Why Black Wealth Matters in White America 3

…and what blacks must learn to survive this new economy

By Solomon Ali, Private Equity Investor

It is important for Black Americans to understand that if you invest some money for 13 months you will pay less on that investment income in the form of capital gains tax than you will on your earned salaried income. The more that pyramid flips in the favor of investment income or passive income, the less tax you will pay. “The Borrower is Slave to the Lender” – Proverbs 22:7 As Black Americans, we are a spiritual people and always have been. It is ironic that one of the most repeated and taught bible verses about the borrower being slave to the lender has largely fallen on deaf ears in our community. Proverbs 22:7 clearly states that “the borrower is slave to the lender.” Yet, many of us have chosen to continue to enslave ourselves in the form of credit card debt, government assistance and subprime interest rate loans that prevent us from building any real wealth and keep us beholden to a system that has marginalized us. As a Black American man, I have made the conscious choice to structure my finances to be a lender, and not a borrower. Here is what you need to know. You will want to set a goal of building strong credit that you use sparingly, and only for the purpose of generating income producing assets. For example, you can purchase a car with financing once you have saved enough money to put down a minimum of 20% on the car at signing. The car’s total purchase price should be no more than 15% of your total household income. Endless payments at high interest rates will leave you spinning your wheels and are to be avoided. We are talking about a certified car with a transparent warranty that you can purchase with a solid down payment, pay off within one year, and then drive for 4-5 years with no monthly payment. As you make your monthly payments over the course of one year you will also watch your credit score skyrocket. At the end of that year, you now own an asset, free and clear. The car payment that no longer exists can now be invested into a high interest yielding Roth IRA mutual fund, or, if you lack a liquid emergency fund in a savings account, you can start applying it towards that. Now you are working towards building wealth. Although a car is a depreciating asset, not having a monthly car payment is a wealth building asset, as is the trade-in value or sale value of that car.A home is another potential wealth producing asset, since home ownership allows you to bypass rent payments that do not build equity. If held onto until the market is favorable for sellers, you can likely sell this asset for a profit. You can also rent it out to a qualified tenant at a modest monthly profit to earn yourself some rental income. If you are not yet able to purchase a home, your rent should be no higher than 25% of your total household income, so that you can work towards home ownership, or invest in other income producing assets. Strong credit can also be used to leverage borrowed money into net profit, so that you are not servicing the debt of that borrowed money. The gross profits generated through leveraging that borrowed money is servicing the debt, while you pocket the net profits leveraged from that debt. The beautiful thing about earning asset-based income is that it does not require your physical presence like a job does. Employment is trading time for money with little leverage. Borrowing at high interest rates and making indefinite payments on debt also offers no financial leverage to our community.