You might have heard the phrase “generational wealth” and thought to yourself, “Wow, that sounds important.” However, you may have pushed it to the back of your mind because you have more pressing concerns.
For example, you may be concerned about getting out of debt, saving money, or pursuing other financial objectives. It’s possible that building generational wealth isn’t high on your priority list right now as you focus on your current finances. Having said that, you can still include it in your long-term financial plans.
Not sure what the term “transitioning generational wealth” means? Don’t be concerned! I’ll explain what it is and how to establish one for your family.
Then, what is generational wealth?
The definition of generational wealth is wealth that is passed down from one generation to the next. This is also known as family money or legacy wealth.
When you leave anything to your offspring or grandkids (in the form of an inheritance, for example), you help build generational wealth.
Obviously, you can leave your family with numerous things, such as happy memories and healthy genes. However, I’m referring to the financial riches you’re able to leave behind.
This wealth can come in many forms, such as real estate holdings, investments in the stock market, or education about money for the future.
What is the significance of generational wealth?
If you are beginning from scratch with your money or have a huge debt burden, you should understand the significance of generational wealth.
What if your parents could afford to pay for your college education? This one step could have a huge impact on your financial future. Instead of catching up on your student loan payments, you could be investing in your first house or your retirement.
As you learn more about personal finance, you’ve probably learned that it’s not always easy to get back on track after making a financial mistake.
What if your folks had been able to provide excellent financial advice as you struggled through it? It could have prevented you from overspending or put you into a budgeting habit much sooner.
The more you consider your personal financial situation, the more you appreciate the importance of generational wealth. If you have children or plan to have children, you may begin to consider their financial destiny.
Consider how things might be different if you took the time now to educate them on personal finance and set up vehicles to secure their financial future.
Keep in mind that brown and black families lag behind white families in terms of generational wealth-building. This is because of the racial wealth disparity. Building generational wealth is therefore considerably more important if you are a minority.
So, let’s get started on how to establish generational wealth!
How to build generational wealth
Creating generational wealth is a simple concept. Simply buy assets or save money that you do not intend to consume in retirement. When you die, you leave those assets to your children and grandchildren.
This sounds simple in theory, but it can be tough to put into practice. Saving for the next generation can seem daunting if you are trying to grow your finances. That is entirely understandable!
Before you begin to prepare for generational wealth, you must first establish your personal retirement savings strategy and other financial goals. Once you have a handle on your current finances in order to fund your golden years, it is essential to start saving for the future.
So, how should you begin saving for future generations? Here are some of the greatest ways to begin planning for a wealthy legacy for your children and grandchildren.
1. Invest in the stock market
The stock market is a viable tool for creating lasting wealth. It’s a great option for building wealth that can be passed down through the generations given that it has the potential to grow for a long time.
The stock market can appear scary to someone who has never invested before. It is, however, one of the most important ways to make money for the rest of your life and beyond.
Investing in low-cost index funds is a great first step for anyone new to the stock market. In addition to providing long-term growth, these products often have low costs. If you’re interested in learning more, visit YouTube for a wealth of information on the stock market. You may find many helpful tutorial videos online for free.
2. Invest in real estate
Real estate investing is a key strategy for creating long-term wealth. Real estate can be a stable way to build wealth due to its potential for stable cash flows and appreciation over time.
Creating a real estate dynasty may sound like a daunting task. But it need not be that way. Maybe you’ve already taken the plunge into the real estate market by securing a mortgage on your first property.
If you keep buying single homes over the course of your life, you might be surprised at how quickly your real estate portfolio can grow.
Don’t discount this strategy as a way to provide financially for your offspring.
3. Build a business to pass down
More than 30% of enterprises owned by families are taken over by the third generation. Picture yourself in a position where you can give your children the reins to a thriving firm.
Not all family businesses survive into the next generation, but yours might. Your kids may wish to take over the company you build if their passions and skills are a good fit for what you’ve created.
If you want your child to take over the business after you, they need to start helping out early on. They must have an understanding of the inner workings of the company if they are to remain productive members of the workforce.
If they don’t want what you’ve built, they won’t take it over.
If they aren’t interested in or capable of taking over the firm, you may want to sell it so that you can pass on the proceeds to future generations.
4. Take advantage of life insurance
Life insurance gives you the option to safeguard your loved ones financially in case of your eventual death. Your children could be put in a difficult financial position if you were to lose your job.
Purchasing a life insurance policy today could spare your children a significant financial burden in the future. They have enough problems as it is without having to deal with your death.
5. Invest in your child’s education
Education can often provide a means for your children to sustain themselves. Many people with a college degree have the option to pursue high-paying employment that can assist them in managing their own money.
Anyone who has received an education will always have that education. Although other things in life come and go, no one can take your education away from you. If you can help your children graduate from college debt-free, you are helping to prepare them for a better financial future than many of their peers.
The average student loan debt for college graduates in 2019 was $30,062.
It is probable that the figure will rise further in the future. By considering how much financial stress you will be able to relieve on your children’s shoulders by being able to pay for their education, Investing in your child’s education is a great way to build generational wealth and put them on track for financial success!
6. Teach your children about personal finance
According to estimates, 70% of families’ wealth is lost in the second generation. And 90% of them fail in the third.
With figures like that, it may appear futile to save for a wealthy legacy. However, in many circumstances, generational wealth loss can be avoided by financial education. After all, if your children lack financial literacy, it is simple to lose generational wealth.
That’s like asking your child to take care of your old classic car after you’re gone without teaching them how to fix things. The car would almost certainly break down at some point.
Similarly, if you educate your children nothing about personal finance, it is likely that the wealth you leave for them will shrink over their lifetime.
Because you’re interested in handing along family wealth, you’re probably familiar with personal finance. Make it a priority to teach your children this information. This understanding will be the most effective strategy to create and safeguard generational wealth.
There are numerous approaches you can take when discussing money with your children. You can teach youngsters about money through books, activities, or by allowing them to listen as you discuss financial decisions.
You can even help kids open their own bank accounts when they are young to teach them how important it is to save for the future.
Our course on teaching kids healthy financial habits is a terrific place to gather tools for teaching your children about money.
7. Create multiple streams of income
When it comes to how to develop generational wealth, having numerous sources of income can help. In fact, the average millionaire has seven revenue streams!
There are many different types of income, but one of the greatest is known as passive income.
Active income is earned when you exchange your time for money, such as through a job or a side hustle.
Passive income is earned from your assets after the basic setup takes little effort. For example, rental properties, book royalties, peer-to-peer lending, and so on. So you must put in the initial effort, but once that is done, you will continue to profit from your efforts.
So you could create a book and receive royalties for years to come, or you might buy a house to rent out and generate rental money. Begin by establishing passive income sources to create generational riches!
8. Pay yourself first
The key to building wealth that will be passed down through generations is to establish a habit of regular savings. The simplest method for saving more money is to pay yourself first. For example, as soon as you receive your paycheck, you immediately deposit funds into your savings and investments.
This way, you don’t waste your hard-earned money, and you can save much more quickly. Obviously, it is preferable to earn money on your money, so be sure to open an interest-bearing savings account.
You should strongly consider investing a portion of your savings in order to obtain a greater rate of return and so accumulate wealth over time.