Rather Listen To This Article Instead?
Become A Member: REGISTER
It’s No Secret– Financial Health is important to our overall well-being.
Studies have indicated that in society, particularly concerning Black folks, money makes a difference on health.
For example, lower socioeconomic status means higher infant mortality rates, lower adult life expectancy, poorer quality of physical activity, higher chances for obesity, diabetes and heart disease 1– you know, all the things you might expect.
For the U.S: Health is patterned along financial and racial lines. In other words, the poorer and darker you are, the lower your expectations for a healthy life.2
And get this, there is a CAUSAL effect for debt on physical and mental health.
Thus, people with greater debts suffer greater deterioration in their overall health BECAUSE they have debt.
In the United States, for the wealthy, middle class, working class and the poor, there is evidence that large debts lead to “higher perceived stress and depression, lower general health, and higher diastolic blood pressure”.3
Health and financial disparities in the Black community are crazy alarming.
Research indicates that Black folks have the equivalent health and mortality rates of White folks from 30 years ago.4
For example, the poorer (and Blacker) you are, the more likely you are to suffer from low fruit and vegetable intake due to limited economic access to affordable, quality food markets in your community.5
As a result, overall well-being suffers.
It’s not a pretty picture but you can see the point: Finance and Economics Matter for Black Health
That is why it is so important to make sure financial literacy is a part of our common education.
In this article, I am going to talk about Four key Financial lessons every Black person MUST know to take control of OUR financial health.
I’m serious about this.
We must know and master the game…
It wasn’t too long ago when I didn’t even know there was a game.
Back in the day:
I can remember being dead-broke in Chicago, an unforgiving city for poor people of the right complexion.
I had a shiny new Master’s degree and really thought that, since I had played by the rules, i.e. went to school, worked hard, was kind and polite, etc. I would be alright.
I can remember the faces of my beautiful poor black people as we all filled the application lines for some good ol’ EBT.
I was a hustler in those days, too (not drugs).
I can remember the smug look on the faces of my job interviewers when they found out I had more education than they, but that I was still begging them for a $10/hr. part-time job.
I knew I had to increase my financial literacy if I wanted to survive anywhere in this era of human existence.
I began to hone my financial sword.
This post is dedicated to some of the most important financial lessons of all time.6
These four lessons changed the way I think about money and they changed the possibilities I could create for myself with money.
To be sure, money is not everything.
But it is something.
And unfortunately, there aren’t many chances to live a healthy life without having a healthy relationship with it.
Lesson # 1: FIND THE MONEY
What do you do when money is tight? Do you cut back on your spending habits? Do you tighten your belt to try and make the cash stretch?
The first lesson is: STOP THIS.
By tightening your belt, you are losing an opportunity to grow. What do I mean?
Back in Chicago, my abject poverty was tough to deal with.
I started cutting back on the things I loved- no more Brazilian Jiu Jitsu, no more reckless eating out, no car to drive, I even skipped the $2.25 for the L-train.
I was broke because I was waiting on an income.
I didn’t understand how money worked.
Let’s say I had succeeded in landing a good paying job right away.
I would never have learned the first lesson to money.
I would have continued thinking about money like an employee- showing up to work in order to get my allowance.
The system would have continued uninterrupted, but I would have remained unaware of it.
So what did happen?
I began to read my little butt off.
I learned that people who work for paychecks are limited by the terms of their salary or their hourly wage.
If you make 20/hr. you have to be at work in order to do it, which means you cannot make anything more than 20/hr because you’re busy for 8 hours a day.
You can work longer if you want to, but your ceiling is set at 20/hr unless you’re betting on a raise.
The system is rigged for people who “build assets as an entrepreneur and acquire assets as an investor”.7
“The problem with working for money is you have to work harder, longer, or charge more to make more money.The problem with physically working harder and longer is that we all have a finite amount of time and energy…the reason why the rich get richer is that every year they work to build or acquire more assets. Adding more assets does not require working harder or longer.”8
The above statement is the entire game– fair or unfair, it’s the current state of things.
This ain’t new: If you’ve been raised around the right people, you know J.O.B stands for Just Over Broke.
But it was new to me at the time.
What lesson #1 is really about is building financial systems instead of expecting for a good job to come our way.
I’m not talking about making money without working.
I’m talking about working to create systems that can generate cash during any hour of the day without your direct presence.
So how do we construct a financial system that allows us to make money without having to punch a clock?
I remember thinking of how to build a financial system and saw that I had an immediate problem: I didn’t have a lot money to get started…
What I did have was Time, I was just around 25 at the time.
There is such a thing as compound interest, Einsten said: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it”.9
I figured that if I could invest just $100 a month in a index fund, I could start to generate some money over the long haul.
While this money would not help me at 25, I knew that at 45 or 65, I might be in better shape.
I could be broke at 25, but being broke at 45 or 65…not a good look and probably much harder.
Consider that at a 7% annual return and $100 a month investment, over 40 years, I would end up with $257,828.93. Of course, this is just $100 a month plus TIME.
How is this possible?
Anytime financial “interest” (interest you have to pay or interest you get paid) is involved, the ability for that interest to add up, or compound, is always a possibility.
So, say I owe $3000 to a student loan agency at 10% interest rate.
If I don’t make a single payment, in 7.2 years, that $3000 has just grown to $6000, if for some reason I forget about the loan, in another 7.2 years, that $6000 is $12,000.
The opposite is true when we invest our money or when we loan others money with an interest rate. It is a little evil.
But it is the game.
The stock market is one way to do this.
People who understand the market (and people who do not) can place money in the S&P 500 index fund which has a historical growth record of 7% annual return.10
We know that at 7%, the rule of 72, (which calculates how long it takes our investments to double),11 it is possible to double the money we invest in the S&P index fund in 10 years (72/7= 10.3 years).
Such that, if you were to place $10K in the market today, then do nothing, with average annual returns compounded annually, you would have $20K in the market by doing nothing else after 10.2 years.
Here, the stock market helps you make money without being directly present.
The market basically just gave you an extra 10K for free because of your 10K investment.
That one is too easy, though.
More importantly, you can create financial systems with businesses.
To do this, you need to be able to solve problems.
What problem do you see that you can solve for others and for a cost that you can actually pay?
For example, I know someone that likes to breed dogs.
He breeds these expensive pit bulls.
He received his first two pit bulls at a nice price he could afford, then he took great care of them.
When the pit bulls have offspring, he can sell each puppy for $3-5K to puppy enthusiasts.
Not my kind of business, but it demonstrates the point: Selling puppies opens the door for people to come to you at any hour of the day with $3-5K in hand.
That is a financial system that depends on two assets- Mommy Pit Bull and Daddy pit bull.
Also, this person already makes money with other endeavors, but as you can see, since they are not limited to an office from 9-5, they can find the money at any time of the day via a variety of activities.
This does not mean that you cannot have a full-time job. Do what you love.
Remember, Lesson #1- Find the money- is all about not settling for that paycheck.
All paychecks are awful if you are dependent on a corporation to eat.
You can build assets in order to find the money. You do not need to wait for a good job.
Jobs give you the money in exchange for your labor, but creating systems helps us find the money without having to restrict our time to one activity.
At a job, your primary goal is to complete the occupation’s tasks.
By paying attention to Lesson #1, your primary goal is to find money- and you use the necessary instruments to do so (Pit bulls, stock market investing, etc.).
In order to find the money, you have to find problems that you can solve (businesses) or become an investor (stocks, real estate, etc.).
Broke pockets can be an asset if they push us to learn more and as Kiyosaki says “get smarter” with our money.12
Lesson #2- PROTECT YOUR MONEY
Kiyosaki’s brilliant advice is helpful again.
Smart Black folks know that J.O.B stands for Just Over Broke.
The reason is because “earned income” from employers is the most optimal for taxation.
If you’re the government, most people don’t own businesses, they work jobs.
So in order to accrue as many taxes as possible, you tax the workers the most.13 I get it.
If you are like me, working for other people has never really boosted you into an income bracket to where you feel you needed to protect yourself against the government.
It’s hard enough just finding a job for many a black folk.
Here’s the point, though: The game is rigged against people who are working jobs.
Even if you become an awesome doctor, if you don’t have any tax protections in place, there is a ceiling on how much you can actually take home.
Imagine making $100K a year as a medical doctor, but only taking home $66K.
Meanwhile, the student loans of $225K that you took out to become a medical doctor continue to compound annually.
Take it from Kiyosaki: “Working for earned income does not allow for much protection from predatory taxes”.14
Taxes aside. There is one beast that no one escapes from.
That beast is Mr. Inflation.
Inflation is what happens when our money loses its ability to purchase the same things it could yesterday.15
Saving up money in a bank will not protect you against inflation. I met a girl once that told me that she made $5K a week as a bar-girl.
I was astonished.
She was one of my students in an anthropology class I was teaching at the time.
She said she was financially literate because, in her words, “I save”.
To add, she was also insinuating that I did not “save” with her tone.
It’s just that saving $20K in a savings account at .5% annual interest rate is not going to keep up with the monthly inflation rate of 1.2-1.6%.16 I’m sorry about this.
This does not mean that savings accounts are useless.
They simply cannot be our only strategy.
For this reason, it is highly encouraged to put your money to work the stock market which can help you outpace inflation.
Ultimately, though, beginning a business or constructing a financial system is what will allow you to generate capital without active on-the-clock work.
However successful we are at work, we will not be as successful as we can be if we don’t take appropriate action.
For example, my grandmother worked for decades as a nurse.
She owned her own nursing home at one point and used to build computers on the side.
She was a brilliant Black woman.
She used to clear over $100K annually back in the day, and so giving, she took care of five children and so many of us grandkids.
She was a giver. She was a blessing.
But she didn’t have parents to show her the game… And no one ever showed them the game.
When she passed a few years back, I found myself in her tiny apartment taking home plates and half-empty containers of “Old Bay”. Without life insurance, a stock portfolio, real estate or businesses, she simply was not in a position to leave us with many financial resources.
Grandma did so many things for us- She left plenty of Love and Wisdom. I could care less about her leaving money behind.
But my point is: So many of us will find ourselves in similar positions at the end of our lives.
How are you protecting the wealth you are spending your life, like it or not, to accumulate?
There is virtually no reason we Black folks should be without life insurance (or stocks) provided we have children and partners to take care of.
They wouldn’t teach Black folks the game back in the day. We can change that now.
We have to protect the money. Not out of greed for ourselves, but out of need for our children.
Remember that $100 I started saving at 25? I’m in a position now to contribute more to that fund.
Given annual returns on investment, by the time I am 85, I could have over $1 million dollars made off of small contributions.
At 85, I will likely not be throwing money in the club.
Instead, though, I can hold onto that investment and allow my family to draw from its annual interest every year.
At even a 10% annual interest, that would mean $100K to the kids and grandkids, every year, forever.
By sharing the proceeds from life insurance, life skills, business skills and TIME, all of us can place our Black families in positions of strength, rather than see them to battle off their back foot for the rest of their lives.
Lesson #3- RETHINK BUDGET
Let’s go back to an old question: What would you have done yesterday, before reading this article, when money got tight?
Would you have cut your spending?
Maybe started eating out less, carpooling, or would you have gone back to Lesson #1 and found the money?
In any organization where money is managed, be it a family or a government, one way to get out of dire straits is to either cut spending or increase your money supply.
We hear a lot about the first one, but not so much about the second.
To make a real budget, we need to consider both.
We can redefine “Budget”, which to many means “Placing oneself on a tight pattern of conservative spending”, to mean “a plan for the coordination of resources and expenditures”.17
In a financial jam, which may be right now for many, we need to coordinate both our resources and spending.
To do this, we return to Lesson #1- Find the money.
When money problems are tight, it’s okay to tighten the belt, but we must also increase the amount of money coming in order to create a “Budget Surplus”, or an excess of capital to meet our necessities.
Now for the magical part: “You have to make a surplus an expense”.
This means that when you budget, you need to create a category for your monthly income that includes monthly Investing ($$$ to your stock account, etc.) and Saving (even though this can never beat inflation).
Yes, that’s right.
Investing and Saving in this new model of budgeting are not add-ons, what happens after everything else is paid.
Instead, they happen before you pay the light bill. In other words, your investments and your savings accounts, which will become useful for you later in life, are a mandatory expense just like the rent/mortgage.
When I heard this, I was confused.
You tryna’ say I may not be able to keep the lights on some month because I want to kick a few hundred dollars to my investment and savings account? I’m good.
But a funny thing happened:
I remember when I first started putting that $100 away in stocks.
When I started teaching at a community college, I was able to save an additional $100 every month. I made these electronic debits automatic every month.
So the $600 dollars I was making a month teaching one class, well, that was actually only $300.
That meant I barely had enough to cover my portion of the rent.
So I ended up doing what I would have done if I were in the same situation without investing/saving.
I found another part-time gig to help pay the bills- this time I was working as a classroom assessment auditor for Chicago Public Schools.
Moral of the story: I had to find the money (through a part-time job), not just cut my spending, in order to stay on budget.
Don’t allow the World to say you can’t be resourceful.
You, like your bold ancestors, will do what you must in order to thrive.
But sometimes you have to put yourself first in order to do it.
By put yourself first, I mean pay yourself first.
Pay into your investment and savings accounts first.
You will make a way for the rest.
Making a way can look like driving Uber part-time, selling things online, or yes, cutting spending in order to allocate resources to your funds each month.
“a financial problem is a resource- if you solve the problem. If you learn to take financial problems such as not enough money, a bad boss, or a mountain of debt, and use them as resources and opportunities to learn, you will slowly but surely create a budget surplus”.18
This new form of budgeting, considering investing and saving as an expense, will actually help you tighten your belt more efficiently.
By investing and saving first, you probably won’t buy that extra pair of Jordan’s if the money simply is not in your account to do so.
The money has already been moved to secure your future.
Now if you want the Jordan’s you have to find the money to get them.
Many a business has been started this way.
You remember being a kid and selling flowers plucked from the park to your neighbors. You wanted a new bike, and dang it, you were gonna get it.
Ultimately, though, there is a difference between what we would have done as a child and what we ought to be doing now.
Plucking flowers and driving for Uber are nice ideas, but they do not help you create lasting assets.
However, as a child, imagine if you had a personal garden and could pluck and regrow your own beautiful flowers to then sell to others.
Now, you have an asset: The Garden.
Rather than risk getting kicked out of the park for vandalizing public flower beds, your personal garden would supply your clients continuously (assuming you had enough land and skill).
This is the game we must learn.
We must buy luxuries, like the bike with money created from our assets, NOT with one time earned income from jobs.19
This leads me to Lesson #4.
Lesson #4- LEVERAGE
Got student loans? Great. If you don’t, imagine your other debt. Everybody’s got some.
Imagine you had $70,000 in total debt (That’s a little light for some of you, I know, but bear with me).
What if someone were to give you $100,000 dollars. What would you do with the cash?
Would you pay off your loans, invest some, save some, and then use the rest to create a business?
This sounds like the right answer, but if your answer to this question is “yes”, you do not understand Financial Leverage… Yet.
Allow me to explain:
For our purposes, Leverage means “doing more with less”.20
Okay, so let’s apply this concept to the above example.
If I have $70K in debt and I receive $100K, when I pay off my debt, I am left with $30K.
That looks great, it is $30K more than I had before.
I can do wonders with this, right? Naw, kid.
That means that I just wasted $70K paying down a debt- now that money is gone forever.
How long will it take me to make that $70K back?
In this case, I didn’t make it to begin with, so how long will it take me to make $70K when I was already in hurt conditions?
This is NOT applying leverage.
When we pay up our debt in this case, the money is gone, we cannot put it to work for us.
WE cannot grow it because the $70K no longer exists.
What does this mean?
By all means, pay down your debt to manageable levels especially given the fact that interest will continue to accrue on those debts.
But if you want to apply the concept of financial leverage, we need to think differently.
Instead, what if we used that same $30K to help finance a two-level split condo?
We found a terrific deal in a good neighborhood.
We purchase the condo then rent out both levels to other families.
Let’s estimate that we stand to make, after all expenses are paid on the condo, $1K per unit per month or $2K each month.
That means that by the end of each year, we would have about $24K generated in EXTRA CASH.
What if we used the proceeds from our condo project to pay down that $70 K loan that we were so afraid of?
How long would it take us to pay back the loan?
Assuming the loan had an interest rate of 8%. We could repay the loan back in under 5.5 years (Use the rule of 72).
After that 5.5 years though, our condo would still be spitting out cash.
We may even be able to increase profits by raising rents as property values increase.
In the end, we used Leverage to spend $30K funding an asset that could take care of our loans.
Basically, we paid $30K to pay down our loan. And, because we were financially intelligent, we are being rewarded $2K every month for the rest of our lives!
Meanwhile, we still have $70K of the original $100K.
We can now leverage this other $70K create other deals, invest, save, or begin businesses.
Assuming a 7% rate of annual return in the S&P 500 alone, in 10 years that $70K will turn to $140K.
That 140K can then be leveraged to create more cash in the market or to purchase real estate.
I think you can see how the system is rigged for those in the stock
market and for those who own property.
Like it or not…chalk it up to the game.
You say, “If I purchase a condo, like in the above example, won’t I basically create more debt for myself- creating room for the bank to step in and steal my property if I default?”
However, the debt on the condo is being paid off regularly. It may take 30 years, but we are not concerned as the $2K each month is what is left over after all expenses are paid.
So defaulting has a lower probability rate.
If you panic, though, and just hurry and pay off all your debt, you reduce the amount of chips you can play with.
Governments bail out banks when they make financial mistakes…
No one is going to bail out Black people.
That is why you have to use each measure of capital you have strategically.
Your health depends on good habits.
I remember buying my first property while in graduate school.
I knew I only made $15K a year in the graduate stipend, but by partnering with the right person, we were able to finance a townhouse.
There was a small problem, though.
Running a townhouse in a college town while in graduate school was not the hard part- it was being unable to foresee changes to the property ahead of time…
college students can tear some ish up.
So we decided that we wanted to purchase a townhouse that would be attractive to families and University faculty members.
We also decided that we wanted to live in the place until I graduated from the University.
This way, our asset and our home could be the same place.
We could modify the place slowly and as we see fit without having to schedule times to meet with tenants.
Since we negotiated a lower price for the home, we also had the possibility to decide at a later time that we don’t want to keep the townhouse and sell it for more cash than we paid for it.
We do not have the option of re-selling or renting out a place that we, ourselves, are paying rent for.
For us, it was the smart buy. It was an instance of considering Leverage to make financial decisions.
Here’s how: When we first got to town we rented.
Our rent was $1015.00 a month.
That is cash that is thrown away.
No one is ever going to knock down your door with a refund of last month’s rent.
When we decided we wanted to buy a property, we found a nice neighborhood and a motivated seller. We talked the seller down from $165K to the $140K range.
Because we opted to live in the residence, we only had to put 3% down on the property or $4200. Our new mortgage was $1013.00 each month.
It was cheaper to buy.
Now you say- “Hold on. You had to pay $4200 in order to get $2 off your monthly payment. That doesn’t seem very intelligent”.
I can see that.
However, consider our Option A). Resell the home. If we resell the home at the original listed price of $165K (assuming this is possible), we stand to make $20K.
Now how much do you think they would have given us when we left our old apartment?
We would have gotten a nice “thank you” and a handshake.
Consider Option B). Rent the townhouse out.
If we rent the place out for $1900 a month, not only do we stand to make an additional $900 a month, but we also get a tax write off.
In other words, we get the opportunity to return to Lesson #1- FIND THE MONEY and Lesson #2- PROTECT THE MONEY.
We have created a financial system (a rental system), albeit a small one, that allows us to generate capital without having to punch a clock and allows us to keep more of the money we make as a result of tax breaks.
We don’t have this option when we are renting.
So yeah, the $4200.00 down payment isn’t so bad when it comes with options to create more cash and capital.
This is using the concept of Leverage– instead of throwing money away by renting, we make calculated decisions with money so that what little money we have can “find friends” and create more capital.
Everyone has to spend money. We just spend money on assets, things that put money in our pockets (real estate, stocks, etc.) instead of things that take money out of our pockets (rents).21
We use Leverage.
What it all means:
Look, our job is not to say: M.O.E- MONEY OVER EVERYTHING.
But make no mistake, an understanding of money is vital to our health.
As Black folks, we must learn the game if we don’t know it.
Because there really is no option to NOT play the game.
Everyone is playing.
We might as well play intelligently and ruled by the doctrine of love.
Are you ready to play?
Share this article:
Hi, I’m Shawn, a Health researcher and writer deeply dedicated to the personal enhancement of Black Bodies, Black Minds, and Black Bank Accounts. I’m also the Founder of Black Health HQ. I created Black Health HQ to be a research driven platform for the development of Black physical, mental and financial health. Black Health HQ works toward the extreme well-being of Black people, offering free content along with services and products to assist you on your journey to maximum Black Living. Together, I believe we can build a vibrant and thriving Black community by strengthening what is most precious: our health and wealth.
- Paula Braveman, Catherine Cubbin, Susan Egerter, David R. Williams, and Elsie Pamuk. “Socioeconomic disparities in health in the United States: what the patterns tell us.”American journal of public health 100, no. S1 (2010): S186-S196.
- Braveman et al., (2010). “Socioeconomic disparities in health in the United States”: S186.
- Elizabeth Sweet, Arijit Nandi, Emma K. Adam, and Thomas W. McDade. “The high price of debt: Household financial debt and its impact on mental and physical health.”Social Science & Medicine 91 (2013): 94-100.Sarah Brown, Karl Taylor, and Stephen Wheatley Price. “Debt and distress: Evaluating the psychological cost of credit.”Journal of Economic Psychology 26, no. 5 (2005): 642-663. Stephen G. Cecchetti, Madhusudan S. Mohanty, and Fabrizio Zampolli. “The real effects of debt.” (2011).
- Vickie M. Mays, Susan D. Cochran, and Namdi W. Barnes. “Race, race-based discrimination, and health outcomes among African Americans.”Annual review of psychology 58 (2007): 201.
- Tamara Dubowitz, Melonie Heron, Chloe E. Bird, Nicole Lurie, Brian K. Finch, Ricardo Basurto-Dávila, Lauren Hale, and José J. Escarce. “Neighborhood socioeconomic status and fruit and vegetable intake among whites, blacks, and Mexican Americans in the United States.”The American journal of clinical nutrition 87, no. 6 (2008): 1883-1891.
- Robert Kiyosaki. “Increase your financial IQ.”New York: Business Plus (2008).
- “Increase your financial IQ.” (2008): 42.
- “Increase your financial IQ.” (2008): 43.
- Quotes on Finance. “ALBERT EINSTEIN – COMPOUND INTEREST.” Accessed December 19, 2016. http://www.quotesonfinance.com/quote/79/Albert-Einstein-Compound-interest.
- “What is the average annual return for the S&P 500?.” (April, 2015). http://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp.
- “Rule of 72.” Accessed December 19, 2016. http://www.investopedia.com/terms/r/ruleof72.asp.
- “Increase your financial IQ.” (2008).
- “Increase your financial IQ.” (2008).
- “Increase your financial IQ.” (2008): 55.
- Econ. “What are some of the factors that contribute to a rise in inflation?.” FEDERAL RESERVE BANK OF SAN FRANCISCO. (October, 2002). http://www.frbsf.org/education/publications/doctor-econ/2002/october/inflation-factors-rise/.
- Tim McMahon. “Historical Inflation Rate.” Inflationdata.com. Accessed December 16, 2016. http://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx.
- “Increase your financial IQ.” (2008): 71.
- “Increase your financial IQ.” (2008): 91.
- “Increase your financial IQ.” (2008).
- “Increase your financial IQ.” (2008): 99.
- “Increase your financial IQ.” (2008).