06 Sep How WE can build wealth in just 3 simple steps
If you are of African descent and truly believe that money is power, then ask yourself the following questions:
- Why do we relinquish our power (money) so easily?
- Why do so many of us struggle to save money and accumulate wealth (power), regardless of income or perceived socioeconomic status?
- If we truly have over a trillion dollars in collective spending power, then why do many of us not feel empowered or powerful?
I won’t attempt to answer these questions directly; I’m a fan of critical thinking, and I’m hoping that performing a tiny exercise like answering these questions on our own will add to our individual and collective growth and development. The proposed solutions below have been used (in some form) by other ethnic groups for years with huge successes. The targeting of people of African descent (PADs) in this article specifically refers to the general knowledge deficit that exists within our people. I can’t and won’t stop others from reading and benefitting, but my focus is on where the aid is needed most.
I will share that anecdotally and statistically, our people appear to spend a LOT of money outside of our own communities and endeavors.
We also appear to be very crappy savers with few exceptions. So my contribution to aid in our plight is to share my personal (copyrighted) 3 step framework for building wealth.
STEP ONE: Net Worth and Budgeting
First things first: we need to develop a higher understanding of what wealth truly is. Many of us are ignorant to our personal net worth, and instead consider our monthly or annual salary to be an indicator of wealth. There are countless free and intuitive net worth calculators available to us – I strongly advise that anyone reading this article take the steps to calculate the all important net worth value. Not knowing your net worth is like not knowing how much you weigh, or your position on a map – if you don’t know what your current position is, then how can you know your destination?
We also need to get into the habit of budgeting – not short term binge saving for an item of clothing or vacation budgeting, but implementing and maintaining a constant cash flow analysis and understanding of how much cash we have within a set interval of time (week or month). This combined with the aforementioned net worth exercise are paramount to long term accumulation of wealth.
STEP TWO: The Art of the Hustle and Your Financial Plan
Many of us struggle because at the end of said time interval, we are budget red. This means that within the set time interval, we are spending more cash than we are earning. Some of this is due to salary inequality and other socio economic income based factors, but much of our woes also stem from overspending and lack of prioritization. We hate to hear this, but we really need to acknowledge the truth of excessive spending and serial consumership before we move on to the next step, which is making our money work for us.
To convert budget red status to budget green (or budget green to budget greener), one needs to do one or both of the following:
- decrease the dollar value of total purchases and recurring debits such as utilities. You’ll have to ask some difficult questions of yourself, but in the end performing this exercise will teach you a lot about your values.
- consider additional revenue generating activities like a second job, side gig, or concurrent freelancing to supplement your monthly and annual revenue. If you are able to do more than one of these (through passive income) then you can further increase your cash surplus each month/year. more revenue sources equals more income and diversity, which equals surer and faster achievement of financial objectives.
Creating a financial plan is also key to building wealth. A financial plan is like a roadmap to a financial destination (retirement or net worth target). As I said earlier, we cannot embark on a journey if we do not know our current position or final destination. We must live life with a purpose. A financially based purpose is no less noble than any other.
STEP THREE: Make Your Money Make You More Money
I intentionally preserved the ordering of these steps, because it is extremely difficult to execute each step without completing and mastering the previous one(s). For my people who lack patience, I really want you to dig in and trust the process. Once you begin to have a consistent budget surplus, you will need to figure out what to do with your excess cash flow. This is where investor mindset comes into play. Using details from your financial plan, you can now allocate appropriate amounts of resources toward investments such as businesses, real estate, cryptocurrency, or the stock market. We need to start looking at ourselves as investors and producers instead of consumers. What does this mean? As an investor, you look at most (if not all) spending in terms of how it can or will yield a return. As a producer, you are constantly trying to find ways to solve problems by providing valuable products or services to others. Every last one of us has a producer skillset – the problem is that we rarely take the time to assess what that really is. As far as investment, we can write an entire article or book on the joys of investing and passive income.
If our overall goal is to “make money while we sleep,” then we need to create a system/machine that eventually can feed itself without the need for hands on/hourly work. The thing is, it takes A LOT OF HARD WORK to get there. The reality is that many of us will not mathematically be able to reach our financial targets without the aid of compound interest and passive income. There are only 24 hours in each day, and many of us already push the envelope with poor sleep habits. Why don’t you take a few minutes now and work and get started on step 1 (Net worth and budget)?
Kwesi Legesse is an author, blogger, and public speaker. He is an entrepeneur and independent publisher with a background in family medicine, community health education and healthcare consultancy. His mission is to spread awareness of tools and practices that lead to financial, spiritual, educational, health and psychological empowerment.