Fat pockets: seven simple strategies for building wealth

So many people feel intimidated when they deal with money. We sisters often carry additional emotional baggage, too. We may come from backgrounds where there was never enough--where the lesson we learned was that only certain folks had the know-how to make and grow money. Nonsense! The only thing keeping most of us from financing our dreams is fear. Perhaps we've heard stories of the grandmother who lost her life savings during the Depression or the neighbor who went bankrupt. Let's reframe fear as an acronym: False Evidence Appearing Real. If we can acknowledge our fears, we can address them with facts and take steps to secure our financial future. Money expert Valerie Coleman Morris tells us how to get started:

1 Take the mystery out of money. Managing money is not just the province of banks, boardrooms and business schools. I like to have what I call living-room conversations about money. We need to cozy up to financial issues and make them familiar. While wealth building is a concept many African-Americans are just beginning to understand, when we read, listen, learn--then share what we've learned--we demystify money.

2 Simplify your spending plan. One question I often hear from Black women is "How do I do a budget? I've never been able to follow one." My answer? If the term budget makes you cringe, don't bother with creating a formal one. Just keep a small notebook in your pocket or purse, and every time you buy anything or pay a bill, write it down: pack of gum, 75 cents; cafe latte, $4.25; and so on. At the end of each month, get out three highlighters--pink, yellow and blue. Scan your list and highlight in pink any expense that's mandatory and fixed, meaning it costs what it costs and there's no way to get it cheaper (the mortgage, the car payment, your child's tuition). Then take your yellow marker and highlight those necessary variable expenses (groceries, gas, phone, clothing, meals), where you have some wiggle room in terms of economizing. The blue items should reflect your discretionary spending, meaning goods and services that are nice to have but could be cut out or cut down (travel, manicures, movies, cable TV and so on). You're not looking to completely eliminate these items. Everybody needs a little luxury, but it doesn't have to be a $2,000 vacation; it might be a $400 weekend getaway. Too many Black folks have a bad case of "the blues" when it comes to money. And the reality is, we're not cash poor, we're asset poor. We don't have a savings problem, we have a spending problem. We spend a lot of money but don't have the assets, such as property, mutual funds and other investments, to show for it. Color coding your expenses gives you a quick and easy snapshot of your spending patterns. The blue and yellow areas are zones of opportunity. Set a goal to reduce those expenses the following month, and you'll start to see more green.

3 Make savings automatic. It's never too late or too soon to start saving for retirement. Many of us think, Well, I'll get to that. But first I have to buy a house, put the kids through school ... We tend to push our retirement-savings goals into the future, when we're perilously close to needing the money. The reality is that we have to start now. If after cutting expenses you have $25 each month to put away, that's a great savings plan for you. Don't wait until you have $250 or $2,500 to do it, because you'll never get started. A great way to begin is by taking advantage of your company's 401(k) plan or another qualified retirement program, which automatically invests a set amount of your earnings every payday--before you can spend it. (There are similar plans for the self-employed.) A company retirement plan also offers tax advantages, and some employers will even match a portion of your contribution with additional funds. Also consider depositing a portion of your paycheck directly into savings, a hassle-free way to pay yourself first.

4 Partner with a pro. We'd never dream of building a house without an architect or a general contractor. But we often decide to go the do-it-yourself route when it comes to building wealth. Don't build without a blueprint! A competent financial planner is well worth the investment. Ask people you know for referrals, then call each adviser to get a feel for how she works. Is she easy to talk to? Does he return your calls the same day? Does she ask questions about your tolerance for risk or push an investing approach that may make you lose sleep at night? You want someone with whom you can sit down and discuss your goals for the next five, ten, fifteen years. Once you've found the right help, remember that you're still the boss. Stay informed and involved in decision making.

5 Tackle one issue at a time. Wealth building requires continuous effort, but you don't need to do everything at once. Imagine how much you could accomplish in a year if you and your financial adviser simply addressed one area of your finances each month. A financial-planning calendar from personal-finance experts at A.G. Edwards might be good to follow. For example, in January, calculate your net worth; in February, organize records for tax preparation; for March, consider increasing contributions to your 401(k); in April, contribute to a traditional or Roth IRA before the April 15 tax deadline; for May, determine how to reinvest assets from bonds that may mature in the spring; in June, add part of your tax refund to your retirement savings; in July, review your investment portfolio; for August, draw up a will and determine other estate-planning needs; in September, develop a college-savings plan; for October, review life- and disability-insurance needs; in November, look for ways to reduce your tax bill before the year's end; and for December, make a tax-deductible charitable gift.

6 Divvy up investment chores. Looking to put together a portfolio? Investment clubs allow you to learn about and invest in the stock market with far less work and less anxiety. Having each member investigate a particular company, its products and investment track record makes an otherwise daunting task manageable and fun. In the process you'll educate one another about how to be more savvy investors. To keep meetings a priority and attendance high, schedule them for the same day each month.

7 Make fiscal fitness a family affair. Get everyone involved in working toward common goals. Your school-age child can clip coupons and make sure lights are turned off when not in use. Your son or daughter in high school can get on the Internet and find information about college scholarships.

Everyone in the family needs to keep learning to become financially literate. Do even the youngest children in the family understand that a portion of their allowance is to be spent, a portion saved and a portion given to charity? Do elderly loved ones who have dealt with bank tellers their whole life know how to use an ATM in an emergency? I look at money through a three-generational lens because, like many baby-boom sisters, I'm a member of the sandwich generation. I have parents who are still on this earth, thank goodness. And I have children, who, even though they're adults, will be affected by financial decisions my husband and I make. Financial planning goes upstream to our parents and downstream to our kids. So your family situation is something to review yearly with your planner. Have your goals changed? Have you married or divorced? Is there a new baby? A child going to school? Are elderly parents in need of assistance? A financial professional can help you plan for these life-changing events in ways that will bring you and your loved ones more peace of mind. Here's to your wealth!

Valerie Coleman Morris is an anchorwoman with CNNfn, the Financial Network. Claire McIntosh is deputy editor at ESSENCE.

CNNfn anchorwoman Valerie Coleman Morris gives you seven keys to building wealth in "Fat Pockets" (page 186). "It's never too late and certainly never too early to get a financial plan and start saving for your future," she says. "Make a promise to do just one thing to change or improve your financial circumstances," she says. Morris has also written for Black Enterprise.

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