Building Generational Wealth

How does generational wealth work?

Meaning of generational wealth: Generational wealth refers to wealth passed down from one generation to the next. You may also hear this called family wealth or legacy wealth.

If you are able to leave something behind for your children or grandchildren then you are contributing to the growth of generational wealth in your family.

How to build generational wealth

The concept of building generational wealth is easy. To accumulate wealth for retirement, you need to save or acquire assets you won't spend in retirement. Your younger generations inherit these assets when you die.

It's not about building wealth to show off, instead, it's about building wealth to secure a legacy. Many who have done this, have gone about it quietly aka building stealth wealth.

This sounds easy in concept but can be difficult to put into practice. It can be overwhelming to think about saving for the next generation if you are struggling to build your savings. And that is completely understandable!

It is critically important to nail down your own retirement savings plan and other financial goals before you start to save for generational wealth. The time to start saving beyond your golden years comes once you have a handle on your current finances.

So how should you start to save for generational wealth? You can prepare your children and grandchildren for the future by following these tips.

1. Invest in the stock market

The stock market is how to create generational wealth over the long term. If you are aiming to build generational wealth, then it is a great option because it has the potential to continue growing for decades.

If you've never invested in the stock market, it might sound scary. However, it is an important way to build wealth in your lifetime and beyond.

Low-cost index funds are the best place to start if you are new to investing in the stock market. These funds can offer low fees and long-term growth.

2. Invest in real estate

Real estate is another major way to build wealth in the long term. Property can be a reliable path to wealth, providing steady cash flows and increasing values.

The idea of building a real estate empire can be intimidating. But it doesn’t have to be! Perhaps you've already purchased your first home with a mortgage.

If you continue to buy properties one at a time throughout your life, then you might be surprised at how quickly your real estate portfolio can grow.

Consider this as an option for building wealth for your kids.

3. Build a business to pass down

Over 30% of family-owned businesses transition to the next generation. Imagine being able to hand over the keys to a successful business to your children.

Although not all family businesses make it to the second generation, it is possible that yours can. Taking over a business you build is very likely if your interests and abilities match your children's.

For a great chance of a successful transition, you should include your child in the business from a young age. They need to know how the business operates and how to successfully continue in this business.

4. Take advantage of life insurance

Life insurance provides the opportunity to protect your family in the event of your untimely death. The financial situation of your children might be less than ideal if you don't earn an income.

If you make the effort to invest in a life insurance policy now, then it could prevent financial tragedy for your children. Plus, they will already have enough to cope with if they lose you.

Aren’t sure what life insurance coverage should look like for your family?

5. Invest in your child’s education

In many cases, education can provide a way for your children to support themselves. College degrees often lead to high-paying jobs that can help people manage their finances.

Anyone with education will always have that education. Although other things in life can come and go, no one can take away your education. If you have the ability to help your children make it through college without any debt, then you are helping to set them up for a brighter financial future than many of their peers.

As of 2022, the average student loan debt for college graduates was $37,667. It is possible that the number will climb even higher in the future. Imagine the amount of financial pressure you will be able to lift from your children’s shoulders with the ability to pay for their education. Investing in your child's education is how to create generational wealth that will set them up for financial success!

6. Teach your children about personal finance

It is estimated that 70% of families lose their wealth in the second generation. And 90% lose it in the third!

With statistics like that, it can seem pointless to save for a legacy of wealth. Financial education can, however, prevent the loss of generational wealth in many cases. After all, it is easy to lose generational wealth if your kids have no financial literacy.

That would be like asking your child to maintain a classic antique car after you pass away without teaching them any mechanical skills. It is likely that the car would eventually break down.

As well, if you do not teach your kids about personal finance, their wealth will likely diminish over time.

Since you are interested in passing on family wealth, then you likely have a fairly good understanding of personal finance. Make it a priority to pass this knowledge down to your kids. This knowledge will be the best way to build and protect generational wealth.

You can even help them to set up their own bank accounts from a young age to instill the importance of saving for the future.

7. Create multiple streams of income

It is easier to build generational wealth when you have multiple income streams. In fact, the average millionaire has seven streams of income!

There are a variety of income streams, but one of the best is known as passive income. Active income is when you trade time for money, such as a job or side gig.

Passive income is when you earn from your assets after the initial set-up without much time. For instance, rental properties, book royalties, peer-to-peer lending, etc. So you do have to put in the work upfront, but once the initial foundation is laid, you continue to earn from your efforts.

So you could write a book and continue to earn income on the royalties years later or buy a house to rent out and make rental income. Start setting up passive income streams to build generational wealth!

8. Pay yourself first

Saving money for the future is key how to create generational wealth. The easiest way to save more money is to pay yourself first. For instance, as soon as you get your paycheck, you deposit money into your savings and investments before anything else.

This way, you don't spend your hard-earned cash, and you can build up your savings much faster. Of course, it's best to earn money on your money, so be sure to find a savings account that pays interest.

You should seriously consider investing some of your savings so you can earn a higher return and in turn build long-term wealth.

Learn how to build generational wealth for the financial success of you and your loved ones!

So that's how to build generational wealth! Building wealth to last for generations is no easy feat, but it is an admiral undertaking. After you have your own financial situation under control, safeguarding your family’s future is the next step.

Take the time to implement a wealth-building strategy that works for your family. Not everyone wants to invest in real estate or build a business, so find something that works for your situation.

Whatever strategy you choose, make sure to pass down your financial know-how to your children. Armed with the personal finance knowledge you can provide, your kids will already be one step ahead of the game as they make their way into the world.