It's possible that you haven't thought about how to get out of debt, save money, and invest more wisely for the remainder of the year. However, it is never too early or too late to review your finances to ensure you are planning intelligently for 2023 and beyond.
The problem is that in today's erratic business scene, there are several factors to contend with when attempting to govern your money. Employers in the United States, for example, have allegedly created over 6.5 million jobs in the previous year, with unemployment falling to barely 3.6 per cent. The nation's economy concluded 2021 on a high note, with GDP increasing to 6.9 per cent in the fourth quarter.
There is, however, some turbulence. Consider that all major stock benchmarks saw their worst quarterly falls in two years in the first quarter of this year, plunging 4.6 per cent for the S& P 500 and up to 9 per cent for the Nasdaq Composite, according to Forbes Advisor.
The Federal Reserve hiked interest rates in March for the first time since 2018, and it is anticipated to do so six more times this year. The Fed's action was intended to aid in combating inflation, which is at a 40-year high. According to Fox Business News, Goldman Sachs researchers have warned that the risks of the US economy entering a recession in the next year have increased significantly as a result of the Ukraine-Russian conflict.
The good news is that increasing savings and assets is always beneficial. However, you may do well to use tools such as caution, study, determination, and the assistance of a financial advisor to achieve your objectives.
BLACK ENTERPRISE reached out to prominent Black influencers in personal finance and wealth-building for an opinion on how to address the nation's racial wealth disparity. They include both young and seasoned leaders who provide sound financial guidance and can help you take your finances to the next level
Compounding investments have several advantages.
Investing/Planning for Retirement: "The most essential thing individuals need to do for retirement is start by paying themselves first," said Shelly-Ann Eweka, senior director of financial planning strategy at TIAA. Set up automated investing plans for your 401k, IRA/Roth IRA, and then arrange your lifestyle around the amount of money you still have available. Those who do the reverse — who try to save or invest with "what's leftover" at the end of the month — frequently never get started, she says.
Many people are unaware that investing for retirement is more prudent in the long term.
"Say you make around $55,000 a year, which is common for recent college graduates," Eweka noted. So, starting at the age of 25, you save $100 each month and get a 6% return, which is a common estimate in these scenarios. When you reach the age of 65, you will have amassed around $200,000. But if you wait until you're 40 and increase your contribution to $200 each month, you'll have less than $140,000 at 65 since it didn't have as much time to compound."
"The sooner you start saving, the faster your assets may compound, so your earnings generate earnings," she says. Many employers will match up to 3% of your retirement savings."
"If you make $55,000 a year — again, normal for a recent college graduate — and save 3 per cent of that salary, your firm may match your 3 per cent," Eweka explained.
"That is $1,650 from you and $1,650 from them." If you don't save that much, you're throwing away free money."
You can't merely expect to outlast your money after you've retired. You will also require a lifetime income guarantee. Social Security, pensions, and annuities are examples of such benefits. Annuities, in particular, are becoming more popular as an investment choice in an increasing number of corporate retirement plans.
"Chat to your company about several retirement savings choices, and then talk to a financial planner."
"They can assist you to build a strategy that will help you enhance your financial wellbeing and plan to retire comfortably," Eweka stated.
Before purchasing any rental property, conduct thorough research.
Property investment: Among the important factors industry analysts predict for this year are an increase in rent rates, increased demand for rentals, and rent growth forecast to outpace house sales in 2022. Doing some research is an important element to consider before purchasing any rental property. Make sure to inquire about the real estate market circumstances in your area and how you want to proceed with a purchase. Joseph Asamoah, a master real estate investor who owns 36 or more single-family residences in the Washington, D.C. region, provided some perspective.
Among his recommendations is to pick an area that is on the rise and has a lot of promise. According to his experience, the ideal rental investment areas will first have a stable economy with employment potential expansion. He went on to say that another significant element of a real estate market is the presence of freshly formed enterprises or other successful businesses that are relocating to the desired area.
"This sort of activity considerably contributes to population expansion, which leads to increased demand for homes," he explains.
"As a result, your rental properties will be more occupied and have a reduced vacancy rate." He recommends purchasing properties that are reasonably priced — compared to market values — where you can add value, as well as those with appreciation potential. Asamoah recommends avoiding red flags such as not completing your study and overpaying, underestimating your expenditures and lining up finance, and having appropriate reserves before commencing.
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Permanent life insurance can aid in the accumulation of wealth.
Insurance: It is a common misperception that life insurance exclusively covers funeral or last expenditures. However, many Black Americans are unaware that it may be a powerful wealth producer. According to ShirleyAnn Robertson, a financial specialist with Prudential in Schaumburg, Ill., life insurance can provide an additional source of income, particularly in retirement. "Many permanent life insurance contracts have the potential to accumulate financial value," she noted. "It may be used to cover numerous financial responsibilities, including extra retirement income," she noted.
When you make a payment on your permanent policy, a portion of the money goes to cover the cost of your insurance and policy costs, while the rest goes toward building cash value.
"The potential for development varies according to the type of permanent policies, the interest credited, and the design of a company's policy."
The cost of the premium is determined by age, gender, and physical condition. Along with leaving a significant sum of money to those you care about, life insurance can provide access to funds in the event of illness.
"People are living longer lives, and it's crucial to consider how you can acquire the extra money to care for yourself if you get a chronic or fatal condition."
According to Robertson, life insurance may assist safeguard your business, workers, and family.
"You want to minimize the company damage if one of your partners or key staff dies or gets handicapped." Life insurance can help you recruit temporary labour or recoup the money, as well as attract and keep top staff."
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Tax breaks for multi-family property owners and company owners
Taxes: Though the 2022 tax filing season is over, experts say there are steps people can do now to save money before 2023. For example, if you had a kid this year, you may change your W-4 to reflect that.
"At the same time, the tax code favours company owners and multi-family property owners," said Andrew Coombs, managing partner and founder of Coombs CPA in Newark, New Jersey.
"When you own a business or real estate holdings, it offers you the opportunity to claim numerous tax deductions," he stated.
"Charges from multi-family homes and depreciation expenses for the property might boost your tax return," he said. Property taxes, mortgage interest, and mortgage insurance are all allowable deductions.
"I urge that each company and multi-family property have its bank account." The separate bank account enables you to stay organized and protects you from an IRS examination."
"Making contributions to employer-sponsored retirement plans is helpful because it lets you plan for the future while also benefiting from tax benefits," Coombs added.
A one-stop app can help Black Americans become homes.
Fintech: In recent years, a growing number of financial technology firms, including Black-owned ones, have emerged to provide services such as mobile banking, insurance, and wealth management. MoCaFi is one such company.
"Our objective has always been to take disenfranchised — defined as unbanked or underbanked — mostly Black Americans from financial instability to security, economic stability, and finally flourishing status," said Wole Coaxum, founder and CEO.
"We think that high-quality, no-cost financial services may help reduce the racial, ethnic, and socioeconomic wealth divides that keep over 90 million Americans from pursuing success completely."
MoCaFi's head of public relations, Marjorie Fields Harris, gave information on the company's new 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 favourable 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.”
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