself to others isn’t going to put more dinero in your bank account.
Build Multiple Income Streams
One thing all rich people have in common: they earn their money in several different ways.
Jeff Bezos? He’s got Amazon, Blue Origin, stock investments, and real estate investments. Maybe you’re not going to space, but you can build different income streams on way less than Bezos money.
Earning money from different places is the secret key to building wealth, especially if you’re first gen. A lot of us were told that if we went to college we’d get the golden ticket to the American Dream. But the truth is, truly living the American Dream means having different financial support streams. If you lose your job but you have a rental property, you still have an asset (the house) that you can turn into a cash flow situation by renting it out.
I know TikTok millionaires talk a lot about passive income. I personally think it should be called “do the work upfront income” because nothing is really truly passive. But, if you diversify your income across several different sources, some of them will require way less work than others, and you’ll be able to stack up the cash.
Here’s one way this can work:
In 2022, you have a 9-6 job that pays you $45,000 a year.
You start tutoring algebra for $20 an hour online and do 8 hours a week. ($640/month)
You save $400 a month between these two jobs in a high-yield savings account.
By 2026, you’ve saved $20,000 from your job and side hustle. You use that to buy a duplex worth $230,000 in your town. You rent out one side, which covers the mortgage and live on the other. Now you have no rent payment, plus the house is an asset that can grow in value over time. You decide to put the money you used to pay in rent into your Roth IRA and max it out ($6,000 a year.)
You keep tutoring, so you have three streams of income: your day job, your rental income, and your tutoring. You increase your tutoring rate to $23/hour and make $732 a month tutoring. You increase your savings from that to $500 a month.
By 2030 you are earning $60,000 at your day job. You do a cash-out refinance of the duplex to buy a single-family home. Now you rent out both sides of the duplex and cash flow is $400 a month from that. You decide to stop tutoring because you’ve saved $24,000 in cash over the last 4 years. You can use that money to start a business, buy another property, or put it toward family costs.
In 9 years you’ve built three streams of income, bought two pieces of real estate, saved $24,000 in cash, and invested $34,504.43 into your Roth IRA. This is the type of wealth building that’s easier when you have multiple streams of income!
Building Wealth in the Stock Market
Let’s talk more about that Roth IRA….because that’s just one type of investment account. To build generational wealth you need to be investing in the stock market. None of the world’s most famous rich people avoid the stock market. When we think about building wealth in the stock market long-term, I always say it’s best to start with retirement accounts. Because 70-year-old you is still going to need money to be her best señora self! I previously covered the various retirement accounts available so you can find the one that suits you. Once you choose the account, you’re ready to begin building wealth. And here’s how you do that: invest small amounts consistently.
Have you heard of the S&P 500? It’s a collection of the biggest companies in the U.S. including Amazon, Tesla, and Microsoft, and its average annual return is 10 percent. That means the average of the best years and the worst years come out to investors making a 10 percent return on owning stocks. If you have $100 in stocks, that’s an extra $10 you made by doing nothing. If you have $1,000 invested, that’s an extra $100 you made by doing nothing.
Using the scenario from above, let’s say by 2030 you have $34,504 invested in the stock market. You contribute $100 a month and get a 10 percent return for the next 10 years. How much money would you have? $108,619.40
Or say you started investing tomorrow, and you invested $50 a month for 10 years. Then you increase to $150 a month for 10 years. And then finally, you increase to $250 a month for another 10 years. The whole time you get an average return of 10 percent so, in total, you put in $54,000 over 30 years. In 30 years, you’ll have $186,554.15. And you got there from literally nothing! You turned $54,000 into more than TRIPLE that. That’s why you have to use the stock market to invest! That’s how all these old white men are building their wealth!
As first gen, changing our financial futures can seem overwhelming. You might not have big amounts to start with and that’s okay! What matters more is that you START. You can use the same tools that others have been using for generations to make money to change your family’s financial life and your own.