Editor’s note: This is part 1 in a five-part series on growing and maintaining wealth.
When a university failed recently to award Marlon D. Cousin’s nephew thousands of dollars in anticipated financial aid, the managing partner of an Atlanta-based recruiting firm was happy to step in and close the financial gap.
In fact, he had set aside a fund for such family emergencies, especially those that pertain to education. And he advises other individuals and families in the process of building wealth to do the same. It’s especially important at a time when jobs in the African-American community are sparse and financial needs high.
“I have an emergency investment account that is funded by one of my businesses,” says Cousin, managing partner of the Marquin Group. “If something happens, it’s there for that. If you prefer to set aside a certain amount for emergencies instead of setting up a fund, you could set aside up to 10 percent of your wealth. But you do need to set parameters. Do you use the money to get your brother out of jail? I don’t know. The fund isn’t set up for that, but it’s really real-life stuff.”
Indeed, it’s important to set boundaries on giving to avoid the pitfalls of overspending while building wealth. He says it’s important to lose the Vegas spending attitude; drop hangers-on, be they friends or family; and begin investing wisely.
Yes, it’s easier said than done, he says, because you want to help friends and family, especially at a time when the black unemployment rate is 12.4 percent, compared with 5.8 percent for whites, according to the U.S. Department of Labor. And someone always needs help paying rent, buying groceries, and raising the kids.
“I like to see people work,” he says. “I want them to show me they are looking for a job. I’m here until 10 p.m. to 11 p.m. trying to make my dreams a reality; I want to see you working toward your dreams, too. If I see the effort is there, that’s good. But I’m not interested in helping if you’re asking just to be asking because you know I can help.”
Another way to help is to invest in dividend-paying stocks, Cousin says. In that light, he decided to establish a college fund, financed through one of his businesses, to help children in his family who go on to college. While helping them through college, the fund will also teach them the importance of financial planning, saving and investing, he says. Without proper planning and investing, the money wouldn’t be there for them.
“The fund is there to help them pay for books and tuition,” he says. “It’s a self-funding entity that allows them to be in school so they don’t have to have that burden of finances. It also teaches them the importance of saving. If I hadn’t established it, the money wouldn’t be there for them.”
Cousin provides the following tips to help family and friends without breaking the bank:
1. Avoid indiscriminate giving. Make sure you have a strategy around giving, he says. Otherwise it’s just charitable giving and sets unreasonable expectations for relatives and friends to get something for nothing.
A good rule of thumb is to set aside up to 10 percent of your total wealth for emergencies, he says. Other methods include using tax refunds to assist relatives in need. When they run out, it’s important to let family know that you will be glad to help out again next year, Cousin says.
2. Develop plans for sustainable giving. This could be in the form of endowments or trust funds that set requirements for withdrawals, including college and graduate school degrees. “The funds can be intergenerational, for kids currently in college and beyond that,” Cousin says.
3. Invest in dividend-paying funds. Cousin established a college fund for all the kids in his family, which teaches them about the importance of financial planning and investing.
4. Monitor social media. Friending friends and family on Facebook, Twitter and LinkedIn can be good and bad, says Cousin.
“Some friends and family can be vile on your social media pages,” he says. “So it’s important to monitor what is being posted because donors and investors in your business will evaluate you based on your social media profile. At some point you will be looking to get a loan or a line of credit and the last thing you want them to do is to put your name in Google and have cousin Pookie coming up in the searches talking trash.”
It’s OK to block friends and family who exhibit reckless behavior on social media, he says.
Cousin adds: “Everyone has their own individual things that they are passionate about in their giving. As soon as you have wealth, family and friends believe they were instrumental in getting you to that point. They have been friends with you, kept you out of trouble, etc., and they feel as if you have a long-term debt to them. That’s just not the case. You can and should establish boundaries for giving to friends, family and other relatives. If not, it could break you.”
Lynette Holloway is a contributing editor at The Root.The Chicago-based writer is a former New York Times reporter and associate editor for Ebony magazine.