We Can Do Better Than $100

Don’t be alarmed by the recent news that African American women only have a median net worth of $100. I’m actually glad to see that it wasn’t in the negative. The reality of the situation is that too many people define themselves based on income. Many say ‘I make six-figures,’ or ‘I need to be in a two-income family.’ This is senseless talk. If you are not saving or investing that income in a place that will create true wealth, you are headed for a three-figure future.

When I discuss what it means to be rich at seminars, I explain that the vision is different for everyone. But the one constant is that you will need to have wealth to achieve that rich vision. There is a simple formula for net worth; it’s assets minus liabilities. Please note, INCOME is nowhere in this equation.     

I commend the Center for Economic Development for conducting a study of the wealth gap between women of color and white women. Perhaps, now more women will get a wake up call and start to do the following to change the picture.

How to Build Wealth

A) Find Out Where You Stand

1) Add up all your assets, i.e. everything you own or are borrowing-to-own (like a house, car, jewelry that’s paid for on a Zales credit card, etc.)

2) Subtract everything you owe, i.e. credit card balances, car loans, mortgages, student loans, etc. Do not include utilities because that is not a debt, you can turn that off and the bill goes away. Unless of course, you have to still pay for months that have already passed (as in overdue bills).

3) Get your outcome number from applying steps 1 and 2. This number is your net worth. Don’t panic or be alarmed if your number is in the negative. This is very common for the first time you apply this exercise.  My  number was like -$30,000 or something the first time.

Knowing and accepting your situation is the first step to overcoming any situation. I once interviewed a women for a 2008 April Essence magazine story, “The 30 Day Debt Diet.” The subject said she actually got diarrhea after she realized her financial situation was so bleak. But imagine what she would have gotten if she didn’t correct the situation. She was about $20,000 short every year for her basic living expenses, which was making her credit card debt mount and continue to ruin her net worth. But after she realized it, she got a job making more money and she is now living quite pretty. She actually lives close by me and she is doing quite well for herself with her million dollar home. You can read more about her and others in this type situation here.

B) Do Something About It

Apply these 5 Keys to Keeping It Rich:

1) Define You must define your rich life for yourself. If you are shopping all the time and the bills are running up, its because you have not defined a better life for yourself. Decide where you really want to live, vacation, eat out, etc. then…

2) Invest in your newly defined lifestyle. Figure out how much that house or vacation costs and then start to save your money accordingly. Once you get 3 months worth of living expenses in the bank, then ask your bank advisor or a friend’s financial advisor about CDs or mutual funds. The options for growth will continue to grow as you grow.

3) Build Your Credit. In America, you can’t do much without credit until you truly fall into the upper echelon classes of Carlos Slim Helu or Oprah Winfrey. Get your credit report from www.annualcreditreport.com and call your debtors and work out a plan.  See “A Perfect Score” I wrote a bit ago for Black Enterprise to learn more about building credit.

4) Own a home or a business. This is where the true net worth building will come into play. The value of a home (although some can’t tell today, but it will change) or a small business adds true worth to a net worth statement. Trust me. I’ll tell you my story at another time to convince you.

5) Hire professional advisors for insurance, financial advice, taxes, etc. Also, you will need to hire staff for your businesses. You will never become as large at Carlos Slim Helu or Oprah (they are my picks for today apparently) by doing all the work yourself.

Ok, I gotta run. I hope this helps you deal better with the news of black women and their net worth. Tweet me your Qs at www.twitter.com/keepingitrich 

Keeping it rich,

Sakina

 

The Prepaid Debit Experiment

I began a prepaid debit card experiment after reading a great article at CNNMoney.com about how prepaid debit cards were being used among the well-to-do. Well, well-to-do depends on your definition. But it was definitely being used by heads of households, people with earnings over $100,000 per year and people who, if they so chose to, could get approved for a regular credit card. This piqued my interest and the thought of a prepaid debit card soon became an action.

I’m at the beginning of month two and so far, so good. I’d rate this experience about an 8 on a scale of 1 to 10.  This is largely due to the fact that so far it is keeping me on budget and it allows me and my husband to share money without sharing credit ratings. I LOVE that! “Til death due us part,” some say; “til wealth due us part,” I say. The best way for me to stay happily married is to stay happily separated in funds. Any hew, I digress.  

The pros so far:

1) Sharing Funds- It is a good way to share funds with hired service staff such as nannies or babysitters, and relatives, such as kids in college, an elderly mom or even the spouse. This is a safe way of giving someone the finances they need to take care of your children or themselves without the possible threat to your credit report or bank account.

2) Budgeting– This is becoming my favorite pro so far.  Being “a woman of a certain bank account” (LOL, I like that. Remember, u heard it here first), I can often allow myself to splurge. I say I’m only going to spend $100 on a day in New York with my kids but it quickly becomes $200 because I’m using my own checking-account’s debit-card which has waaaay more than $100 in it. But when I use my prepaid debit card that I know only has $500 on it for the month, then I’m a lot more conservative.

The cons so far:

1) Fees– I paid $3 for the initial purchase of the prepaid debit card and it costs $3 every time I load it with money and it costs $3 per month for service fees. So, you can clearly see that a prepaid debit card should only be for people of a certain bank account. These fees can rack up. Right now, my plan is to load it with my monthly discretionary income amount once a month for $3 and pay my monthly $3 fee. So, it’s costing me $6 per month in all. When you add in the $3 initial fee, over a year the fees will be $75. This won’t be so bad if it disciplines me enough that I actually spend about $200 per month less on wasteful discretionary spending such as birthday party gifts, eating out, etc.

2) The Negative Perception– I am a woman of a certain bank account and so pulling out a prepaid debit card makes folks’ eyes wander. The industry has done a poor job of showing the good uses of the card. So, whenever anyone sees or hears about a prepaid debit card they associate it with a loser. .

3) Predatory Card Issuers– There are many predatory card issuers who are charging fees per transaction as well as $20 initial fees. The issuers who are charging these exorbitant fees are preying on the lower income households who should not be using a prepaid debit card at all! They need to use a secured credit card and begin building their credit. If you have poor credit, low income and you have $300 or $500 per month to load on a prepaid card, you should put it on a secured credit card instead. This will help you repair your credit and get you on track to keeping it rich.

Stay tuned for this adventure. Let’s see if it works or if I’m just losing $6 per month.

Keeping it rich,

Sakina