Here’s the way things probably are right now. You just got employed and have to face the financial burden of supporting your family. This can be providing financial assistance to family members in need, paying for education or other necessities, and supporting community projects.
In a nutshell, you’re paying black tax. Black tax describes the financial distress many young professionals face in providing for themselves, their extended families, and their communities.
Paying black tax can be stressful especially if you don’t have a fat paycheck like most 20-year-olds. Its impact on your finances is even more painful. It can limit your ability to save, invest, or even borrow.
What's more? It can also create feelings of stress and financial insecurity.
But here’s the good news. In this article, you’ll discover how to deal with ‘ black tax’, remove yourself from dependency, and improve your financial literacy. You’ll also learn how black tax affects your finances.
Here we go!
The burden of financially supporting your extended family can limit your ability to save for the future. This is because a significant portion of your income goes towards supporting others, leaving you with less money to nurture and grow your savings.
For instance, if you spend Ksh10,000 monthly to support your family, that’s Ksh120,000 per year. That’s money you could use to establish an emergency fund.
‘Black tax’ can divert funds that would otherwise be available for investing. If we stick with our example above, instead of giving your extended family Ksh120,000 each year, consider investing all or half of it in an interest-earning account.
There are many different types of interest-earning investment accounts that you can consider depending on your risk tolerance.
Common options include:
Carefully research and compare different investment vehicles to find the right one for your needs and goals. It’s also a good idea to consult with a financial advisor to help you make informed decisions.
Read Also: 7 Common Investing Mistakes to Avoid.
Supporting your extended family financially early in your career can hurt your mental health. This is because it can create a sense of financial stress and burden, as well as feelings of guilt, obligation, and pressure.
Your family needs can make you struggle to balance your expenses and financial goals. This can cause anxiety and stress as well as frustration and resentment.
In addition, ‘black tax creates a sense of social pressure and obligation as you may feel you must provide financial support to your family and communities.
This can lead to feelings of guilt and shame if you’re unable to meet these expectations and can contribute to mental health challenges such as depression and low self-esteem.
You wouldn’t want to lag in savings and investments because of ‘black tax’. That’s why you need to manage it early on. Here’s how.
Although it might seem daunting, removing yourself from dependency is the most straightforward way to free yourself from black tax. When you no longer want to offer black tax, communicate this decision to your family openly and respectfully.
Here are some steps you can take to have this conversation:
Although having this conversation with your family can be difficult, be honest and direct about your decision and work together to find ways to support each other healthily and sustainably.
A budget can be a helpful tool for managing the financial burden of supporting your family. It’ll help you identify areas to cut expenses to free up more money to uplift your family.
If you don’t know how to create a budget, don’t fret. Here are a few steps you can follow.
Setting deadlines when offering support to your extended family or anyone else can help you achieve your short-term and long-term goals faster.
Here are a few steps you can follow to set deadlines for how long you can continue to offer support:
"Pay yourself first" is a financial principle that suggests you save and invest a portion of your income for your financial goals before spending on other expenses.
This strategy can also help avoid overspending on extended family. To apply this principle in this situation, set aside a specific amount of your income each month for giving to extended family, and then make sure to stick to that budget.
Developing this habit can help you avoid debt or sacrificing your financial goals to support your family.
Read Also: What Does Paying Yourself First Really Mean?
Lastly, you can manage black tax by educating yourself and your family about personal finance. Have conversations about managing your income, expenses, savings, and debt. This way, you’ll become financially literate. Your financial lives will improve.
Some components of financial literacy include:
You can also share your own experiences and challenges with managing your finances and offer support and guidance as needed. Additionally, you can encourage your family members to seek out educational resources and tools, such as books, online courses, or financial advisors, to help them improve their financial knowledge and skills.
In conclusion, managing black tax in 2023 will require a combination of financial literacy, discipline, and planning. By educating yourself and your family about personal finance, budgeting for black tax, ‘paying yourself first’, and setting deadlines for how long to offer support, you can manage black tax better.
Additionally, practicing financial discipline and staying informed about the economy can help you make better financial decisions and achieve your financial goals. With these strategies in place, you can manage the impact of ‘black tax’ on your finances and support your family and community.