Imagine not having to start entirely from scratch with money. You go to college without debt, begin your career without having to worry about finances, and you help manage assets that your family already owns.
All of these are examples of generational wealth. Most people would love to know that they will receive an inheritance from family, like businesses, or homes.
Or perhaps you want to leave money or resources to your own children or grandchildren. Let’s take a look at how to build generational wealth.
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What Is Generational Wealth?
Generational wealth is when the next generation inherits financial assets or money from the previous one. For example, if your parents paid for your college education, bought your first home, or your grandparents gave you a monetary gift, that is generational wealth.
It takes many forms, but the concept is that the next generation is given something that will help them financially because their parents, grandparents, or other family members, planned ahead.
Many families have acquired generational wealth for quite a few years. Famous examples include the Vanderbilts, the Disneys, and the Robertson family of the famous Duck Dynasty series.
Is Generational Wealth Real?
The short answer is, yes, it is real. It may not be a given or even very common, but it does exist.
It isn’t just the famous few that can create generational wealth. It’s possible for you and your family, as well. In fact, anyone can do it with some time and hard work.
It can involve building up a significant income in one generation, acquiring assets like homes, or investing. From there, you continue to build, eventually allowing the next generation to take over the wealth-building.
That’s a basic overview, but there’s a lot more to it, and other ways to do it. Further in the article, I’ll tell you some specifics about how to build generational wealth.
How Much Money Is Generational Wealth?
As far as amounts go, generational wealth is not really a number. This is because there are various factors involved, such as lifestyle choices and assets.
There isn’t a set number for generational wealth, which means you must decide what it is on your own. Here’s what you should ask yourself to determine your number.
- What assets do I already have? Do you own a business, or a home, or anything else that can potentially make money? Figure out what that might be worth in the future.
- What do I hope to have in the future? Start thinking about your retirement number – what you need for those non-working years. Also, consider how much money and what resources you want to leave your family in charge of later.
- In what ways do I plan to help the next generation in my family? (Examples are private schools and college educations, placing assets like homes or businesses in the name of the next generation, and so forth.)
- How much money is needed for me to be wealthy before I expand to generational wealth? Before knowing what you can give to others, you need to decide how much cash you need to consider yourself rich. There is no universal amount, but you must choose your own number that makes sense for your life.
- How much money do I want to leave for my children or grandchildren? Decide on the amount and in what form it will be. If you want to be successful with generational wealth, know what your goals are financially.
Each person’s number will be different based on your goals for the next generation and how many kids you have.
Use this free financial dashboard to track your wealth. If you’re like me, you’ll get hooked on seeing your net worth increase.
It’s important to first make sure you have enough money to not be a burden on your kids during retirement. Once that goal is hit, you can start focusing on leaving an inheritance for the next generation.
How Important Is Generational Wealth?
This is a complicated question with a few things to consider. Generally speaking, generational wealth is important for raising your future generations from low or middle class into the upper class.
Let’s look at the pros first. If someone inherits some form of wealth, they will likely be able to use time and resources to grow their finances.
They can also have the luxury of deciding what projects they want to work on and decide what they want to do for a career. They may also have access to better education, travel, and networking opportunities.
These are all good things, but there are a few cons to consider. Sometimes generational wealth, rather than creating well-rounded individuals that give back to society, creates selfishness or disconnection from the real world.
It may also promote an attitude of laziness in generations that only inherited and did not have to work for their wealth. It’s also possible with the first inheriting generation to lose money if the new generation misspends it.
This is not always the case. There are some people whose families have been wealthy for many generations, and they continue to be so because they teach the new generations to be financially wise.
So, it matters more what your children and grandchildren understand regarding money, rather than how much they have.
Generational wealth can help people achieve more, and when used correctly, it can make the world better. So it is important. But generational wealth takes time and it must begin somewhere.
Many people are first-generation wealthy. They’ve worked hard to build wealth and may plan on leaving their resources to their children. It isn’t always essential to be born into generational wealth because you can create it for others.
How Do you Create Multi-Generational Wealth?
You may decide after reading this that it is worth pursuing. You’ll likely need to use several techniques when figuring out how to build generational wealth.
Try some of these to help you begin.
Investments grow over time. These can take the form of stocks, mutual funds, and other investing opportunities.
Most people invest to begin to draw out cash at the point of retirement, but generational wealth takes this a step further. You can leave your investments to your children or family, helping them to continue to grow wealth.
Build a Business
This is one of the best ideas when considering how to build generational wealth. Creating your own business means a couple of things.
The first is that you can make the decisions, and your family can manage the company if you choose. The second is that your income is not limited. The amount you make depends on what you decide and how hard you’re willing to work.
If you build a business that does well financially, this is a great asset to leave to the next generation. You can teach your children the business so that they can take over for you and continue to make a profit after you retire.
Your life insurance can be left to your family after you pass away. Though it isn’t a fun thing to think about, it can help them a lot if they find themselves having to continue life without you.
Life insurance can take care of your mortgage, expenses, and even your children’s college educations. You decide how much insurance coverage you want, so the options are many with how much you can leave your family.
Buy Assets That Appreciate Over Time
Assets that appreciate over time include homes or rental properties, land, and other resources. It’s important to make a plan to purchase these types of things over many years, knowing that the more time you keep them for, the greater potential they have to make money.
Where Should I Invest For My Child’s Future?
Success is often built over time, and parents want to give their children their best chance at a great future. Everyone’s situation is different so make sure you research and speak with your financial planner before investing.
Below are some of the options out there to begin investing for your children.
- Educational funds – You can help your children avoid hefty student loans by opening a 529 plan or an ESA for them when they’re born. You can add money to it for their educational expenses beginning with kindergarten and through college. Paying for these expenses is extremely helpful and can put them in a better financial position when they graduate.
- Investment Accounts – There are a few ways that you can invest for your children. These options include IRAs (If your child has earned income. Definitely speak with a CPA before going this route.) as well as other investments. Custodial accounts allow an adult to put their name on the account and add cash to it, but it belongs to the child when they become an adult.
- Save up money to give them at a milestone point in their lives – If you want to give your children some money as a gift, you might choose to do so at a time when they’re old enough to understand how to use it properly. Many people use times like graduations from high school or college, wedding days, or birthdays to give financial gifts. There are some regulations about how much you can give your kids without taxes becoming part of the equation, so do some research first.
How To Help Your Kids Build Wealth
Leaving an inheritance is nice, but what’s even better is teaching your children how to build generational wealth and how to build that wealth on their own. There are two important ways to do this.
Teach them about personal finance
It is absolutely a waste to give someone a large sum of money if they don’t know how to use it wisely. Teach your children about money and wealth-building over many years.
When they’re adults, they’ll know how to use money correctly. Here are some ways to teach personal finance:
- Talk about money over dinner – Don’t let finances be an off-limits topic in your home. Please encourage your children to ask questions about money, and take the time to explain to them how investing, saving, and budgeting work. Talk about finances regularly in your home so they gain all the knowledge they can.
- If you have an educational or investing plan for your child, share it with them. Explain how it works so they’re prepared to handle that money at a later time.
- Gain knowledge – Read financial books or listen to podcasts together that help your kids to understand money. Take the time to discuss what you’re learning and how it applies to them.
Teach them to earn and save money
Hard work, earning, and saving money are things that everyone should understand. Allow your children to do odd jobs around the house to make money, if possible.
When they’re able to, walk them through the process of getting a job, so they understand how to work for a paycheck. This will give them valuable insight.
Finally, after they earn some money, explain to them how to save it. Talk about how you can increase your savings through investing and help them to open a savings and checking account. The sooner they learn all this, the better it will be for them.
Also, encourage them to budget the money they have. Explain to them the value of saving money rather than spending it and why having an emergency fund is a good idea.
You can help them learn even more by assisting them with creating their budget and teaching them to stick to it.
Ways To Prepare Kids For Wealth Building
Preparing your kids for wealth building isn’t discussed enough today. But it is what’s best if you want them to know how to build generational wealth. Here are a few suggestions.
Involve them in money decisions
You make money decisions every day. And while it’s vital that your children don’t feel worried about money and aren’t so involved that it’s overwhelming for them, you can bring them in on some decisions.
Decisions they can be involved in may depend on their age. For example, if your children are young, you might tell them the grocery budget and take them to the store with you so they can see budgeting in a real-life way.
On the other hand, if your kids are a bit older, they can help with bigger decisions like purchasing a new vehicle or rental property. Walk them through the process so they can see how it works.
If you start involving them in money decisions early on, then as they get older, they can take on more responsibility, and they’ll gain experience about how finances operate.
Educate them about money
Keep your kids constantly learning about money. Talk about it daily so they can take in new knowledge.
If they have a math or business class that discusses finance, ask them to tell you what they’re learning and get their opinions. Many times when people don’t do well with money, it is due to a lack of resources or education, or both.
Give your kids the opportunity to both learn and use resources to gain knowledge about money.
Teach them about investing
The sooner you teach your kids about investing, the sooner they can recognize the power of compound interest. Please encourage them to begin investing as soon as they’re old enough to do so, but before this, teach them everything you possibly can about investing and money.
The more they know, the less likely they are to make mistakes. Talk to them about how to start their investing with small amounts, and as they gain more experience, to add more money to their investments.
How To Preserve Family Wealth?
Once you make enough money and know-how to build generational wealth, the question becomes, how do you keep it?
There are many ways to get off track, so it’s important to plan. That way mistakes aren’t made with the money you worked so hard for.
Create an Estate Plan
This is a crucial part of ensuring that your financial resources go to the people they should when you pass away or cannot manage them yourself. An estate plan can involve health care, who will raise your children, debts, and what you own, to name a few things.
Have a Will
A will includes your instructions for how you want your finances and assets to be handled when you pass away. It might also discuss arrangements for legal guardians for any children you have.
It’s important to set up this document to save your loved ones or the government from having to figure out what you would have wanted. It’s better to save your family this trouble by telling them directly what you want to happen, and it’s a key part of how to build generational wealth.
Overview of Generational Wealth
Building wealth and giving an inheritance to your children and grandchildren may feel impossible or like a lot of responsibility. But the good thing is you have plenty of time to do so.
Get on the right track by educating yourself about how to build generational wealth; then, you need to make a plan that works for your own life and involves things like creating passive income sources, investing, saving, and setting aside money for future generations.
To keep it simple, here’s a list of what to do when building generational wealth.
- Begin building wealth for yourself by creating multiple income sources, both passive and active.
- Focus heavily on investing as much as possible for as many years as possible.
- Buy assets that appreciate over time, like houses and land.
- Teach your children to be wise with money.
- Set up your will and estate plan, so your finances are properly handled.
When you are thinking about how to build generational wealth, you’re thinking long-term, which is a good financial strategy. Seeing past the next couple of months or years to how your money will affect future generations means you’re already creating a better life for them.
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