By Aaron Allen, The Seattle Medium
When it comes to building generational wealth, David Kirtman, a banker at J.P. Morgan Private Bank in Seattle, says that it’s important to recognize that the pathway to building wealth is a marathon and not a sprint.
According to Kirtman, there are basic fundamentals to building wealth, for example, knowing how money can work for you, educating yourself on expenses and consistent savings, and embracing the power of compounding investments. The discipline to stick to them are what makes the difference between a comfortable or more challenging financial position. Defining the purpose for your money is also key – you can spend, save, invest and give.
“Covering your expenses is rule number one in my view,” says Kirtman. “Whatever leftover money you may have, define its purpose and consider getting started on investing because you want your money to grow.”
Kirtman, a former NFL player with the Seattle Seahawks and football standout at Mercer Island High School and USC, says that it’s never too late to start investing, but it is important to start sooner than later.
“The earlier you start the better,” advises Kirtman. “If you can open an IRA at 18 whether it’s a hundred dollars a month, a thousand dollars a month or ten dollars a day the consistency over time is the key factor, but starting early is definitely a plus.”
Kirtman also says that it’s important for people to be involved in developing their own personal investment strategy. You don’t have to be an expert, but you should definitely be familiar with the advantages and disadvantages of the different financial instruments that are available.
“Stocks and investments are my passion now,” says Kirtman. “Football was my passion. I knew every team, every player, every position, frontwards and backwards. Stocks and investment have now become my passion.”
“My recommendation to every person is to learn about what your money does,” continued Kirtman. “Learn how to use your money, use it to your advantage, how to get loans from a bank, and how to expand your balance sheet with the help of a financial partner or corporate job.”
According to Kirtman, the internet can provide many consumers with the basic fundamentals of investing and building wealth before they sit down and talk to a financial advisor. With this increased access to financial information, Kirtman says that young people today are in a position to have a higher financial IQ than their predecessors. However, fear of loss is inherent in most people, but that shouldn’t hinder them from achieving their financial goals.
“Risk is inevitable in wealth management and growth,” says Kirtman. “Do not be afraid to take risks. Whether it’s the risk of finding a new job to boost your earnings or taking risks in the types of stocks or investments you’re choosing to build on, don’t let fear hinder your decision-making.”
Kirtman advises young people today to prepare for the worst-case scenario regardless of how much money they make. As a former pro athlete, he knows how quickly life can change in the blink of an eye. Similarly, young people today, many of whom are graduating from college and going into high paying careers, can fall into the trap of spending beyond their means because they are making a lot of money at a very young age.
“It can end so fast and all of sudden you have these loans and expenses, mortgages and obligations,” says Kirtman. “There’re two traps. One, not over-leveraging yourself on the expense column, because it can end in a heartbeat. Two, being disciplined enough to put away fifty percent of what you earn into some sort of growth investment, and that is not as easy as you may think.”
Barry Simmons, Divisional Director of the East Division, J.P. Morgan, agrees and says that because the unexpected can happen, it is important that people learn valuable lessons from past experiences to prepare for the future.
“Even though it may not seem this way now, the economic disruption and the (ongoing) uncertainty we’ve faced over the last year taught us a few valuable lessons when it comes to our finances,” says Simmons. “Reflecting on those lessons today may help us better prepare for the next time the unexpected happens.”
Simmons outlined the following items as starting points for people to build generational wealth:
• Start talking now. Today, communities of people of color have made strides in acquiring wealth, plus building the knowledge needed for sound money management techniques. So, it’s essential that we as a people share that knowledge by discussing our finances with our family and loved ones, even if it’s uncomfortable at first.
• Review your budget and your credit. Take a good look at your budget and credit, make sure you have a clear understanding on how much money comes in and out monthly. Start by looking at how much debt you possess. Paying and especially falling behind on high interest debt like credit cards, for example, can have long-term effects on your financial wellness.
• Prioritize emergency fund and automate savings. Despite income gains for Black families in America, Black wealth is still on average one/tenth of that of white families. Most American households don’t have enough cash set aside to cover adversities, such as job loss or emergencies. The impacts of the COVID 19—including unemployment, market uncertainty, the health crisis in and of itself highlight the significance of being ready for prolonged financial uncertainty.
• Get investing and stay invested. Getting started is the key and once you’ve engaged, staying engaged over the long haul will help secure success. Remember it’s a marathon, not a sprint. Consistency.
In closing, Simmons says that when it comes to building generational wealth it is important to have a plan and to stay the course. He also notes that it is equally important to recognize the difference between saving and investing, and to have a plan for both.
“Black investors have a tendency to be more risk-averse,” says Simmons. “Many may prefer saving, instead of investing, while others often prioritize other expenses—including caring for family and loved ones—and as a result may have less money to invest. But the fact remains: history has shown that the best way to build multi-generational wealth is to get invested, invest consistently, and stay invested.”
“Regardless of where you are in your financial journey, you should think about whether or not your strategy is positioned to withstand potential adversities,” added Simmons. “This starts with creating a solid budget, investing (and staying invested), and building up your retirement.”