With the end of the first half of 2022 coming, now is perhaps fitting to enlarge your personal finances.
It possibly has been a while since you looked at how to erase debt, stockpile money and examine how to invest more thoughtfully the rest of this year. Yet, it is never too early or late to refresh your finances to ensure you’re moving ahead wisely to generate and build wealth for 2023 and beyond.
The hitch is there are multiple forces to maneuver while trying to control your money in today’s uneven business landscape. For instance, U.S. employers have reportedly provided roughly 6.5 million jobs in the last year and unemployment has dipped to only 3.6%. The nation’s economy ended 2021 bullishly, as GDP grew purportedly grew to 6.9% in the fourth quarter.
However, there still is turbulence. Consider that all major stock benchmarks in this year’s first quarter had their largest quarterly declines in two years, falling 4.6% for the Standard and Poor’s 500 and up to 9% for the Nasdaq Composite, per Forbes Advisor.
For the first time since 2018, the Federal Reserve in March raised interest rates and is expected to do so six more times this year. The Fed’s action was a move to help combat inflation at a 40-year high. And economists at Goldman Sachs have cautioned the odds of the U.S. economy falling into a recession in the next year have grown greatly due to the Ukraine-Russian war, per Fox Business News.
The good news is boosting savings and building assets is always useful. But you may do well to apply such tools as diligence, research, commitment, and help from a financial planner to reach your goals.
BLACK ENTERPRISE connected with top Black influencers in personal finance and wealth-building to gain feedback to help close the nation’s racial wealth gap. They include new and experienced leaders offering smart-money advice who can be assisting in elevating your finances to higher levels.
Compounding investments offer multiple benefits
Investing/Retirement Planning: “The most important thing people need to do for retirement is start by paying yourself first,” said Shelly-Ann Eweka, senior director of financial planning strategy at TIAA, the retirement giant. Set up automatic investment plans for your 401k, IRA/Roth IRA and then build your lifestyle around your remaining available income. She said those who do the opposite — who look to save or invest at the end of the month with “what’s left over” — often never get started.
Many people don’t realize saving for retirement is more sensible in the long run.
Eweka explained, “say you make about $55,000 a year, which is typical for recent college graduates. So you save $100 a month starting at age 25 and earn a 6% return, a standard assumption in these scenarios. When you are 65, you’ll have accumulated about $200,000. But if you wait until 40 and double your contribution to $200 monthly, at 65 you will have less than $140,000 because it did not have as long to compound.”
She said, “the sooner you start to save, the more your investments can compound so your earnings earn earnings. A lot of companies will match what you save for retirement up to 3%.”
Eweka shared, “if you make $55,000 a year — again typical for a recent college graduate — and you save 3% of that salary, your company could match your 3%.”
“That’s $1,650 from you and another $1,650 from them. If you don’t save that much, you’re leaving free money on the table.”
Once you retire, you cannot just hope you will outlive your money. You will also need guaranteed lifetime income. That can be Social Security, pensions, and annuities. Specifically, a growing number of workplace retirement plans are including annuities as an investment option.
“Talk to your employer about different options for retirement savings and talk to a financial planner.”
Eweka added, “They can help you tailor a plan that will help you improve your financial wellness and plan to retire comfortably.”
Do research before buying any rental property
Real Estate: An expected rise in rent prices, a greater demand for rentals and rent growth projected to surpass home sales in 2022 are among key indicators industry experts foresee this year. One factor to consider before buying any rental property is do some research. Be sure to ask about the real estate market conditions where you are and how will you proceed with a purchase. Master real estate investor, Joseph Asamoah, who owns 36-plus single-family properties in the Washington, D.C. area, offered some insight.
Among his suggestions is choose a location that is on the way up and has a lot of potential. In his experience, he says the best rental investment locations will first have a healthy economy that displays job opportunity growth. He added another important feature of a real estate market is to have newly developed companies or other successful companies that are moving to the location of choice.
“This type of activity greatly helps with population growth which in turn will result in a greater demand for housing,” he says.
“Thus, your rental properties will have a higher occupancy rate and a lower vacancy rate.” He suggests buying properties that are reasonably priced — relative to prices in your market — where you can add value and those with appreciation potential. Some red flags Asamoah says, should be avoided now include not doing your homework and overpaying, underestimating your costs and lining up financing and having adequate reserves before starting.
Permanent life insurance can help build wealth
Insurance: There often is a misconception that life insurance mainly only covers burial or final expenses. Yet, many Black Americans are unaware it can be a strong wealth builder. Life insurance can create another income source, especially for retirement, says ShirleyAnn Robertson, financial professional at Prudential in Schaumburg, Ill. She said, “many permanent life insurance policies have the potential to accumulate cash value.” She added, “it can be used to cover many financial commitments, including extra retirement income.”
Each time you make a payment on your permanent policy, a portion of that covers the cost of your insurance, policy fees and the remaining funds build cash value.
“The growth potential varies among the type of permanent policies, the interest credited and the design of a company’s policy.”
That premium cost is based on age, gender and physical conditions. Along with leaving a meaningful amount of money to people you love; life insurance can offer access to money in sickness.
“People are living longer and it’s important to think about how you could get the extra money to take care of yourself if you get a chronic or terminal illness.”
Entrepreneurially, Robertson says life insurance can help protect your business, employees, and family.
“If one of your partners or key employees dies or becomes disabled, you want to minimize business impact. Life insurance can help you hire interim support or recover income, and it also can help you to attract and retain top talent.”
Tax deductions for business owners and multi-family property owners
Taxes: Though the 2022 tax filing season is done, experts report there are moves taxpayers can make now to help them save money before 2023 arrives. For instance, if you had a baby this year, you could update your W-4 to show that.
“At the same time, the tax law is heavily favored towards business owners and multi-family property owners,” said Andrew Coombs, managing partner and founder of Coombs CPA in Newark, N.J.
He explained, “when you own a business or real estate properties it allows you the flexibility to take various deductions in the tax law.”
He noted, “expenses from multi-family properties and depreciation expenses for the property can benefit your tax return.” Property taxes, mortgage interest and mortgage insurance also can be deducted.
“I recommend individuals have a separate bank account for each business and each multi-family property. The separate bank account allows you to be organized and protects people in the event of an IRS audit.”
Coombs also said, “making contributions to employer-sponsored retirement accounts is beneficial because it helps you plan for your future, while also benefitting from tax deductions.”
One-stop app can assist Black Americans in becoming homeowners
Fintech: A growing number of financial technology firms, including Black-owned ones, have emerged in recent years to offer services including mobile banking, insurance and wealth management. One such firm is known as MoCaFi.
“Our goal has always been to move marginalized — defined as unbanked or underbanked — mostly Black Americans from financial insecurity, to security, to economic stability and then thriving status,” said Wole Coaxum, founder and chief executive officer.
“We believe high-quality, no-cost ﬁnancial services can help close the racial, ethnic, and social wealth gaps preventing over 90 million Americans from fully pursuing prosperity.”
Marjorie Fields Harris, MoCaFi’s head of public relations, shared on the firm’s fresh one-stop app.
“The Blueprint by MoCaFi app enables users to track their assets and liabilities, simulate steps to gain a strong credit score and create a favorable financial profile to obtain a mortgage. It also is intended to help those trying to build wealth to better track their spending and gain access to capital. The app helps people build and establish credit, reduce debt and create budgets. The Blueprint app can also help users save for a down payment and closing costs and track their progress to become mortgage ready.”