Monday, January 3, 2011

For Blacks: Mo Money in 2011?

My Financial Suggestions for Negros in 2011


Hello brothers and sisters!  Happy new year.  I hope you sat down at your desk and mapped out your year and planned everything you would "like" to do this year.  But, what about what you would like to financially achieve this year?  Very often Black folks, or even Americans in general, do not sit down at the beginning of a year and plan ahead for their finances.  Trust me on this one when I say, when you write it down, just the act alone, seems to help you achieve it.  I am always harping on what Black folks won't do.  So I like to put my money where my mouth is, and we'll go through this together and suggest what ought to be done.  Ever hear of a Black leader that does that?  They're so quick to tell you what shouldn't be done.  Black preachers climb the pulpit every Sunday and tell you what you can't do.  Black "leaders", a.k.a. NAACP wannabes, delight in telling you how you've been wronged.  But, not a damn one of them empower us.  Not a damn one of them tell us what we can do.

I don't think Black people have financial education.  I am no Warren Buffet but I will share with you some financial ideas that I think even the most financially uneducated brother or sister can not only understand, but financially do.

This Year's Financial Planning for Black People


I am going to tell you some things that might seem counter to what all the financial gurus are talking about.  But, what you don't know is most of those financial gurus are not talking to you.  They are talking to people who have $150,000 saved in the bank.  Do you know the average social security retiree has a whopping $50,000 saved in their social 401k plan?  There is no way they can retire off of that.  So all these speeches about what you should do with your money does not apply to you.  [and me]  We do not have the basic of the basic already sorted out, have at least $50,000 in savings alone.  So if I say something that doesn't jive with what your financial hero is telling you, understand that your financial hero makes about $300,000 a year and think everyone has $50,000 saved in the bank ALREADY.

The Easy Way to Save


Before you can save you have to get your spending under control.  If you go to a store more than twice a month, you are out of control.  That is including groceries.  Basically the idea is that most Americans are living waaaaaaaaaaaaaaay above their means.  They are shopping non-stop.  They are paying for things they do not need.

There are far more rich people that lived below their means and saved up, than there are that wandered into a pot of gold.  There are far more rich people that were stingy with their money than those that had riches fall in their lap.  Being wealthy takes planning and commitment.  Don't be afraid of the word wealthy either.  I consider wealthy to also cover how great your family is, spiritually.  Oh and by the way, these days having one million dollars is not considered rich anymore.

Now, all the financial gurus tell you that saving your money works against you.  The Federal Reserve Bank prints a cool $50 million a day.  That's right! A Day!  That means the $50 you put in your bank every paycheck by the time you walk out the door, is really only worth about $45.  Just that fast inflation is eating your money.  Now couple that with the fact of capital gains tax, which is %15 off of what you make in a savings account.  Right now across the land it's a bleak 1% OR LESS.  So if inflation of 5% and an additional 15% don't get you, your own spending will get you.

So why am I even discussing savings?  Because you have to have a foundation before you can anything with money.  You cannot talk about sound investing if you have no money to invest.  You do know that, at a minimum people are talking about having $20,000 or $30,000, when they are discussing investing.  And, they expect you to have that saved by age 26 or so.  So if you don't have that, all of that discussion doesn't even apply to you.

I asked my bank if my account was terrible, two different banks told me that 90% of their account holders did not have enough in their account to buy an expensive meal.

So what can we do to save money? There is a financial term called a DRIP program.  It stands for dividend reinvestment program.  It means that you buy into the direct shares of a company, below the minimum of what a normal investor would have to pay, about $1,000.  Your buy in is then kept by the company and as your little money stays, they pay you an exact portion of what you make off of your "stock", when they pay out dividends.  However, instead of you getting the money, for your tiny portion, the company reinvests the money to buy you more stocks.  So, for instance, if you were to buy into the Proctor & Gamble DRIP program with $500, come time for them to pay out dividends, they take the $5 you earned and buy you more stock.  So you end up with $505 worth of stock in the company.  Over a long period of time, you might end up with 20,000 shares from just a tiny amount.

My suggestion is for you to apply the same principle to yourself and your savings account.  Most people put all of their money into their checking account so they can pay off bills and such, or buy groceries.  That is fine.  As long as you keep an up-to-date checkbook you will never go into the hole.  Setup your own DRIP program from your checking account, to your savings account.  Unless your bank is in the stone age, you can go online and do this.

Setup a daily or weekly transfer from your checking account to your savings account.  Now the amount is going to be the big question.  Put too little in and reaching $30,000 will take forever.  Put too much in, and unless you are really in control of your spending, you might run the risk of getting in trouble.  In trouble because the savings account is to be treated as if it is untouchable.  Under no circumstances can you take out money from your savings account.  That is the whole point of it being a "savings" account.

Think of it in terms of how much you are personally worth every day.  Let's say you make $100 a day.  Of that $100 how much goes to direct, unquestionable, expenses, i.e. rent, power, water, gasoline / transportation?  Now remember this is daily.  Let's say $50 a day covers all your expenses.  Then you might have $20 in questionable expenses, i.e. cell phone bills.  That leaves you with $30 a day to play around with.  Let's say you put that into your savings account, which gives you 1% interest:
  • $210 a week or $30 a day
  • 1% interest rate
  • compounded monthly
That comes out to be $114,855.00 after 10 years.

Let's say you only put in $10 a day, at 1% interest into a savings account
  • $70 a week or $10 a day
  • 1% interest rate
  • compounded monthly
That comes out to be $38, 285.00 after 10 years.

You can see right off that aggressively saving is going to get you there faster.  If your goal is to get to $30,000 it would take you 3 years if you only saved $30 a day or $210 a week at 1% interest.  To get to $30,000 in one year at 1% interest rate you would have to save $80 a day.

Now most black folk only think of themselves, by themselves.  Let's think outside the box right quick.  Imagine that your entire family contributed to the savings account.  You could probably easily save $80 a day, or more.  If you consolidated your families expenses by moving together and sharing the expenses, you could probably cut everyone's expenses in half.  Yes, I am talking about your grown children moving home, or you moving in with your grown children.  Outside of the U.S. people live with their extended family under the same roof, quite frequently.  And, before you start going down the path thinking I'm talking about some poor 3rd world country, I am talking about Europe, very wealthy countries.  Only Americans consider it their duty to move out and double their expenses, like idiots.  Or worse, get into a house that takes away more than 30% of their salary.  You do know that mortgage lenders do not want to lend you any money if all of your monthly debts exceed 36%.  That includes house note, car note, cell phone bill, power, water, garbage, property taxes, gas bill.  So if you made $100 a day, you better not have more than $36 a day in total bills.  That is $1080 a month in bills.  If you are paying more than that, in total bills, you are living WELLLLL above your means, i.e. you're broke.

What Can I Do With Thirty-Thousand Dollars in One Year?


So we are going to save this $30,000 this year.  The next question is, what do i do with it?  No we are not going to spend it all.  We are going to go into business for our selves / family.  Of all the business ventures you could go into, real estate is still the safest to get into.  With $30,000 you can leverage yourself into most single family properties, that you are going to rent out to someone.

So the plan is to get into a nice single family home and rent it out for "cash flow".  First you have to prepare yourself.  Buy every real estate book you can get your hand on.  Keep in mind, no one book is going to have all the answers.  Even text book real estate books, do not have all the answers.

Next, become an expert in accounting. Read everything you can on accounting.  If you do not know about money, you will never keep money.  Understand that accounting is only going to tell you how money is tabulated.  However, it is a basic principle that is unquestionably necessary to learn.  Every Black person in America should know accounting to the advanced level.

Next, comes understanding taxes.  Every Black person in America should learn taxes inside and out.  So many Black people are raped by the federal, state and local government through taxes, it isn't even funny.  And, I used the word rape literally.  Black folks pay, per capita, the highest taxes of any other racial group and yet have the lowest median household income in the entire nation.*  There has got to be an end to it.  Know your taxes.  Take advantage of tax shelters and tax deductions.  Your children are your biggest way to save yourself from taxes.  While you keep pushing them away and telling them stupid crap like, "man up" and move out the house, you're killing yourself with taxes.  Idiot!  Stupid is, as stupid does.  Black folks shoot themselves in the foot, face and head all day long and then turn around and wonder why they're in the state that they're in.

I suggest you print this article out and sit down at your desk and plan out your year:
  • learn everything about real estate
  • learn everything about accounting
  • learn everything about taxes
  • save $30,000 this year
Now that sounds like a financial new year's resolution that you can achieve.

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