A good parent’s dream is to leave a legacy for their children and their generation.
And one way to ensure that is by building generational wealth.
- About 70% of families lose their wealth in the second generation, while 90% lose it in the third.
- With over 10,000 baby boomers born between 1946 and 1964 turning 65 every day, the next 20 to 30 years will see billions of dollars worth of wealth transferred to the next generation or generations.
- An average of about $350 billion a year gets inherited by 2 million households. These inheritances may be in the form of cash or sizable gifts.
- Only 21% of millionaires in America received an inheritance from their parents or other family members. The rest of the 79% did not receive any inheritance.
Building generational wealth isn’t as difficult as you may imagine.
This article will look at the secret to building and maintaining generational wealth. But first, let’s take a look at what generational wealth is.
What is Generational Wealth?
Generational wealth is inherited wealth. Wealth or affluence passes through a lineage, transferred from one generation to another. Generational wealth has to do with riches built by forebears, which the descendants come to live on.
Before wealth is considered to be generational wealth, it must be sustained through at least three generations.
The Rothschild family, one of the wealthiest families in the world, is an excellent example of generational wealth, having amassed wealth as far back as the 17th century.
Generational wealth isn’t about leaving a lot of cash behind for your child. It also involves leaving valuable assets such as real estate, securities, valuable property like antique musical instruments and paintings, or ownership of a family business.
Generational wealth may also be education, contacts, social status, the ability to take more significant risks, etc.
Do you want to leave a sizable inheritance for their children to end financial struggles? Or end the financial struggles that the family has to face in the future?
Saving for your children to get a good start, like going to college, is a way they have a better chance at life.
With generational wealth, your children can pursue careers based on their interests, not paychecks.
Additionally, it’s a good bet for covering cases of emergencies that may arise; disability or illness.
You can protect also cover generational wellbeing through education.
Whether you are looking out for yourself or your family, the ultimate plan is to have financial security.
What are the Secrets to Generational Wealth?
There is a saying that the power of generational wealth is more than dollars and cents.
Generational wealth has to be maintained, and for this to happen, the predecessors in the family have to leave specific rules and lessons about finance behind for their children to follow.
With the proper management, generational wealth can be sustained to last even longer than the ancestors anticipated.
Let’s discuss a few financial secrets to attaining generational wealth.
Set Clear Financial Goals
First, set clear financial goals. Having a lot of money is not the goal of making generational wealth. But it is undoubtedly a means to many goals.
When planning to build generational wealth, there are specific questions that you must answer. These questions will help you form the goals that you need. They include:
Am I okay? Do I have enough savings for retirement? Will my basic needs be met? Do I have enough to help maintain my lifestyle for the rest of my life?
Is my family okay? Do my children have enough to make it to college? Do they have the resources to foot the bills if an emergency occurs?
Is my community okay? What charitable deeds do I want to do to give back to my community?
Once you have set your goals for yourself, your family, and your community, you can set the steps to achieve them. This leads to the next point.
Avoid Unnecessary Debts
Debts are one of the enemies of generational wealth.
Debts affect your ability to save and invest to meet your goals.
When families are paying up debts, every dollar that goes into interest is money that cannot be invested.
Make a distinction between necessary debts like mortgage and student loans and unnecessary debts. Avoid the latter.
Don’t go into debt trying to live luxuriously.
Leverage tax laws to your advantage.
Next, you must also learn to make the most of taxes.
Many people don’t realize this, but they can use tax laws to their advantage.
Getting a financial advisor will probably help if you don’t know much about taxes.
A tax advisor or CPA should help you manage income taxes, utilize eligible deductions, get tax credits and use estate tax rules to eliminate taxes on your wealth.
All these are possible.
Save. Invest. Diversify.
Savings are also an important factor in your plan to build generational wealth. Savings involve consistently setting aside a percent of your family’s income for college, retirement, or emergencies.
Multiple income streams will help you save consistently; it’s a good hedge against sudden economic crises.
Also, by diversifying your income streams, you always have something to fall back on if one income avenue closes.
And you can choose to save from one stream and spend another.
You can get dividend-paying stocks, rental properties, and own a family business while working a job.
If you have a family business, there is a great potential to build generational wealth, especially if you involve your children in running the business.
There is nothing more fulfilling than being able to pass on a successful business to your children.
Diversify your investments.
Invest in different stocks, real estate, cryptocurrency, and other assets that offer higher returns. These will help you to build wealth that lasts many generations.
Invest in your family
Next, to build generational wealth, invest in your family.
Asides from financial and educational investments your children need the psychology of finance.
Teach them all you know about finances from a young age.
Teach them to save pocket money.
Teach them the importance of basic investments.
Teach them that money is a tool/resource to get you to another point, not an end.
Teach them to make goals and work towards accomplishing them.
But children’s books about money and let them play games involving financial decisions.
Show them. Let them watch you as you make financial decisions.
If they learn these things, you have left them with invaluable wealth. More than gold.
After all, what is generational wealth when your successors cannot maintain it?
Apply firm financial principles and discipline. You’ll instill a winning character through your generation.
This way, you build wealth no matter the current market condition or business cycle.
Set the goals you want to accomplish, and watch yourself achieve them with discipline and consistency.
Leverage Life Insurance
For an airtight plan to build generational wealth, you get life insurance.
This will ensure that your family is taken care of in case of your untimely death.
It will also help to ensure that your family does not have to sell off assets to pay for final expenses.
A life insurance policy can also be used to create an inheritance for your children. You can use the death benefit to pay for their education or help them start a business.
And if you have a family business, you can use life insurance to ensure that the business does not have to be sold off in case of your death.
You can also use life insurance to create a trust fund. This will allow you to control how the money is used and make sure that it is used for the benefit of your family.
There are many ways to use life insurance to build generational wealth. The key is to work with a financial advisor to find the best way to use it for your situation.
Use Legal Trust Funds.
A legal trust fund is another tool you can use to build generational wealth.
A trust fund is a legal arrangement in which a person (the trustee) holds property for the benefit of another person (the beneficiary).
The trust fund can be used for many purposes, such as to pay for the education of the beneficiary or to provide an income for the beneficiary.
The trust fund can also be used to manage the beneficiary’s estate.
A will or a trust agreement can set up a trust fund. It can be funded by cash, stocks, bonds, real estate, or other assets.
The key to using a trust fund to build generational wealth is to make sure that the trustee is someone you trust to manage the fund for the benefit of the beneficiary.
Make sure that the terms of the trust are clear and that the trustee must act in the beneficiary’s best interests.
The Bottom Line
Generational wealth is not built overnight. It takes time, patience, and planning. But if you start early and use the right tools, you can build a legacy that will last for many generations.
If you need to discuss this in more detail or have questions, feel free to email me or set up a call.
I respond to every email and call.
I’ll even give you a complimentary 30-minute phone consultation to discuss your specific situation and how you can progress.
Email: info@redwoodfinancialplanning.com
Phone: 1-908-663-2125
