Building Generational Wealth by Diversifying Where You Keep Your Money

I am $20,000 away from Coast FIRE. What’s that? It’s a generational wealth milestone where you have enough money invested in the stock market that you no longer need to contribute to your investments and you will still be a millionaire by age 65. Put another way, it’s when you have enough money invested that your money will turn into even more money on it’s own over time. This means I am well on my way to becoming a millionaire. This is important to me, as a first gen Latina, because there aren’t nearly enough millionaires in our community let alone financial literacy. According to data from the Urban Institute, in 2022, the average wealth of white families was approximately $1.36 million; for Latinx families, it was $227,544. For Black families, average wealth was $211,596, and for Asian American households, the average was $1.8 million. That means the wealth gap between a white family and a Latinx family is over $1 million. I want to see that change, and quickly.

Especially when you consider that Latinas have a life expectancy of 84 years in the U.S. We’re going to be around for a long time and we need to have the financial resources to take care of ourselves and our community.

When we talk about building generational wealth, we have to get specific about the tools that people use to build wealth that lasts beyond one person. Money is almost like a language. Once you begin to understand how a language works, you can expand how you speak it. Once you know the structure of money, you can expand your wealth building strategies.

So let’s talk about where to keep your money if you want to build wealth that lasts for generations.

Step One: Use a Bank to House Your Day to Day Spending Money

A bank is a place to keep your money. It’s kind of like a closet where you keep your clothes; it’s just a house for your money. Banks are important and they are safe to use in the US. Many Latinxs, especially newer immigrants, have trouble trusting any financial systems. But for all the problems in the U.S., our financial system is very strong and very safe.

There are many safety nets to keeping your money in a bank, like FDIC insurance. That’s a program where banks pay an annual fee to the federal government, and should your bank collapse, the government uses that fee money to pay YOU back.

So how much of your money should you keep at a bank?

You should have your paycheck deposited in a checking account. A checking account is what you should use to pay your bills or to withdraw cash for spending from. You can also have a basic savings account at your bank. I recommend keeping no more than $500 in this savings account. This is for those unexpected emergencies where you need to get cash out of an ATM immediately.

Banks are also helpful when it comes to getting a mortgage, a car loan, or refinancing any kind of debt you have. So while banks are places to store money, they are also vehicles to help you do things like buy a house or lower your debt payments. It’s important to find a good bank and develop a relationship with them.

Other than that, when it comes to wealth building, there are other places to store your money.

Step Two: Organize Your Money for Generational Wealth Building

Think of wealth building as a pyramid. At the bottom, you have your job, which is how you earn money. Next you have your bank accounts, where you store money. Then you have your investment accounts, where your money earns money.

Here’s a guide to where to keep your money on your wealth building journey:

Basic checking: all your income should come here first. From here you can pay your bills, like rent and utilities.

High Yield Savings Account (HYSA): this is a savings account that has a high interest rate, which means that your money in the account is earning more money.

Look at Bank of America’s savings account. They pay .01 percent interest, which is basically nothing.

Instead a high yield savings account will pay anywhere between 2.7 percent and 5.5 percent right now. That means if you keep $10,000 at Bank of America over a year, you’ll earn $10 in interest.

If you keep $10,000 in a HYSA that pays 5 percent, you’ll earn $500 in interest.

You should keep money in an HYSA that you don’t need right away. So if you’re saving for a trip next year, or you’re saving to buy a house in the next five years, keep that money in an HYSA.

Individual Retirement Account (IRA)- this is a retirement account absolutely everyone needs. (And you don’t have to be a citizen to open one! Just a legal resident!)

An IRA is an investment account specifically designed to help you save for retirement. As of 2024, you can invest $7,000 a year in an IRA.

If you invest $7,000 a year for 30 years, and get a 7 percent interest return, you’d have $661,981.19 in just this account!

You can read how different Latinas are building wealth right here to see how others are using investing in their real lives.

Retirement accounts are what we call “long term investments.” That means you put money into a retirement account for your future self, 10, 20, 40 years down the road. Investments are not for short term goals like buying a new car in the next six months.

How One Latina Manages Her Money

Giovanna “Gigi” Gonzalez, also known as the First Gen Mentor and author of Cultura & Cash is on a wealth building mission for herself and other first generation Latinas. She shares with HipLatina how she organizes here money as a self employed Latina. For her day to day and short term money goals, Gonzalez uses a checking and high yield savings account.

“I have a personal checking account where I get a monthly deposit from my S-Corp. I have a HYSA where I park my emergency fund money. I also use it for some sinking funds, like saving up for future travel.”

When it comes to investing, Gigi says “At the end of the year, I max out my Roth IRA, my HSA (for future medical expenses) and add between 10-15 percent of my income to my SEP IRA.”

As a married woman, Gigi shares some some expenses with her husband. “We share grocery expenses and any pet or household items expenses. We use a credit card with rewards to pay for these costs every month, split the credit card bill in half, and pay the full statement balance each month, making sure not to carry over a balance to avoid getting into debt. We then use the credit card points to lower our travel costs for our next vacation.”

And she has a credit card for her own personal spending: “I have a second credit card that I use for my personal discretionary spending. Similar to the other card, I pay the statement balance every month to avoid debit, and take advantage of the card’s many perks, like free Global Entry, free Clear account, and free Audible account just to name a few.”

Start Today

When it comes to wealth building, starting is the most important step. In order to create more wealth and financial security in our community, we have to get as many people started with savings accounts, investing, and wealth planning as possible.

Today is a great day to start your own journey, amiga. You got this.

Kara Pérez is the founder of Bravely Go, a sustainability focused financial education platform