Financial Planning for Minority Communities: 5 Essential Steps

Financial Planning

Financial Planning

Over the past decade, studies have found that Black, Hispanic and Indigenous communities tend to have lower rates of financial literacy. There is a vast and disturbing reality when it comes to financial planning for minorities.

Now more than ever, it is essential to start closing the financial planning gap. If we do not take the necessary steps to address this problem, members of the minority community will not only lose money during their lifetime, but their children will also suffer after their death. As for why this happens, there are a number of reasons, from a lack of awareness that some financial planning is even necessary, to limitations in access to planning resources and more than that. Closing this financial literacy gap starts with awareness and access to financial planning tools and resources. So we’ve put together a list of financial planning tips to empower minority communities.

  • Believe in your wealth

Your wealth goal could be financial comfort, independence, becoming a millionaire, which isn’t a lot of money these days, or becoming wealthy which he defines as net worth net of $5 million or more. You may even aspire to become super rich or a billionaire. At the very least, your goal should be financial independence in retirement, and having clear goals will help you develop a plan to achieve that goal.

Although a will does not represent 100% of the preparations for transferring assets, it is the best first step. A recent survey found that two-thirds of Americans still do not have a will. Worse still, minorities are about 10 to 15 percent less likely to have willpower than their white counterparts. The main reasons people do not have a will are often due to lack of urgency or because they believe they do not have enough assets to warrant a will.

  • Manage your debt

One of the best ways to improve your credit score is to eliminate as much debt as possible. Commit to earning more money each month to pay off your debt. Many financial experts recommend using a debt snowball or debt avalanche strategy. While most Americans are burdened with debt, especially high-interest credit cards, there is an imbalance for black and Hispanic Americans. As a group, the credit scores of black Americans are well below the national average, while the credit scores of Hispanic Americans barely reach the average.

The debt snowball strategy recommends working from the smallest debt to the largest debt, while the avalanche strategy recommends working from the debt with the highest interest rate to the debt with the lowest interest rate. Both methods provide a clear, reliable plan for eliminating your debt. Ultimately, debt becomes a major issue during the estate planning and settlement process. If the debt remains unpaid at death,  the executor is responsible for paying the debt.

  • Invest

You need to get more cash and “go for it” by investing to grow your wealth. If you’re living paycheck to paycheck, optimizing your work to make more money or taking on a side hustle or freelancing to make more money. You can also get more capital to invest by borrowing or raising capital, but both are difficult for African Americans due to discrimination in lending. Black entrepreneurs also have a harder time raising venture capital to support their businesses.

You don’t need to have a high payslip to create wealth, you just need to be a regular saver. What we can control is what we do with what we have. If we wait for the match to be fair, we will never start.

  • Taxes

For starters, tax planning needs to be considered throughout the year, rather than just in April. One way to do this is to find ways to reduce your taxable income; One of the most popular methods is to contribute to an HSA, retirement account, or traditional IRA. While you should always talk to a financial advisor about your specific tax planning, there are some things everyone should know, especially since certain minorities are more likely to pay higher taxes.

A legal structure like a trust can allow your beneficiaries to bypass probate and take possession of your assets immediately after your death, potentially reducing your tax liability. Consult a qualified financial planner for the best options available in your area. Remember that your beneficiaries could lose a significant amount of money due to unpaid taxes after your death.

  • Invest long-term

Young investors seem to be getting the message. A Schwab survey of black investors found a significant gap between black and white stock holdings in older age groups, but the gap narrowed for people under 40 years old. African Americans need to invest more, thereby increasing the scale and intensity of investing money in wealth, construction assets. Consistency is key. Set aside money from each paycheck, no matter how little or how much.

Investing aggressively does not mean choosing projects that will allow you to get rich quickly, but rather choosing slow and steady investments that promise a quick return, knowing that 7% is an attractive rate of return, guide. It’s not quick, easy or free.  You can start with the stock market. Get in index funds and also buy individual stocks of companies with a long history of stability. The approach is to pick a company in several industries and imitate Warren Buffett by holding these investments for the long term. One thing I’m trying to get across to the community is we can’t invest. We have to prioritize it – that’s what will close the racial wealth gap. Investing in real estate has been a wealth creation tool since the dawn of time. Get busy investing in multi-family properties.

It’s all about the mindset. If African Americans understand the path to prosperity and make the decision to build assets, anything is possible. I feel an urgency about building Black wealth. We don’t have time to waste. It’s time to make millionaire money moves and start investing in assets.