When the pandemic hit this spring, we were all caught off-guard—emotionally, physically, and financially. Before the pandemic, Black families made some strides in building multigenerational wealth. Between 2016 and 2019, Black households grew their wealth by 33%—compared to the 3% growth among white families. These days, it might not feel that way. But remember, history has shown that this too shall pass. By having a long-term financial plan, you can feel stronger in the face of this adversity.
Take a minute, often, for some financial self-care.
It’s never too late to start a budget. To build a solid foundation for your financial strategy – before you even jump into investing – have a clear understanding of where your money is going today, and if possible, consider if there are opportunities to save or invest more.
- Complete an inventory of your finances by listing all of your expenses, and subtracting them from your sources of income; this can help you establish a starting point. Be honest with yourself about those extra purchases. If you are spending more than what is coming in on a monthly basis, then have a look at what you might be able to cut back on. If you have excess cash, this can be an opportunity to save or invest—we’ll come back to that in a minute.
- Maintain an emergency fund. Try to have about three-to-six months’ worth of expenses readily available to you at all times. As this year has shown, you can never predict when you may end up facing income interruptions.
- Address any money habits that may hinder your financial success. The money habits that you build over time can come from your upbringing, your environment, education, profession, and more. You may be overly cautious and hold on to too much cash, rather than putting it to work in the markets. Or you may be overly generous and consistently prioritize expenses of your loved ones, before investing in yourself. Some of the deeply rooted habits may be hard to break initially, but understanding the long-term consequences of not breaking them—which may include having to work for longer, or having to depend on others financially—could help you get the motivation you need.
Prioritize retirement savings, if possible.
If you have been able to weather this storm, then think long term.
Retirement is at the core of any successful financial strategy. Today, more than half of Americans are concerned about outliving their savings. For women, this anxiety is even more magnified, given their (on average) longer lifespan and a higher likelihood of career interruptions. Indeed, studies show the average white woman had $43,000 more in retirement savings than the average Black woman.
This doesn’t just impact you. If you don’t plan for retirement, you may have to rely on your children or other relatives in the future, or you may not be able to pass along an inheritance to give your beneficiaries a leg up.
Try to at least contribute the maximum allowable amount to your employer’s tax-deferred retirement plans, if available. You can usually ask your employer to automatically debit this from your paycheck, which can help you stay on the right track. This can be especially important for Black, first-generation wealth builders, who often tend to prioritize the well-being and needs of others ahead of their own. And if you’re feeling overwhelmed by the options, you can always reach out to a financial adviser for some guidance.
Don’t wait for the perfect moment.
Thanks to a myriad of online tools, investing today has gotten easier—and cheaper—than ever. You can start with a single paycheck (or even less, for many apps), and let the beauty of compounding—earning interest on top of your interest—do its job.
Over time, a number of studies suggested that women tend to be more conservative when it comes to investing, which may end up hurting their chances of financial success. Overall, women tend to take their time educating themselves about each opportunity, and carefully considering every move. This in many cases is great. But be wary of letting perfection get in the way of progress: waiting for the perfect moment to get invested is likely to cost you in missed earnings—a lot of missed earnings. If you start investing at 35, instead of 25 for instance, you could end up with roughly half the amount by the time you are 65. So, just like with learning a new language, action is key; start in small, but consistent steps and prioritize “practice” to help get you the results you want.
And once you start investing, work on staying invested to reach your goals. To help you with this, you may want to consider setting up automatic contributions to investing accounts. This will take the guesswork out of the right amount and the right time to invest, and can make investing a habit for you. An added plus? Setting up automatic contributions helps take the emotions out of the process, which can prove especially useful during volatile markets.
Early planning can also help you identify the right kinds of investments that can serve you and your loved ones, even beyond your lifetime. About 23% of white households reported having received an inheritance, compared to only 9% of Black households. This is partly due to the imbalance in homeownership—72% for white households, compared to 41.7% of Black households—and retirement accounts. So when thinking about your assets, consider investments that can potentially help empower the generations after you.
Bottom line: Mapping out your financial journey is rarely a walk in the park. But the reality is that saving and staying invested is possibly the most reliable path to long-term wealth building. And know that there are always professionals out there to help you explore strategies that make sense for you.
Reach out to a J.P. Morgan Advisor to create a personalized strategy for you and your loved ones.
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This article is sponsored by J.P. Morgan.
This article was written by Racquel Oden, the Head of National Sales & Support, JP Morgan Chase Consumer Bank, and Mayra P. Cardoso, Head of Content Strategy and Innovation for U.S. Wealth Management at J.P Morgan Chase & Co.