Kara Pérez is the founder of Bravely Go, a financial platform focused on feminist economics and inclusive personal finance.
Manage your money properly
It starts with managing the money you make now. Money management is the most important part of building generational wealth. Yes, even more important than the investment accumulation part! Why? Because if you can’t manage your money, you lose your money. There are enough lottery winners who become multimillionaires overnight and then lose everything to prove that if you’re not good at managing your money, you’ll never be rich.
Managing money can look like having a monthly budget and a long-term wealth-building plan. So maybe now you’re making $10 an hour, but you plan to get your degree and start making three times as much in three years. You need to know how to manage the $10/hour in order to manage the $30.
monthly budget tips
Find a budgeting style that works for you; you can use an app, spreadsheet or notebook to create a budget. What really matters is that you keep track of your spending, savings, and investments on a weekly basis so you know where every dollar goes. It’s also good to set up a “money date” and have fun for you. Money dating is when you set aside 30 minutes a week to track your spending. If you have boos, you can do it with them. I do it with my partner even though we don’t share a bank account. Put on some bad bunnies, have a good glass of wine, and review your spending, savings, debt, and investments. Remember, don’t judge yourself! It takes some time to build wealth. Hating yourself for not acting faster, or comparing yourself to others, won’t put more dinero in your bank account.
Build Multiple Income Streams
All rich people have one thing in common: They make money in several different ways.
Jeff Bezos? He has Amazon, Blue Origin, stock investing and real estate investing. Maybe you won’t go to space, but you can build a different revenue stream with less money than Bezos.
Making money from different places is the secret to building wealth, especially if you’re first generation. Many of us have been told that if we go to college, we’ll get a golden ticket to the American Dream. But the truth is, truly living the American Dream means having different sources of economic support. If you lose your job, but you have a rental property, you still have an asset (house) that you can turn into a cash flow situation by renting it out.
I know TikTok millionaires talk a lot about passive income. Personally I think it should be called “upfront income doing work” because nothing is really passive. However, if you spread your income across several different sources, some of them will require less work than others, and you’ll be able to accumulate cash.
Here’s a way to do it:
In 2022, you have a 9-to-5 job that pays $45,000 a year.
You start tutoring algebra online for $20 an hour, 8 hours a week. ($640/month)
In a high-yield savings account, you can save $400 a month between the two jobs.
You have saved $20,000 by 2026 From your job and side hustle. You use it to buy a $230,000 duplex in your town. You rent out one side, which includes a mortgage, and live on the other side. Now you don’t have to pay rent, and your home is an asset that can appreciate in value over time. You decide to put the money you use to pay rent into your Roth IRA and max it out ($6,000 per year).
You continue tutoring, so you have three sources of income: your day job, your rental income, and your tutoring. You increase the tutoring rate to $23/hour for $732 per month of tutoring. You increase your savings from that to $500 a month.
Your daily job earns $60,000 by 2030. You cash refinance a duplex to buy a single-family home. Now that you rent out both sides of the duplex, the cash flow is $400 per month. You decide to stop tutoring because you have saved $24,000 in cash over the past 4 years. You can use the money to start a business, buy another property, or use it for household expenses.
In 9 years, you’ve established three income streams, purchased two properties, saved $24,000 in cash, and invested $34,504.43 in your Roth IRA. This wealth accumulation is easier when you have multiple sources of income!
Create wealth in the stock market
Let’s talk more about the Roth IRA…because that’s just an investment account. To build generational wealth, you need to invest in the stock market. None of the world’s most famous billionaires has avoided the stock market. When we think about building wealth over the long term in the stock market, I always say it’s best to start with a retirement account. Because at 70 you still need money to be her best self! I’ve previously covered the various retirement accounts available so you can find the one that’s right for you. Once you choose an account, you can start building your wealth. Here’s how you do it: keep investing in small amounts.
Have you heard of the S&P 500? It is a collection of the largest U.S. companies, including Amazon, Tesla and Microsoft, and has an average annual return of 10%. This means that the average of the best years and the worst years is a 10% return for the investor holding the stock. If you have $100 in stock, that’s $10 extra for you doing nothing. If you invested $1,000, that’s $100 more for you doing nothing.
Using the above scenario, let’s say you invested $34,504 in the stock market by 2030. You contribute $100 per month and get 10% back over the next 10 years. How much money will you have? $108,619.40
Or you start investing tomorrow and you invest $50 a month for 10 years. Then you increase to $150 per month for 10 years. Finally, you increase to $250 per month for another 10 years. You get an average return of 10% along the way, so you’ve invested a total of $54,000 over 30 years. After 30 years, you will have $186,554.15. You got there from nothing! You more than tripled your $54,000. That’s why you must use the stock market to invest! This is how all these old white men built their fortunes!
As a first generation, changing our financial futures seems overwhelming. You probably don’t have a lot of money to start with, and that’s okay! More importantly you start. You can make money using the same tools that others have used for generations, transforming your family’s and your own financial life.