money, checkbook, wooden house

b&b197: How to build and protect your wealth pt. 1: BUILD

This first part of a two part episode focuses on how to build your wealth. The three main ways are: the stock market, real estate, and entrepreneurship. Over the long term, both stocks and real estate will usually reliably appreciate. Real estate is a more serious investment because you cannot easily get your money back out of it–once you’ve bought a house (unless you’re flipping it) the expectation is that you will keep it up and have to put money into it (mortgage) for years before it becomes an asset. Entrepreneurship is trickier as an investment, because depending on the type of business it may be hard to pass on, and when you start out just making a reliable salary from it is great. Before you get into building wealth through any of these venues, make sure you have 3-6 months worth of living expenses saved in case of emergency. You don’t want to have to start over at square one if calamity strikes.

For more detailed information:

It’s financial Literacy Month! So… how do you know if you’re financially literate?
Building Habits to Overcome Fears about Money

Founder & CEO of Goldbean, Jane Barret, on Investing for Beginners
Investing for Dummylekt pt. 1
Investing for Dummylekt pt. 2
Socially Responsible Investing with Ian McLeod: How We Can Do More

Real Estate:
One Way to Buy a House
Why homeownership as a Person of Color is more than an investment, it’s how to build a legacy
How to invest in real estate without having to buy a house

How Entrepreneurs of Color can close the racial wealth gap
How MEDA helps minority entrepreneurs build wildly successful companies
#DeadDayJobArmy TastyKeish on being a 1st Gen immigrant and creative entrepreneur
See also all Dead Day Job Army (DDJA) episodes


Music featured in this episode:
Build by Rockwell Powers x DJ  Phinisey
Build by Theresa tha S.O.N.G.B.I.R.D.
Gotta Build! by LEFTist C.O.N.C.E.P.T.

Episode Highlights:

Pam: You don’t wanna just have your money in the hot new companies because they’re going to be the biggest risk right now. They’re going to be the ones that don’t have a history of how they’ve weathered these kinds of incidents.

Pam: The three ways to build wealth, primarily, can go into three different buckets: the stock market, real estate, or entrepreneurship or starting your own business.

Pam: I think it’s really important, before you start thinking about building wealth, to create stability…and really what that means is figuring out how to stabilize your expenses and put savings first.

Pam: The average cost of an emergency in America is $400, and 1 out of 2 Americans cannot pay for that emergency.

Pam: Before you get to the level of building wealth, let’s talk about how to create stability…Once you have about one month’s of living expenses saved, then the next thing is a 401k plan…The reason I want you to have a certain amount in savings before you put money in you 401k is because you can’t touch that 401k money without paying a penalty and taxes until you’re 59 ½.

Pam: The next level after that, after you’ve started contributing to a 401k plan up to the match, is to have a savings cushion and have at least 3-6 months of living expenses saved. 3 months, on the 3 months side, if you’re single with no dependents. Closer to the 6 month side if you do have dependents, or if you have a significant other that you’re taking care of. If you’re both working, than you may need more like 3 months. If you are planning on quitting your job soon, go towards the 6 month route.

Pam: When it comes to the stock market and real estate, the reason I think of these together is that these are two things where you do have to have money first to get in the game.

Pam: The main thing to keep in mind with the stock market, I think, and investing, is it’s very difficult and very time consuming to be a stock picker. If you want your money to be making you money, then being a stock picker is not the way to do it because being a stock picker means you are also putting your time and your money into making you money.

Pam: Rrobo-advisers are great because they’ve automated advising. Often, if you’re nervous about investing, a lot of these robo-advisers also have financial planners that you can talk to…If you wanna know more in depth what’s happening with your portfolio and what’s happening with your other investments as well, then it makes sense to talk to a financial professional who’s a third party, who can kinda look at everything.

Pam: I would prioritize putting your money into any employer benefit that you have…I mean specifically if the 401k has a matching plan.

Pam: Homeownership is one of the #1 ways that Americans have built generational wealth…But, this means you must be willing to commit and maintain a major asset for 40-50 years.

Pam: An important thing to consider, if you are putting money into a home that you are living in and it’s primary real estate, is it can become an investment, and it can become a huge and primary way to build generational wealth, if you are able to keep it and pass it on to the next generation.

Dyalekt: The difference between creating an investment and building generational wealth is the difference between taking a risk and making a sacrifice.

Pam: One thing I want you to take away from this is the difference between appreciation and income. And so appreciation…is the actual value of the investment increasing over time. So that’s the value of the home. You buy it for $300,000 and it appreciates to $500,000. You buy a stock for $100, and its now worth $150….in general…the value of the investment will increase over time, and the longer you have for it to increase, the more the likelihood that it will appreciate in value. So then you have the income side, and the income is the money that you receive directly from the investment. That can be rental income, that can be dividends, that can be interest from a bond, [or] dividends from a stock.

Pam: For a lot of people, before a business is a way to build wealth, it’s a way to generate income.

Pam: The thing about starting a business is it’s probably the least stable or the thing that has the least historical record that it’s going to work…because you’re putting all your eggs in your business…and you’re saying “hey, my income is coming from here and I’m gonna try to build my wealth from here.”…When you start a business, you’re tying to have that business manage both the income that you need to live and also build this wealth that you’re trying to build.