Closing the Wealth Gap: How African-Americans can sustain a middle-class lifestyle
(Part Two of Two)
Despite the influx of income statistics suggesting that African-Americans are achieving middle-class status, the reality is that African-American families continue to lag other groups in terms of access to the middle class. This is so mainly because of a lack of accumulated wealth. According to the U.S. Census Bureau’s 2000 Report on Household Wealth, only 10.7 percent of African-American families had a net worth (total assets minus total liabilities) exceeding $100,000 in 2000, while 29.1 percent of African-American households had a zero or negative net worth. Conversely, 41.8 percent of white families had a total net worth exceeding $100,000, while only 12.7 percent of white families have a zero or negative net worth.
With African-American families exhibiting such a low wealth base, what must they do to achieve the wealth necessary to sustain a middle-class lifestyle? As a principal at a firm dedicated to assisting clients in creating, preserving and transferring wealth, I submit that there are five basic steps each African-American family can take today to position itself for achieving, and holding on to, middle-class wealth. The first, committing to being wealthy, is the most important step. By making a truly conscious commitment to being wealthy, you will do what it takes to achieve sustainable wealth. Your commitment must include a willingness to sacrifice near-term comfort and flexibility; exercise rigid discipline in personal consumption decisions; invest in yourself; manage your time efficiently; develop and execute a wealth plan; learn and exercise the principles of networking; and be willing to believe that you have a right to be wealthy.
Learning and absorbing the four concepts of wealth is the second step toward achieving wealth. The first of these four concepts is that wealth, not income, is the primary driver to financial freedom. Wealth, not income, is a function of savings. Thus, to achieve wealth, you need to focus on increasing your net worth, not just your income. The second concept is that wealth and money are not the same. Wealth deals with the creation of resources, while money deals with the consumption of resources. To achieve wealth, you have to develop a production mentality and eliminate your consumption mentality. The third concept is that you must network and build personal alliances. Purchasing an annual subscription to publications like The Network Journal, which provides its readers with an abundance of wealth-focused business and professional contacts and resources, should be one of your first moves in developing your network.
Networking and alliance building are important concepts of wealth creation because much of the information necessary to create wealth is passed along through relationships. To become a part of the wealth-creation information flow, you have to develop a network. Tax minimization is the fourth and final key concept of wealth creation. Taxes, more than any other factor, minimize one’s ability to create wealth. Thus, taking appropriate measures to reduce your tax burden is key to creating wealth.
The third step to creating wealth entails building a team of professionals around you. Creating wealth is a complicated task and therefore requires knowledgeable and experienced professionals working with you to ensure that you achieve your wealth creation goals. Your team should include a wealth advisor, an accountant and an attorney. These professionals will help you achieve your wealth goals by providing you information, their expertise and discipline, while keeping you from committing goal-destroying mistakes.
Just as you need a health-care plan before you become ill, so, too, do you need a wealth plan before you can create wealth. Developing a wealth plan is the fourth essential step in creating wealth. Without such a plan you are a ship without a rudder. Find a firm that structures these so-called financial life plans as a part of its clients’ overall wealth creation, preservation and transfer process. Planning, not products, are the key to creating wealth. Build the plan first!
The fifth step in creating wealth requires you to start executing your plan today. Regardless to your net worth or income at this point, it is absolutely essential that you invest in creating wealth immediately. As I demonstrated in Part One of this column in the December/January 2004 issue of TNJ, one would need an average net worth of at least $2.5 million to comfortably sustain a middle-class lifestyle. So, build your wealth plan and start creating wealth today!
David Hinson is founder of Wealth Management Network in New York City, 646-375-2388. www.wmnllc.com; E-mail: firstname.lastname@example.org