Overspending To Keep Up With The Joneses
Human beings are social creatures and we like to look good in the eyes of others. Unfortunately, this sometimes causes us to make poor financial decisions like buying a house and car we can’t afford or maxing out credit cards to join our friends on a luxury vacation.
If keeping up with your friends, relatives or neighbors means incurring debt and having sleepless nights, it’s probably not worth it. You may want to seek out like-minded people who are also keen savers and investors. Be open with your friends about your financial goals and the budget you have available for leisure activities.
Supporting Friends And Family Members
One of the realities that many African American professionals face is the pressure to support friends and relatives who find themselves in financially challenging circumstances.
While nobody wants to see the people close to them suffer, it’s not possible to help everyone, especially when you’re trying to build your financial foundation for life.
It can be difficult to discuss money and moral obligations with your relatives or childhood friends. However, it’s something you’ll need to do early on to avoid heated arguments or even a breakdown in your relationship.
Instead of supplying regular income to people in your extended network, you may want to advise them about job opportunities, educational programs, or government assistance schemes they may not be aware of.
Not Reaching Out For Help
Planning your finances isn’t easy, especially if you’re a first-generation professional or high-income earner. Here’s why a professional financial planner can be immensely helpful.
- The relatively small number of African American CFPs (Certified Financial Planners) in the US means that many black professionals don’t seek out the specialized advice that could help them grow their wealth effectively
- By working with a finance professional who understands your needs and life goals, you’ll be able to budget more effectively, invest your money with healthy returns, and streamline your debt, mortgage, and insurance payments. You’ll also benefit from retirement planning services
- It’s best to consult with a financial professional who has the necessary qualifications and a track record of success in working with African American clients. A referral from a trusted friend or colleague, preferably someone in your industry, is always helpful
Not Saving For Retirement
The realities of student debt, a mortgage, loans, assistance to friends and family, and putting your kids through college mean that many couples or single parents skimp on their retirement savings.
Unfortunately, this financial error can have extremely negative consequences at a time in your life when you may not be able to work anymore.
Therefore, households should aim to save at least 10%-20% of after-tax income each month and put this toward an emergency savings fund or retirement investments. You’ll want to have at least three to six months’ expenses saved up before you start investing.
If your employer offers you a retirement fund, you’ll want to make the maximum possible contribution and the same goes for your 401(k). You’ll enjoy several tax benefits when you withdraw these funds at retirement.
Not Being Aware Of Your Credit Score
A low credit score doesn’t just make it difficult to be approved for a credit card, loan, or mortgage. It also makes your existing debt more expensive. Keeping track of your FICO score is an essential financial strategy and it’s actually easier than it sounds.
Keep these considerations in mind:
- A FICO score below 680 could mean that your credit applications are rejected. You may also have difficulty renting a home or applying for certain types of jobs
- High credit card balances, late payments, charge-offs, and bankruptcies can all harm your score to varying degrees
- You’re entitled to a free annual credit report from each of the three main credit bureaus (Experian, TransUnion, and Equifax). In response to the COVID-19 pandemic, these reports will now be free every week until April 2021
- If you’re concerned about your score, you may also want to opt for a credit monitoring service like Experian Alerts which will advise you every time your numbers rise or fall
Conclusion
Financial empowerment is one of the key strategies that the African American community can use to close the racial wealth gap. On a personal level, this means less money wasted and more funds invested to provide you and your family with the life and future you deserve.
Living within your means, focusing on your own financial goals, resisting the urge to keep up with others, budgeting effectively, and managing your retirement planning and credit score are all excellent strategies for financial success.
