Generational wealth is contingent on financial literacy and within our community that remains a barrier for many. We need more wealthy Latinxs building wealth but we have a long way to go. Latinx families have a wealth of about $38,000, while white families have $184,000, according to the Federal Reserve who analyzed data from 2019. Well in 2023 we’re changing that! We’ll take the wealth building one step at a time because otherwise it can be an overwhelming process especially since it’s new to many. We want to avoid that feeling like when you decide to clean your room, take everything out of the drawers, and then feel completely overrun by the amount of stuff you have and can’t put anything back. That’s not going to happen this time! Because we’ve got an easy wealth building list for you to follow. Try to do one thing at a time and you’ll create a financial life that’s working to make you more money and build your financial stability.
Create a Budget
I say it all the time- we can’t change what we don’t know. Would you be able to change your style if you don’t know what clothes you already own? Set aside 30 minutes and track your spending each week. Once you hvae a month of data, set up different categories for your spending, like rent, groceries, gifts, restaurants, etc. Setting limits will help you direct money to saving and investing (learn more with our investing guide).
Earning more money is the fastest way to change your financial life. Negotiation can help us increase our income. So anytime you are applying for a new job, or taking on a side hustle, always negotiate. Things you can negotiate for: more money, more time off, a specific title, extra training the company pays for. All of these can lead to more money right now or down the line in your career.
After you make your budget, you might notice that you only have one source of income. Most wealthy people have between three to seven sources of income. They have a job, but they also have rental income, investment income, a side hustle, or something like that. Side hustles are the easiest way to diversify income when you’re just starting. So if you’re a teacher, you can tutor one day on the weekend and now you have two streams of income! If you’re interested in generating passive income, essentially income where you don’t have to trade time for money, check out our workshop on passive income. With more money coming in, you’ll be able to save, invest, and pay off debt faster.
Pick a debt payoff
After we’ve got our budget and we’ve got money flowing in, now it’s time to put it to work! Pick a payoff method: snowball or avalanche. The debt avalanche method says to focus your debt payoff efforts on your HIGHEST INTEREST loan and make minimum payments on the rest. So if you have a credit card with $10,000 on it and a 25 percent interest rate, and a student loan with $5,000 on it and a 5 percent interest rate, the avalanche method says to pay that credit card off first, because the interest is compounding at such a high rate. The snowball is the same method, only instead of payong off the highest interest debt first, you pay off the smallest balance. Either one is great! Pick one and start using it.
Invest in Certificates/Education for Income Jumps
This is an on going financial step, you’ll want to make income jumps throughout your career. The idea here is to take advantage of courses, certificates, networking opportunities, and other things that move you up in your career so that you can earn more. You can try General Assembly, Coursera, and EdX and it’s also worth asking your employer if they offer any opportunities for certification or cover conferences or online courses.
Latinx households are 17 percent less likely to have a job that offers a retirement investment account. So that means we need to go out and get our own and opening an Individual Retirement Account (IRA) is the way to go. This is an investment account for retirement and you can out $6,500 a year in it. If you invest $6,500 a year from 25-65, you could have $1,681,794.92 when you retire. But to get there, you have to start NOW. You can also invest in a workplace plan, like a 401k, if you have one.
Talk to family, especially parents
Many of us are part of, or all of, our parents retirement plans. So that means the earlier we can talk to our parents and know if they have a retirement plan, the more time we have to help them.The conversation should be gentle — no one should feel attacked otherwise it’s not a productive conversation. Find out if your parents have investment accounts, and when they’d like to retire. If they’re still working, you can help them start investing by getting them an IRA, which means now they’ll have some money in their own names. FYI: you don’t have to be a citizen to open an IRA. You can also talk to your siblings and put together a plan between all of y’all for anyone in the family who might need it. For first gen, the idea of building wealth can be daunting since it’s likely your parents can’t help you but rather might need your help. We’ve devised a guide for first gen for building wealth without the stress of figuring out where to start.
There’s a whole world of investing out there! After you’ve got your IRA, you have still have extra money (and hopefully after those raises you do!) then you’re going to want to diversify your investment strategy. Similar to passive income, diversifying investments allows you to have more money coming in which is crucial to building wealth especially in the long run.
Helping the Next Gen
Once you’ve learned all this, it’s time to help someone else. Think about how different so many of our lives would be in our parents had been able to explain some of this stuff to us and we didn’t have to figure it out on our own. So help your cousin pay off her debt. Show your bother how to open an IRA. Have a family slideshow night on how to buy a house. We win together!
** FREE WORKSHOP **
Join Kara and HipLatina for a FREE wealth building virtual workshop for Latinxs Tuesday, April 18 4 – 5pm PDT
Register at Eventbrite – everyone registered will get a replay available for ONE WEEK after the event.