Managing Black Tax: Balancing Your Financial Future and Family Responsibilities

Hi Reader,

Welcome to The Money Series and if you are new here, thank you for signing up. Personal Finance can feel ambiguous and overwhelming, but I am here to help simplify the journey.

Today's newsletter touches on sensitive topics: family, responsibilities, and expectations. If these issues are touchy for you, please read with an open heart and mind.

First, let me clarify. I am not against helping your family and community. I am very family-oriented, and I also ‘pay’ black tax. Also, if you are your parents’ (or family’s) retirement plan, especially if they have made significant sacrifices for your education and well-being, I deeply empathize with you.

Have you ever tried to save money only to receive a call about an extended relative's emergency? Or a loved one reached out about a financial need, and you had to liquidate your savings?  Ever found yourself torn between saving for your future and supporting your loved ones back home? Black tax can be loosely defined as the financial support an individual is expected and sometimes obligated to provide to loved ones consistently. At the extreme, black tax can be like "Hey, remember that time we raised you? Payback time!" It's about more than just money; it's about navigating complex emotions, responsibilities, and expectations. Today, we dive into real-life examples and practical strategies to balance Black tax with your personal financial goals.

Be Practical

Understand your limits. You cannot help or save everyone. You do not have that power, I assure you. Recognize your limitations and remember this when you try to ‘save the world’ on your income.

Understand the opportunity costs of the black tax. For each unit of currency that you spend in black tax, you’re saying No to something else. Consider the impact on your future, retirement, children, and home. This should serve as a litmus test in your decision to say yes to some requests and no to others. This trade-off picture is important if you are an empath and always feel obligated to help.

Assess and manage the situation

Assess the situation. Is this a one-time emergency, or a recurring need? Understand their financial needs, the root causes, and the numbers behind these needs. For recurring needs, you need to know if they need your support because of insufficient income, or overwhelming expenses. In the case of debt, determine the amount, the rate, and the type of debt. This can help you decide if you can help them or devise a better way of helping them.

Manage expectations. Have those ‘tough’ conversations. Rather than rant about it online or speak to your friends about it, have that conversation with the concerned person(s). If you have ‘compulsory’ obligations to your parents or relatives, speak with them regarding your financial status, the level of financial support you can afford, and the categories of expenses you would be willing (and unwilling) to pay for. If your dependants are your parents, talk with your siblings about contributing jointly.

Budgeting for Black Tax

Create a budget line for Black tax in your budget and stick with the limits. Be cautious of making commitments before ensuring it fits within your budget. Ask for a minute, a day, or even a week as appropriate to consider the decision.

Include the emergencies of your dependants in your emergency fund and define what emergency means to you. When emergencies occur, you can withdraw from the fund and gradually rebuild the fund at your own pace. Defining what constitutes an emergency to you is crucial because the definition of emergencies differs, and you may not want to fund someone else's ‘non-essentials’ from your ‘normal’ income.

Alternative Support Methods

Offer non-financial assistance. Offer advice, connect them with opportunities, or provide acts of service that reduce their expenses. You can consider these alongside or in the absence of financial assistance.

Empower and not enable. Enroll them for a course, help them start a business, fund education and skills training, invest in their business plans, etc. The empowerment can also be in the form of medical insurance coverage – many people are one illness away from bankruptcy – to shield all parties from medical emergencies.      

Setting Boundaries

Set and communicate boundaries. Communicate and be vocal about what you can and cannot afford. Except for genuine emergencies, maintain these boundaries. A good life has a healthy mix of selfish boundaries and unselfish giving*. When you set those boundaries, anticipate and prepare for restraints.

When your emotions are high, be wary of making promises and commitments. Your niece graduated top of her class and you are over the moon with excitement? Congratulate her and offer her a gift you can afford. Don’t promise an iPhone or a car when you probably cannot afford or save for it. Be careful of blank cheques like ‘call me when you need anything’ unless your finances can accommodate ‘anything’.

Understanding the Bigger Picture

Understand the vicious cycle dynamics. Know that Black tax in its extremes, especially in African or black communities, can perpetuate generational poverty. Without a proper plan, black tax can kick off a vicious cycle that can put you in the same situation as those you aim to help and could impact your children's future. 

Paying Black tax indefinitely is unsustainable. Know that NO is a complete sentence and a clear sign of maturity. If you cannot help immediately, budget for it, or save for it, you simply cannot help and need to make peace with that. Problem no dey finish!** 

What's your biggest Black Tax challenge? Do you want to share your story with me? Just hit the reply button and share away.   

Act Now: 

• Check your expenses for the last 3 months and see the outflows that look like black tax.

Reflect on This:

• Which of the above outflows did you thoroughly think through? Which of them did you find surprising?

Till next week, I am rooting for you, money-ly!

Dee         

** Problem no dey finish! – a Nigerian slang spoken in pidgin language meaning that problems never end.

* A good life has a healthy mix of selfish boundaries and unselfish giving - a quote from James Clear’s newsletter. See an excerpt from the email below. 

P.S.: if this email was shared with you, please subscribe here and if you know one person struggling with black tax, kindly share it with them.

Dedicating this week’s newsletter to my undergraduate course advisor, the late Dr Philomina Udobi, who told me one of the wildest stories of breaking free from an extreme case of black tax. I may write about it someday. May her soul continue to rest in perfect peace.

Disclaimer: This does not constitute financial advice. Please conduct your research or consult your financial advisor for important financial advice.