First Gen Guide to Managing Family Finances For Wealth Building

I’m lucky — at 34, I still have both my grandmothers. Both 94, they’ve lived through the Great Depression, World War II, and the invention of the microwave. One immigrated to the U.S. from the Dominican Republic with six kids. I recently spent five weeks living with one of them, acting as sort of her house manager. I got an upfront view of how much money we’ll need in retirement for things like healthcare, housing, food, and still enjoying your life. On average you’re going to need $1.5 million for retirement if you’re a Millennial or younger. And this is for your own retirement, so add on another $400,000 for aging parents. But don’t freak out! You don’t have to save all that in your bank account. We can use investing and something called asset accumulation (which sounds hard but is actually pretty easy) to reach those big numbers.

For first-gen kids, often we have to save not just for our own futures, but for family members too. So here’s a guide to managing family finances and making sure that everyone gets taken care of as we age.

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Creating a Financial Plan 

A big-picture financial plan has three main parts:

• Spending
• Saving
• Investing

Creating a financial plan actually starts by setting goals. When do you want to retire? How much help do your parents expect from you? What kind of help- a place to live? Monthly payments? Set goals first, and attach a timeline. Say you want $1 million invested by 70, and you’re currently 35. Now we know we have 35 years to reach that goal, and we can focus on our spending, saving, and investing to get there.

Once you have goals, you need a spending plan. Some people call it a budget, some people call it a money strategy. But you need to know how much money is coming in each month, and how much is going out. Start tracking your spending in an app or a spreadsheet, I use Mint and a personalized spreadsheet.

Budgeting is not a punishment even though it’s definitely not the most fun thing to do. Budgeting is information gathering, and budgeting leads to freedom. Thanks to budgeting, I currently have over six figures invested and last year visited four new countries.

Track your spending, and make adjustments to it in order to reach your financial goals. If you notice that you’re spending $100 a month on things you don’t use — like a streaming subscription or a gym account — cancel those and instead add that $100 to your investments.

How much should you have in savings?

Saving is the first major step toward building wealth, but rich folks don’t keep all their money in a savings account. Savings accounts are for short and mid-range goals.

Here are three savings accounts everyone should have:

• An emergency fund: Four months of living expenses set aside in cash
• A fun fund: A variable amount you use for things like Bad Bunny tickets and trips
• A transportation fund: Money for car repairs, or bike repairs, public transportation, rideshares etc.

You can have other savings accounts for things like a house down payment, but generally, we don’t want to keep money in a savings account if we don’t need it within the next five years.

If you’re working towards a goal that is more than six years away, you want to INVEST that money, don’t have it sitting in a savings account.

Investing When You’re Not Sure How it All Works

A common misconception is that you need to already be rich to be an investor. Like if you don’t already have tens of thousands of dollars in your bank account, you can’t invest. THAT IS NOT TRUE. It’s a myth that is setting us back if we continue to perpetuate it.

You can get started investing with as little as $10 at most investment brokerages. And then over time, as your income grows, you change jobs and careers, and you have more money, you can invest more over the years. Starting small and building wealth over a few decades is how most of us invest.

When it comes to thinking about building wealth for yourself and your family, it’s best to focus on opening and funding retirement accounts first for you AND for your parents.

If your parents are currently 60 and still working, you can help them open an IRA and have them invest some of their paycheck for their own retirement. And you can do the same for yourself!

So what’s an IRA? It’s an Individual Retirement Account, and a powerful tool for retirement investments. Unfortunately, only 8 percent of Latinxs in the U.S. have an IRA. But anyone (including DACA folks currently) can open one if they have some kind of income!

For context, if your parents invest $3,000 a year from ages 60 to 70 and get a 7 percent return in their IRA, they’d have $50,000 by age 70. That could make a huge difference in how much YOU need to save for their retirement. And if you invest $300 a month from age 40 to 70 yourself, you’d have $340,058. Throw in social security and a house, and you could easily have over half a million dollars to your name.

Figuring Out How Much You Can Help Familia 

Firstly, we have to talk to mami and papi and see what’s going on in their financial lives, and what they expect from you. This can be an emotionally taxing conversation for you AND for them, so don’t come into it forcibly cause they might feel attacked or overwhelmed. Approach it with compassion, and see this as an opportunity for you each to figure things out so that everyone benefits from it.

Start with big-picture questions like “when do you want to retire?” and “do you have plans for retirement?” This is a good starting point because it will help paint a picture of what they are thinking for themselves.

Next, try and ask about the role they see you playing in their later years. Do they expect you to let them live with you? Or for you to contribute to their housing costs in another way (like paying part of their rent)? Do they think you’ll be over every weekend to help with cooking and grocery shopping?

The more you can find out what kind of help or financial assistance they expect, the more you can build your own financial plan to include that. Doing things like helping your parents open retirement accounts, and opening your own retirement accounts, will provide the money for these plans.

Starting to Build Wealth at 40

Don’t panic if you feel like you’re starting late. Between student loan debts, increased cost of living, or maybe having your own kids, many of us don’t think about the future until our 30s or 40s.

If that sounds like you, here’s a wealth-building plan:

• Open an IRA and start investing immediately in a low-fee index fund. An index fund is like a bouquet of flowers. You’re buying a few different companies in one place, just like a bouquet has a few different flowers in it. 
• Prioritize investing over paying off debt with a 4 percent or lower interest rate. We need to use the next 20 to 30 years to our advantage and not waste any more time.
• Open an IRA for your parents as well. Help them set up automatic contributions. This way they have some investments in their own names.
• Secure housing for yourself. If you can buy a home for yourself and your family, this is both a financial asset and a place for your family to be in the future.

Other than that, just keep on investing and paying off debt.  Don’t feel like you need to overcomplicate your financial plans. Budget, pay off debt, and invest is the tried and true path to wealth for everyone.