Many people focus primarily on getting out of debt, saving some money, or achieving their little financial goals. Only less than 10% focus on building generational wealth for their future generations.
It’s not easy for everyone to start making massive wealth across several generations. Hence, most people ignore this idea and continue enjoying their own life.
But what if we tell you that there are few strategies to build some financial assets for your family and ensure that it will last forever.
In this article, you’ll learn about the importance of Generational Wealth and how one can build it for their next generations.
- What Is Generational Wealth?
- Is Generational Wealth Really That Important?
- 7 Ways To Build And Create Generational Wealth
- How To Pass Down Generation Wealth To Your Family?
- Final Words
What Is Generational Wealth?
As the term suggests, financial assets such as property, investments, or money passed down from one generation to another is generational wealth.
You can also call it family wealth or legacy wealth.
If you’re about to leave something of big monetary value for your children and their grandchildren, then you are simply planning for generational wealth for them.
Is Generational Wealth Really That Important?
The hard answer is no. Building generational wealth is not a mandatory part of life, and most people usually ignore it.
Just Imagine, Who wants to work 9-5 for 60yrs to save and build wealth for their children? Probably no one.
Then, why is it even important?
Individuals who have wealth support from their families usually have the upper hand over those who haven’t. When their family pays for their college education or helps them buy their first house, it makes them economically advantaged over others.
This helps them build their own wealth more early and quickly. They are free from most kinds of debts and usually live a stress free life.
If you plan to grow your family, then yes, it’s a great idea to build some generational wealth for them. Providing financial comfort to your future generations can be a good priority for you.
7 Ways To Build And Create Generational Wealth
Building massive wealth takes decades and requires a lot of patience. Your investments need to be right, and you should survive economic crashes as well.
Below are 7 ways and strategies to build healthy assets for your upcoming generations:
1. Get Rid Of Debt
First things first, any debt stopping you from saving more money needs to be eliminated as soon as possible.
According to Experian, total US consumer debt in 2020 reached a massive $14.88 trillion. The average US adult had $16,458 in Personal loan and $5,315 in Credit card debt.
Millennials also saw a massive rise in the pandemic with avg. $87,448 debt in 2020.
Graph Source: Experian
Eliminating this debt means a lot of yearly savings, annual interest, and additional funds for your investments. As per the golden rule of debt elimination, you should prioritize paying down high-interest debts first.
Let’s take an example.
If your investment/bank account gives you 3% annual interest and your credit card interest is 15%, then you’re actually losing a lot of money instead of making money.
So, to start building some wealth for yourself, first, get rid of high-interest debts if you have any.
2. Establish Emergency Fund
Covid-19 pandemic taught every one of us the importance of emergency funds, a.k.a rainy day funds.
Emergency funds give you a safe cushion to deal with unexpected expenses such as medical expenses, unemployment, sudden job loss, home repair, etc. In simple words, you must always have some safe funds available with you, no matter how big a spender you are.
Related: 7 Types Of Spenders
How much emergency funds should I need?
If you have nothing in your pocket as of now, then do not worry. You’re late, but you can easily build this fund for yourself. The key is to start small and start saving $250-$500 every month.
The good rule of thumb is to have enough to cover four to six months’ worth of living expenses. If somehow you lose your job, you can use that money to pay for your necessities without breaking into your investment accounts.
We’re now ready to discuss building generational wealth without getting into more money troubles with zero debt and securing emergency funds.
Check out how much funds do you actually need:
3. Invest In The Market
Investing is one of the top ways that the richest 1% use to build their massive net worth. And the best part of investing is that the money will continue grow for generations.
Whether you’re investing in stocks, bonds, or commodities, having money in the stock market gives you the possibility to grow that money for generations to come.
However, many people are afraid to start investing in stocks because it’s scary, and chances to lose money are always there. At the same time, stock investments are rewarding too and can build huge wealth for you.
If you’ve never invested in stocks, the best way is to read books, guides and take short investment courses to determine which stocks are best for you.
This way, you can plan for healthy financial assets for your children. And the best part, you don’t need to be rich to dive into the world of stocks. One can start with a few hundred dollars as well.
4. Buy Real Estate
RE is another great way to build generational wealth for your family.
Real Estate and Property is a heavy investment and can fetch continuous returns to your portfolio.
If you already have a mortgage, which many US adults usually have, then start focusing on paying your mortgage as soon as possible.
Start with aggressive payments and get rid of your mortgage, which is making a huge dent in your savings. After you get mortgage-free, you’ll have plenty of funds to invest and buy more properties.
The best part about real estate investing is that the tenants pay for your installments, and you reap the benefits of monthly cash flow and property appreciation.
Decide how long you’re planning to take out a mortgage loan as per your risk appetite, i.e., 10, 15, or 20 years. Remember, a mortgage for a shorter-term will help you own the property early and make you more money when the loan is gone.
5. Make Multiple Streams Of Income
Well, the hard truth is if you’re earning $1000 a month, it’s going to be super hard for you to build generational wealth for your family. As your income will cover your expenses, you won’t have much opportunity to invest and reap the rewards.
Then what is the ideal way?
The path to make more money is simple. Generate money from multiple streams of income.
There are many ways that people use to make more money. One can start with working on weekends, starting a side hustle, doing overtime, etc.
Here are 5 common ways use by people to make more money:
- Starting a side-hustle and build a side business
- Working on weekends or overtime
- Selling on eBay
- Affiliate marketing
- Blogging, selling digital courses, Youtube
There are plenty of ways to start adding more money to your regular income. However, one should remember not to stress themselves much and try living a happier life.
6. Securing Insurance Policies
Imagine you’re 60, and you’ve just retired with enough funds in your kitty. You’re planning to live a relaxed and calming life now after working for decades.
Suddenly you get to know that you’re diagnosed with a life-threatening disease, and all the funds that you’ve saved till now will be used for your treatment. Then, what will you do?
The only savior to save yourself from these unexpected expenses is Insurance.
Now Insurance is generally of 2 types:
Life Insurance: A life insurance policy protects your family in case you die prematurely. Your family gets a certain cover amount based on your insurance premium in case of your uncertain death.
Health Insurance: Just like life insurance comes into play when you die; a health insurance policy protects you from any kind of medical expense. One should always consider purchasing this policy for themselves and their family.
Consider it this way, if you aren’t alive or healthy, then there will be no way to work and build generational wealth for your family.
7. Get Professional Help
One thing common in most people who transfer their wealth to their next generation is that they don’t do it all alone.
You have to deal with investments, planning, taxes, buying/selling assets, and many more things. To make the transition smooth, it’s important to get professional financial help.
It’s hard to predict wealth and market trends in the future all by yourself. Also, it’s highly important to track, balance and reshuffle your portfolio every year to make the best out of it.
Additionally, if you’ve done poor planning, then your family might end up paying 20-30% taxes on the inherited money.
That’s why financial planners help you deal with wills, money statements, trusts, life insurance, and most importantly, individual guidance as per your risk appetite.
How To Pass Down Generation Wealth To Your Family?
Probably the most important part of this journey is to create a plan that will help passing down all your wealth to your family, even in the event of your death.
You might have watched movies where children fight over their parents’ wealth and do whatever possible to acquire all the wealth.
To ensure your children won’t do the same things, it’s best to make a proper plan to help your wealth be split into your family members in a streamlined manner.
Here are the 3 common ways to pass down your assets within your family:
1. Write A Will
Hire a lawyer and make a will to split your financial assets to your loved ones. A will should have proper instructions and clauses to get rid of any future misunderstandings.
Also, list down all of your assets to make it easier for your family to locate them in the future.
Do consider that when you don’t have a will for your financial assets, it will always result in unwanted fights, loss of assets, and unfair decisions.
2. Build A Trust
A trust is another great way to transfer all your assets to your dependents. It’s a legal and smart way to set up a trust and divide equal assets to your family members.
One should note, trusts can be expensive to set up and require annual maintenance charges. However, they do provide tax benefits when withdrawing the money, depending on which state you’re living into.
3. Name Beneficiaries & Nominees
Another way to pass down your wealth to future generations is to name account beneficiaries as early as possible.
To do this, mark your dependents as the nominees of your wealth. This will also save your children’s time when they become adults to inherit the money.
Fortunately, there are many ways to start building financial assets for you and your upcoming generations. The key is to get out of debt and start investing money as soon as possible.
Many good books, videos, and courses help you understand financial planning and the whole process.
Also, make sure to enroll your children in some financial courses so they can learn its importance as well. This will help both of you to build a massive net worth for your family.
Remember, your family’s generational wealth always begins with your mindset.
Let us know in the comments if you’re also planning to build some assets for your family and the struggles you’re facing. Our team of experts will help you out with your questions!
Disclaimer: This article is completely informational and educational and is not meant to constitute legal, tax, or investment advice. You should always consult with qualified financial experts and tax professionals regarding your specific situation. Keep in mind that investing contains equal risks and rewards. The value of your assets will fluctuate, and you may gain or lose money over time.