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Building Generational Wealth with Black Tax

24 November 2021
6 minute read

By Palesa Tlholoe, Certified Financial Planner

Generational wealth, as a term, sounds very abstract and fancy, which could be quite intimidating for many. Perhaps this is why many people still shy away from even thinking about it, particularly in the face of slow economic growth, high unemployment rates and rising retrenchment rates.

Adding salt to the wound is this phenomenon called “black tax”. Many of those who believe that ‘black tax’ exists, understand it to be a financial obligation towards one’s extended family, where you are “abused” financially in such a way that all your hard-earned cash pays for your extended family’s financial needs. This leaves you with little to no funds for your own financial goals. You attribute your slow progress in achieving your goals or your high indebtedness to this phenomenon, and you can’t even think of creating wealth for the next generation.

Embrace the opportunity to assist

On the other side you find people who embrace the opportunity to assist their extended families financially if they are able to. This emanates from the idea that “I am, because you are”, which is the spirit of ubuntu. The concept of ubuntu encourages societies to work together for the betterment of the whole community rather than individual achievements, with the understanding that together we can create more, and leave a legacy for the next generation.

Know the stages in money management

Creating generational wealth, however, is in fact not as complicated as it sounds. It starts with understanding the stages in one’s money management journey.

Stage 1: Saving for emergencies

We know that life happens, and unfortunately even the best-made plans don’t even take off the ground because we’re always fighting fires. An unexpected passing of a loved one, a sudden co-payment on a hospital bill, an excess payment to fix your car following an accident can all delay you from starting your savings or investment plans.

This is where your emergency fund comes to your rescue and allows you to continue with your commitments or financial plans. A mere 10% of your monthly net income every month can make a big difference over time, but you have to automate this and ensure that it goes off before you start spending your money on non-essential items. Also ensure that it takes you at least three to five days to access your emergency funds.

Some of the vehicles you can consider include unit trusts or exchange traded funds (ETFs) with money market funds or other ultra-low risk portfolios as the underlying funds. A bank savings account that allows you to automate your savings in the form of a debit or stop order, and a money market account with a bank can be another option. To know which one is best for your needs and circumstances, you need to consult a financial adviser.

Stage 2: Solving for liquidity

This is the stage where you ensure that you have money left after you have paid all your commitments. You have to write down all your monthly commitments – not only your own personal or immediate family’s monthly commitments, but also the commitment you made of paying for your sister’s school fees, sending money to your mom, or paying for your grandmother’s funeral policy too.

If all of these combined exceed your income, then perhaps it’s time to have a family meeting. Yes, family meetings can be emotionally exhausting, so to avoid any possible bickering and misunderstanding, invite an expert such as a financial adviser or planner to your meeting, who can assist in restructuring your commitments. The additional advantage is that the professional would be a neutral third party who can assist in taking the emotions out of this conversation and focus on facts, as well as contributing expert knowledge.

A do-it-yourself option is always available as well, provided that you have the knowledge, but beware that this exercise can be very technical and emotionally challenging. Working with an independent expert can take away both of those challenges.

Technically you need to know the consequences of the changes you may think of implementing. On an emotional level it may be difficult to cut certain unnecessary expenditure items from your list for those you love, as it may feel like it’s a reflection of your love for them. Visit our blog on how to handle a family meeting on money to learn how to have these important discussions.

In addition, creating liquidity means being on top of your daily expenditures. It’s the small things that add up – such as bringing lunch to work instead of buying lunch at work every day, getting coffee from the office instead of buying coffee from the well-known premium brand, or reducing takeaways to once or twice a month instead of every week.

Stage 3: Start making long-term investments

This comes after you have ensured that you have some money left after paying all your commitments. Long-term investing doesn’t have to start when you have a big lump sum; small regular contributions can also go a long way.

Once again, the investment vehicle that you choose is key. Choosing to have all your money at a bank where you have access to the funds can be detrimental to your long-term plans, because when it comes to money, emotions can take over sometimes.

Emotions also include excitement. Take a scenario, for instance, where a group of your friends decide to suddenly go on a weekend away that will cost a share of money that you don’t have at your disposal. You decide to join them and take the money from your long-term investment account at your bank, because you feel like you’ve been depriving yourself of life’s exciting things because of ‘black tax’. There goes your wealth creation plan!

To respond to these challenges, it is prudent to clearly define your investment goals, and the term over which you wish to invest, and then allow a professional to assist you in selecting the right product for your term. If the goal is wealth creation for generational wealth purposes, a minimum investment term of 10 years should be considered so as to take advantage of compound interest. In simple terms, compound interest is when the interest you’ve earned on your investments also earn interest. To learn more about how you can maximise this, visit

Another key to investing is patience: good and stable investment returns take time.

Stage 4: Investing in your lifestyle

The fourth and final stage of your money management journey is investing in your lifestyle, such as holiday homes, or alternative investments like art and collectables. At this point all the basics are covered as detailed above, but it doesn’t stop there.

If your goals were clearly defined right from the start of your money management journey, this is the stage when you’re starting to realise those goals. It’s important to remember the difference between being wealthy and being rich. Wealthy people save and invest their money so as to create more of it, while rich people spend theirs

Plan for your commitments, including helping your family

Paying your siblings’ school fees, for instance, may be a need or an essential expense if that sibling will one day be financially independent and take over some of your commitments towards your extended family – so see this commitment as an investment, and plan for it.

And don’t forget to create a formal agreement with those you’re helping out. The agreement should stipulate the type of help that will be offered and how it should be paid back. It should also clearly specify any conditions for this arrangement to work, and the consequences if the conditions are not met.

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