How to Achieve the Goal of Building Generational Wealth
When it comes to your finances, you may be more focused on saving money, getting out of debt, or other financial goals. Creating generational wealth may not be a financial priority but it’s possible to still make it one of your long term financial goals. Setting financial goals is going to be an important part of creating generational wealth. You aren’t going to be able to work hard toward building this wealth without some goals in mind.
What is Generational Wealth?
Generational wealth is wealth that is passed down from one generation to the next. It can also be called legacy wealth or family wealth. When you pass down something for your children or even grandchildren, you are helping the generational wealth grow in your family. While you are likely to pass down many things, generational wealth just refers to the financial resources that you are leaving behind. Wealth can come in different forms, including stock market investments or real estate assets.
Why Generational Wealth Is Important?
If you have started from scratch with finances or have gotten out from under a large pile of debt then you may already understand the importance of generational wealth. For example, if you had parents who were able to fund your college education then you are already better off financially than many of your peers. Instead of paying off student loans and catching up on debt, you can save for retirement or your first home.
As you move along in your financial journey, you may start to see that it’s not that easy to recover from financial mistakes. If your parents are able to provide you with financial guidance as you stumble through then you may be prevented from spending beyond your means or you may have started a budget much sooner and been in a much better financial position.
As you start to think about your financial future, you can also see how important generational wealth is. If you want to have kids or already have kids then you could be thinking about what you can do to help them along. Think about how important it can be to take some time to educate them on finances and set up ways to secure their financial future when they are still young.
Proper Financial Planning for Generational Wealth
Generational wealth can’t be one of your long-term goals without proper financial planning. You are going to need a plan if you want to build long-term wealth. Without proper planning, the wealth could be lost for future generations due to poor investments, taxes, or unprepared recipients. You will need to begin with a road map that plans the transition of your family’s wealth. Not only will this road map show you how to create wealth but also how to pass it down to the next generation.
Ways to Build Generational Wealth
There are a number of ways to build generational wealth and while the concept may seem easy, it doesn’t always work in execution. You do still have to be making smart financial decisions if you want to build up enough wealth to pass down to the next generation. If you are already struggling to build up your own savings then saving for a generation that may not exist yet can be overwhelming. You also want to make sure that you are working on your own retirement plan and financial goals before you start saving for future generations.
Invest in Stocks
The stock market is a popular way to build wealth over a long period of time. This means if your goal is to build up generational wealth then your money has the potential to grow for decades. Investing in stocks can sound scary at first, especially if you are new to it. However, the stock market isn’t something you want to ignore if you are looking to build a lot of wealth.
You may want to start investing in index funds. These are types of mutual funds that are designed to match the components of a market index. When you invest in index funds, you don’t have to pick out individual stocks on your own and you’ll have a portfolio that is diversified. As you start to age and want to take on less risk then you transition your portfolio to a capital perseveration strategy instead of one that focuses on capital appreciation.
Invest in Real Estate
Real estate can be a good way to build long-term wealth. There is the potential for steady cash flow and values should increase over time, making it a reliable path to build some wealth. While the idea of real estate can be intimidating as well, it doesn’t have to be.
If you have already purchased your first home then you may be familiar with real estate and can be surprised by how quickly your portfolio can grow. Rental income also has many different tax advantages, such as the ability to claim depreciation and other deductible expenses that come from maintaining a property.
Build a Business
A family business has a lot of potential for success. About 30% of family-owned businesses could transition to the second generation. Imagine the feeling you could get handing over the keys to a successful business to your children. While it’s true that not all family businesses will be able to be passed down to a second generation, it is possible that yours can.
If your abilities and interests align with your child’s then it’s possible they will want to take over the business you have built. If you want to have greater success at a transition then you should include your children in the business from the beginning at a young age. They should know how the business operates and how to continue in the business if you want hope for using this as generational wealth.
If they don’t show any interest in the business then you can’t expect them to take it over. If they aren’t able to or aren’t willing to take over the business then you may want to consider selling it in order to fund generational wealth another way for your family. Remember that with any long-term financial goal, you will want a plan to achieve it. With generational wealth, this means you need to prepare for a successful transfer to your children and beneficiaries.
Use Life Insurance to Your Advantage
Life insurance gives you the opportunity to protect your family if you have an untimely death. Without insurance, this means your children could be forced into less than ideal circumstances financially. If you get life insurance then you could prevent financial tragedy and they will already have enough to cope with if they lose you. There are different types of life insurance so you should research which one is best for you to use to safeguard your family’s future. Your life insurance needs may differ from someone else’s.
Save Strategically
Wealth comes from not only making money but saving as well. As you get distributions from your investments, stocks, rental income, or other income sources, you should be saving it in a place that will allow it to continue to grow. Ideally, you want to put it in a tax-advantaged account first. Or, you can open a savings account. If you thinking about this option, here are suggestions for you:
Precious Metals
Precious metals may not be the most popular choice for wealth but they have been a source of wealth for over 200 years. It is also an integrated part of many cultures around the world. While silver and gold have become delinked from all paper currencies, these precious metals are still seen as money, regardless of how the government sees them. Over the centuries, silver and gold have been seen as the best forms of money because they’re durable, convenient, consistent, and have value in themselves.
Even though gold and silver may not be used as money in a normal day-to-day transaction for services and goods, these are used as a way to store wealth. You shouldn’t be following what other people are doing when it comes to gold and silver but consider it if it works for your financial situation.
Invest in Education for Your Children
Education can help provide children with a way to be financially supported. If you have a college degree, you may have the opportunity to have a higher paying job as well as ways to navigate finances. If you get an education, you will always have that education and no one can take that away from you. If you can, it helps to put your children through college without any debt in order to set them up for a better financial future than many of the others in their generation. Imagine how much financial pressure you can save your children if you are able to allow them to graduate without student loans.
How to Keep Generational Wealth
Building wealth is one thing and keeping it is another. If you want to keep generational wealth then it’s important that you educate the future generations.
Many families that work on building generational wealth lose it in the second generation and even more so in the third. With such high statistics about losing wealth, it almost seems pointless to save for it. The loss of generational wealth can be stopped through the right financial education. It can be easy to lose your generational wealth if your children don’t have any knowledge of personal finance.
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Educate Your Children
Since you are interested in passing down wealth for your family, then you likely have a good understanding of personal finances. Make it a priority to pass this knowledge down to your children. Knowledge can be one of the best ways to protect and keep generational wealth. There are a number of different ways you can broach the topic of money with your children. When children are young, you can buy children’s books about money and have them learn through games. When children are a bit older, you can have them listen as you talk through financial decisions with your partner. You can also get them started on the right path by setting up bank accounts and showing them how important saving for the future is.
There are ways for individuals to learn about finance if you aren’t able to teach them personally. You can also encourage taking courses on finance and there are plenty of different services through YouTube or personal finance books. Make sure you are appealing to the generation you are trying to teach and appeal to their learning style. You also need to set up ways to pass generational wealth on to the next with proper documentation.
Families should have communication when it comes to generational wealth. In order for conversations to be productive, everyone should feel that they are able to be heard and able to engage. It’s important for family members to ask the right questions instead of feeling criticized. Each generation is going to view money differently and this is something to consider when it comes to the plan on how to teach, as well as communicate, about money.
Avoid Stress
Keep in mind that the weight of inheritance can also be a source of trouble for your generational wealth beneficiaries, especially if they aren’t financially confident and don’t have the right knowledge. Depending on how the wealth is inherited, it can actually cause financial stress. For example, inherited retirement accounts can be taxed as regular income. Trusts can also have a lot of requirements when it comes to what the money can be used for. If money is not managed well then there can be a lot of financial consequences. This means that not only is education necessary to keep wealth but it’s also necessary in order to avoid stress on the members of your family you are trying to help by passing down your wealth.
How to Pass on Generational Wealth
Once you have built generational wealth, the next goal is to successfully pass it down to the generations. There are different ways to do this.
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An estate plan is important in order to secure an easy transition for your assets. The larger your estate is, the more complicated the plan becomes. No matter how big your estate plan is going to be, you should consult with an attorney on how to create it. This plan is going to vary based on your own assets and goals. With the help of a legal professional, you can craft a plan that allows you to move your assets to your kids with minimal headaches.</p>
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You may already be including a will in your estate plan but it’s also important to create one even if you aren’t going to have an estate plan. The will should be your exact wishes. The more specific you are about your plans for your assets then the better it is. If you don’t have a will, it’s common for things to get heated between surviving members of the family. Emotions will already be high since they lost a member of the family. You can prevent this financial trauma and ugliness by having a will with clear guidelines.</p>
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These accounts are going to be important vehicles for the financial legacy you are hoping to have. Custodial accounts are investments that you can control for your children until they reach the age where they are no longer minors. In many states, you can receive control at age 18 but in some states you have to wait until your children are 21. You can fund these accounts for your children for goals you have, such as buying their first home or paying for college.
Depending on the account, they may have to pay taxes on the money as they withdraw from it. An option you can also use if you are using a custodial account to pay for education is a 529 plan. This plan has tax-advantaged savings that are used to pay for education costs. These plans can be a great way to save for your child’s future. There will be pros and cons to each option so you will need to see which is best for your family.
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This is a simple way to pass wealth to the next generation but sometimes it’s forgotten. In most accounts, you can name a beneficiary. If you were to pass away then the beneficiary gets the funds with just minimal effort. It only takes a few minutes to add beneficiaries to your account but it can save you a lot of time later on.</p>
Finally,
Your family’s generational wealth can begin with you. Building wealth isn’t easy but it’s worth it. Once you have your own financial plans situated then you can begin to safeguard your family’s future as the next step. You want to take the time to research and start a wealth-building strategy that is going to work for your family. Not everyone will want to build a business or invest in real estate so you need something that works for your unique situation. Whatever the strategy you choose to build wealth, education is so important to make sure that you pass down the wealth and create the proper plan moving forward.