You might have heard the phrase generational wealth definition and thought within you, wow, this sounds important. But at the same time, you may have pushed it to the back of your mind. Why? Because you have more pressing issues than to think of generational wealth definition.
Well, I know it’s never exactly fun to think about your own death, but this is an important thing to plan for. You really work hard for your money and you want this same money to be passed on to your kids and their kids. This is a much better alternative than leaving them with bills and debt to worry themselves with. But just like my dad would say, “death is a debt that must be paid”.
Right now, you may be focused more on getting out of that debt, saving money, or pursuing other financial goals. It might be that even to create generational wealth for your family is not on your immediate priority list while you’re tackling your current finances now. But with this being said, you can still build it into your long-term financial goals. It is still possible!
Not quite sure what generational wealth definition means exactly? Don’t worry! I’m here for you and I’ll be sharing exactly what it is and how you can build it for your family. And how you can still pass it on to your children.
Table of contents
Generational wealth explained
Importance of generational wealth
Starts with the basics
How to build generational wealth
Pass it on
And finally
Generational wealth explained
To be able to explain what generational wealth definition is, I went straight to the source – Wall Street. NASDAQ has it this way and I paraphrase. It is referred to that aspect of your financial planning that is geared toward be able to pass down stable and significant financial resources to your future generations.
In a simple way, generational wealth is ability to keep your hard work in your family, and passing on what you’ve earned to those you so much love. It’s building wealth that will last way past yourself! To do this, you will need more than enough money in your bank account. In fact, you might be surprised to know that’s the worst way for you to pass your wealth to your family.
Basically, generational wealth means wealth that’s passed down from one generation to the next generation. Also you might hear people call it family wealth or legacy wealth. When you are able to leave something behind for your own children or grandchildren. Then you are able to contribute to the growth of generational wealth in your own family. Of course, there are many things like good memories and healthy genetics behind for your family. However, I’m specifically referring to your financial resources that you will leave behind for your family. This wealth can come in different forms like:
- Real estate assets
- Stock market investments
- Financial education to be able to carry forward into the future.
Importance of generational wealth
If you are starting from scratch to build your finances or starting out with a huge debt burden. Then, I believe, you must have realized the importance of generational wealth.
Imagined that your parents had the ability to fund your college education. That single action from them could have a tremendous effect on your financial future. Rather than playing catch up to be able to pay down your student loan debt. You could have started saving for your first home or even your future retirement.
You have likely discovered that it is not always easy to recover from your financial mistakes from your personal finance journey. What if your parents had the ability to offer you solid financial guidance as you stumbled your way through? Trust me, it could have prevented you from spending far beyond your means or even started you on a budgeting habit much sooner.
I believe by now that the more you think about your financial life, the more you now realize how important generational wealth can be, right? Probably you have kids or you are planning to have kids, then you will start to think about how their own financial futures will play out. Pause a second and imagine how differently things could turn out if you take your time to educate them on personal finance. As well as set up vehicles that will add security to their financial future now.
Starts with the basics
When it comes down to it, to build generational wealth starts from your personal level with the basics of your personal finance:
- There’s need for you to have total control over your finances
- Budgeting– use your money as efficiently as possible. Only purchase those things that are important.
- Stay out of debt– consumer debt does not build wealth, trust me.
- Spend wisely
- Invest wisely. There are a lot of investment out there, like website investment and many others.
How to build generational wealth
Believe me, the concept of building generational wealth is very easy. You have to acquire assets or save money that you won’t spend in retirement. Then you pass these assets along to your children when you are gone. This sounds very easy in concept but might be difficult to practice it. If you find it difficult to build your savings, then saving for the next generation might sound overwhelming to. And it is completely understandable!
Diversify your income
I know you must have heard this saying, “don’t put all your eggs in one basket.” It’s true. It’s very important that you diversify your investments and your income if you want your wealth to last. Meaning you don’t just rely on that your business or your jobs. Own stock, invest in real estate, and try to establish many income streams.
Plan ahead
Planning ahead with your money is as important as your breathing, it doesn’t matter if it’s with budgeting or even saving money. I can’t think of any other way to pass on your wealth to your children without planning ahead. To achieve this, you may need to sit down with your wealth planner to critically look at your current assets and make a plan together.
Investing in stock market
The stock market might be a great way to build wealth over the long term. If you aim to build generational wealth, then it’s a great option because it has the potential to keep growing for decades. Investing in the stock market may sound scary to you if you’ve never tried it. However, it is a very important way to build wealth in your lifetime and beyond.
Take full advantage of life insurance
Life insurance will provide the opportunity to protect your own family in the event of your untimely death. Without your income, your children may be forced into situations that will be too difficult for them. If you are able to invest in life insurance now, then it will certainly prevent financial tragedy for your children. Plus, they will have enough to cope with if they happen to lose you.
Investing in your child’s education
In many cases, education may provide a way for your children to be able to support themselves. With a college degree, many have the opportunity to pursue high paying jobs that might help them navigate their own finances. Anyone with an education will certainly have that education. Though other things in life might come and go, but no one will take away your education. So, if you have the ability to help your children make it through college without any debt. Then you have helped to set them up for a brighter financial future than most of their peers.
Teach your children about personal finance
It’s estimated that up to 70% of families lose their wealth in the second generation. And about 90% lose it in the third generation! With this kind of statistics, it seems pointless to save for a legacy of wealth. However, in many cases, the loss of generational wealth might be prevented via financial education. After all, it is much easier to lose generational wealth when your kids have no knowledge on personal finance.
This would be like asking your child to maintain a classic antique car after you must have gone without even teaching them any mechanical skills. It is likely that the car would eventually break down, believe me. In a similar way, when you’re not able to teach your kids nothing about personal finance. It is likely the wealth you will leave for them will just dwindle throughout their lifetime. Since you are so much interested in passing on family wealth, then you likely have a good knowledge of personal finance. Make it a priority to pass this same knowledge to your children. This knowledge will certainly be the best way to build and protect generational wealth.
Investing in real estate
Real estate is another way to build your wealth for the long term. It has the potential for steady cash flows in addition to increasing values over time, real estate might be a reliable path to wealth. The idea of you building a real estate empire might be intimidating. You might have already waded into the world of real estate through the buying of your first home. If you continue to purchase properties one at a time throughout your life. Then you may be surprised at how quickly your real estate portfolio will grow.
Build a business
A family business has the potential for great success. Imagine being able to hand over the keys of your successful business to your children. Well, you need to understand that not all family businesses make it to the second generation, but it is possible that yours may. If your interests and abilities align with your children’s, then it is possible they will love to take over the business you have built.
You should include your child in your business from a young age, to enable a successful transition. They need to understand how the business operates and how they will successfully continue in this business. Don’t expect them to take over if they are showing no interest in the business you’ve built. If they are unwilling to take over the operations of the business. Then you could consider selling the business in order to fund generational wealth in another way.
Pass it on
After you build your assets, there’s need to create a plan to pass them along to your next generation. Let’s consider what you need to do to ensure a smooth ride of your assets to the next generation.
Establishing a family trust
If you have be able to build family wealth, you will need an estate plan. A family trust will establish the rules for who will get how much money and when they will be able to get it. You might even set up a family trust in order to send out automatic payments to your family members. Definitely you will need to consult with an attorney to help you set this up. Trusts can be complicated, especially when you have a diversified income.
Creating custodial accounts
You need to set up custodial accounts for your children. These are ways to be able to manage money for minors until they are adults. In many states, they will receive control of the account at age 18, but in some states, they will have to wait until they get to 21. You may fund these accounts for your children for future financial goals like paying for college or purchase their first home. However, they might have to pay taxes on this money as they will be withdrawing it.
The 529 plan is another option. It is a tax-advantaged savings account that will be tied to paying for your child’s education costs. You should understand that these plans are state-sponsored ways to efficiently save for your child’s future.
Well, there are pros and cons to each option, but you’ll need to determine which will be best for you and your family. These are investment accounts that will be paying money to your children at an amount you will set. It’s another way you can be able to control how much money they get in order to teach them financial skills slowly.
Creating an estate plan
An estate plan is absolutely important in order to secure an easy transition of your assets. The bigger your estate, the more complicated your plan will become. At any stage, I recommend you consult an attorney about how to create this estate plan for you. The plan will widely bar based on your assets and goals. But with the expertise of a legal professional, you might craft a plan that allows for your assets to move through to your children with little or no headache.
Write your will
A will might be included in your estate plan but it is very important to create one even when you don’t have any estate plan. The will should be able to include your exact wishes. The more specific you will be with your plans for any assets you have accumulated, the better for your family. Without any will, trust me, it is not uncommon for things to get ugly between your surviving family members. Emotions will be high because you have already gone. You can prevent many ugliness and financial trauma with clear and precise guidelines in your will.
List the beneficiaries for your accounts
A simple way for you to ensure that your accounts pass easily to the next generation is for you to name them as beneficiaries on your accounts. In many accounts, you might name a beneficiary. When you are gone, the beneficiary would be able to receive the funds with minimal effort. It might only take a few minutes for you to add your intended beneficiaries to your accounts but it may save countless hours for your family members later on.
And finally
I know leaving a financial legacy of generational wealth will take a lot of preparation and planning. It will start with managing your finances well. Once you are able to do that, you may start saving enough money, investing, and building your wealth.
As time goes on and you are able to build up your wealth. You might start creating a solid and good plan for transitioning your wealth to others after you’re gone. You should fully understand that there are no right or wrong answers as to who will inherit your money and properties when you are gone. But, you definitely need to be comfortable with your own plan.
In the end, there’s need for you to also remember that leaving generational wealth is not all about money and property. Teaching your children on how to live a morally upstanding life, love their neighbor. As well as to be a good steward of what they have is the most important generational wealth you can leave for them.