3 things We Did to Solve the Racial Wealth Gap for Our Family

The racial wealth gap is a widely discussed and known issue in the US. While wealth gaps are prevalent worldwide, America has been on a divergent path for a while. In the second quarter of 2023, white households held north of 85% of total wealth. The median white household is hovering at $284,310 while Black wealth trails behind at less than $45,000. That’s a difference of 6.5 times.

The Wealth of Two Nations: The U.S. Racial Wealth Gap, 1860-2020 did a great job summarizing how we got here. You can definitely read it for yourself. It’s filled with incredible insight into how freed enslaved people (1860) were able to converge wealth from 60:1 to 7:1 by the 1950s. One of the most amazing feats in world history, which was book ended in the early 2000s with the election of Barack Obama.

Unfortunately, we’ve been stuck here ever since. What’s interesting is that all the solutions are hard-coded into the period of 1860-1950. The most incredible part is that my wife and I unknowingly stumbled on the formula.

There is proof that those who don’t know their history are doomed to repeat it.

The Wealth Parity And the Cost of Stagnation

The report found that Blacks in America would need “substantial advantages, not mere equality to stand a chance.” However, even in lieu of restorative justice through Reparations, would simply reduce the gap. Within the next 30 years, that gap would increase by 30 percent and the divergence would continue. Why?

I suppose wealth (measured with time) is a universal concept. Wealth Parity can’t sooner be rectified with a brush stroke. It would require a stronger mechanism for total change. It leads me back to how were they able to close the gap so quickly in the 1860s.

It’s kinda simple: 1. Expertise channeled through Small Business, 2. Land Ownership, 3. Housing, 4. Household Size and 5. Geo Arbitrage. Just kinetic economic motion. They were just very productive. They were not bothered by the outcome. Instead, they were focused on making the best of their time.

Why did these efforts fail post-1980s?

Asset and Portfolio Composition. Black communities simply stopped evolving with the times. The lack of resources caused home ownership to lag behind, families to suffer and the church to lose its prominence as a network hub.

Think about it, what happens to a local team who’s been on a steady losing streak since the 1980s?

What’s the solution (formula)?

The report spells it out. To close the wealth gap by 2050, Blacks would need to 1. more than double the annual capital gain rates of white Americans, 2. a savings rate of 31 percent, or 3. an income growth of nearly 8 percent.

I originally took this in as the ramblings of researchers and nerds but then I ran the projections. Outside of Reparations that are likely not to come, these steps are the blueprints for wealth convergence. My wife and I started with zero and a ton of debt in 2013. Our combined net worth was likely closer to negative $111,000 due to student loans and zero assets. During the same period, the Black median net worth was $16,650 while the white median net worth was $180,620.

By 2022, Black median net worth was $44,100 and Whites stood at $284,310, while our net worth grew to $755,178. This means that we jumped by 780 percent. Why? Our income has grown by +10 percent annually since we moved to the DMV (ie Geo Arbitrage). Our savings (investing) rate is nearly 35 percent of our gross income. And our capital gain accumulation exceeds most American households. We did the last part through home ownership, a rental property, and our investments. All of this ramped up to an annualized 3-year average of +72.99%.

All three elements of this game were fulfilled.

This radically changes our trajectory. As of November 2023, our net worth peaked at over $1 million. We still have plenty of room to maneuver. The researchers were right in their assertion, but incorrect in one important way.

What do you need to do?

The solutions that you use for your family are not OR; it’s AND. Doing all the prescribed pieces in succession builds your wealth dramatically. That’s the trick. No need to cherrypick one thing over the other. Apply all the solutions in sequence.

You have to make more income as a dual-income couple after you build expertise. This will require schooling in a high-paying field. The next this is to learn how to cash flow your resources so that you can pocket more of what you earn. This will boost your savings and investments while avoiding lifestyle creep.

You can pull this off by Maximizing your 401k, IRA, and HSA. Refer to the Net Max Financial Plan

That potent combo of tax advantage accounts will net you north of $30,000 invested annually. This is north of the average American home putting in $8,000 per year. The increase of 275 percent will save you on tax while harnessing the growth potential of the market. The latter grew on average by 8 percent. The long-term real dollar difference in investments over 30 years is $3.5 million compared to $1 million. You don’t have to be a math wiz to see that the bigger number wins.

It’s not a sacrifice

All these pieces have a convergence effect. I don’t think most people will want to adopt these measures. It would require accountability and purposeful living. However, if you want to make sure your family prospers, it’s worth a shot.

In the end, I can guarantee you that you won’t see any of your decisions for a brighter future as a sacrifice. This is a path that will teach you to lack for nothing. Doing what you NEED to do, will bring you into alignment with what you WANT to do most.

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