fbpx
Generational wealth. Image of a man and a woman

Building Generational Wealth

Wealth / By

Introduction

Generational wealth, which is also known as “legacy wealth or family wealth” refer to the wealth that is left behind for generations unborn. These wealth, which are usually in form of financial resources, are passed down to the beneficiaries for their well-being. It is believed that this wealth would set the bedrock on which the beneficiaries would manage the affairs of their lives. Over the years, several families have benefitted from generational wealth that they inherited. While some beneficiaries mismanage these financial resources, there are others that have built on the inheritances and enlarged these resources into something bigger. In this article, we will explore the concept and the unique ways of building generational wealth under the following headings;

What is Generational Wealth?

generational wealth. money
Generational wealth are inheritances left for generations unborn.

These are the assets that are passed from one generation to the other. The inheritances that are left behind for one’s offspring are referred to as generational wealth. These assets could be in different forms ranging from businesses, shares, real estate or other forms of investment made. It is believed that generational wealth helps secure the future of one’s descendants. This is because they do not have hustle to build again; rather, all they need to do is t sustain the wealth that has been passed across to them. Although it is believed that it is a tedious task to maintain generational wealth as records show that a whole lot of families lose large chunk of their wealth in the second and third generation.

Importance of Generational Wealth

Generational wealth provides a lot of benefits which makes life enjoyable for the beneficiaries. Over time, generational wealth has helped in shaping the lives of the beneficiaries in terms of career pursuit and other life endeavors. It is believed that their financial obligations would not hinder their progress in life; since they have enough capital kept somewhere or invested for them. When you carefully plan for the future of your offspring, you are setting a template that they can build a foundation of a stress-free life on. And of course, generational wealth helps to push your family from the dungeon of poverty.

Ways to Build Generational Wealth

There are various ways of building generational wealth. In this article, we will explore some of the ways you can build generational wealth.

Have a Plan

It is important that you have a clear goal of what you want to achieve in life. And to reach this height, it becomes necessary that you carefully plan your finances. You have to be pretty sure of how much you intend to spend and save. This will allow you plan your income and expenses. And of course, you must have a budget for your finances. This will help you to determine how much you want to pass across to your generation. You have to be intentional about this. The businesses you intend to invest in should also be clearly stated. And in the process of investing, you have to ensure that you avoid making regular financial mistakes as much as possible if you want your wealth building strategies to be effective.

Stay Debt Free

Building generational wealth implies that you are actually planning to pass across assets and not liabilities. Else, it is no longer generational wealth but generational liability. You have to ensure that you pay off your debts. Your financial plan must take care of how you intend to stay debt free. And of course, you can pay off your debts via different methods. A popular method is using the “Snowball” method where you get to pay the debt with the smallest balance. Again, you can also make use of the “Avalanche” method. With this method, you can pay off your debt that has the highest interest.

Earn Passive Income

To build wealth means there has to be a source of income. And it is from this source that wealth would be passed across to the next generation. And passive income does not have to be worked for, in any formal environment. It is equally believed that making investment is the best way to generate passive income. You can invest your capital into companies that offer high return rates. You are not involved in the running of the business but your capital is involved. And as and when due, you get returns on your investment.

Purchase Stocks

generational wealth. stock
Investing in stocks can yield high returns

There are several platforms that you can help guide you through the process of investing in stocks. Due to the large interest in returns when you purchase stocks, it’s a sure way to build wealth. And of course, your investment in stocks can last for years. When you invest in the stock market on a yearly basis, there is every chance that you will get returns running into millions of dollars, if you can leave it for a longer period of time. This investment would be a form of wealth that can be passed to the next generation.

Make Investment in Real Estate

To build wealth that would last for generations, investing in real estate is a sure escape route. The truth remains that if you are able to settle your mortgage, you can amass wealth from real estate. Although, you have to be aware that investing in real estate has to do with a lot of speculation. This implies that there are uncertainties about the prices of properties increasing over time. And of course, there is also the fear of selling it at the right time if the value manages to increase. If you know your onions, you can amass generational wealth from real estate.

Spend Wisely

It is enough amassing wealth or investing heavily and getting returns. You must also learn to spend wisely. There are a lot of people that try to invest heavily on things that they do not need. It is important to spend cash on things that are actually needed and not on mere wants. Again, you need to plan finances well and ensure that you are actually investing enough capitals on your businesses. This implies that your thinking must be long-term based. Spend less on material things! There are several money traps that could actually make use lose a lot of money. You need to do everything to avoid such traps. Your journey to freedom is highly dependent on how well and effective you spend money. And if you are a ‘bad’ spender, it is not too late to retrace your steps if you intend to build generational wealth.

Be a Risk Taker

How do you intend to build generational wealth when you are not willing to be a risk taker?  Making investments demands guts that only risk takers can handle. This is because uncertainties surround many of the businesses that you need to invest your capital on. It therefore becomes important that you are strongly determined to take the risks involved. And of course, you would be faced with a lot of setbacks in your quest to build generational wealth. However, you have to remain resilient to achieve your goals. Taking risks is an essential criterion if you want to build generational wealth.

Start a Business

Many people that have built generational wealth over the years all engaged in one form of business or the other. This is because businesses bring in returns that are considered as active incomes. It is therefore important that you venture into a business that would yield good returns for you. It is from this business that you can start saving and amassing wealth. In the world today, there are a lot of top rich men that amass wealth while they sleep at night. This is simply because they have a good automated system that makes it possible for their businesses to run efficiently with high returns.

Get your Life Insured

This is a safe way of protecting the interest of your families even when you die in an untimely manner. If you get your life insured, you are saving your children the stress of going through financial hardship. Getting your life insured would ensure that your children have what it takes to survive even at your demise. It therefore becomes important to put in all efforts to get your life insured for the sake of posterity. And of course, it will help in avoiding any form of financial complications for your family.

Building generational wealth

Passing Down Generational Wealth

It is important that legal steps are taken to ensure the smooth transition of wealth ownership. This is because there are reports of several fights over the real beneficiaries of generational wealth. To steer clear of issues like this, it is important that appropriate measures are taken. There are different ways generational wealth could be passed down. Explained below are some of the means;

 Trust

This is a financial instrument that is used to pass down wealth in a unique manner. For instance, your investments such as your stocks, real estate and other assets could be added to your trust. Specific instructions could also be given on how this trust is to be spent. For instance, you might have a trust of investments in real estate, coupled with instructions that it should be used only for educational purposes. It is also expected that you add selected people to your trust. And the implication of this is that only those added in the trust can actually manage it. In the case of the demise of the owner of the trust, this financial instrument could be passed down to those whose names are on the trust as new owners. This is done so as to avoid any form of rancor.

Will

This is a legal document that contains specific instructions on what should be done with your wealth. A will is important in passing generational wealth because it tends to prevent any fight over properties. Everyone gets a portion, which is wholly determined by the owner of the will. However, it is important that the will is not ambiguous and all information therein is clearly stated. Over the years, issues have arisen over information in wills and they sometimes end up in the courtroom. This can be avoided if the will is well written.

Estate Plan

generational wealth. estate
Generational wealth can be passed down easily if there is an estate plan.

To pass down your wealth to the generations coming behind, you can come up with an estate plan that would make the whole process less complicated. This can be easily done if you hire the services of an attorney who would help look into the grey areas of the plan. Again, this plan would be hugely dependent on your assets as well as your objectives. Basically, an estate plan makes the generational wealth easier to be passed down with less complication. It is also important to note that the size of your estate is also integral to the complexity of your estate plan.

Custodial Accounts

These are investment accounts managed for children until they reach at a certain stipulated age when it can be handed over to them. Most times, the stipulated age falls between 18 and 21. One beautiful thing about custodial accounts is that it gives you the ample opportunity to pass to your generation, your wealth, before your demise. Again, your children also get to learn from you the concept of managing wealth. Custodial accounts are also beneficial in the sense that they tend to be important in actualizing the financial goals of your children.

 Misconceptions about Generational Wealth

There are various misconceptions about generational wealth. Below are some of these presumptions;

The Wealth Lasts for Many Generations

There is ea popular opinion that generational wealth last through several years. This is not true. In fact, records show that most families that are wealthy lose their inheritances at the second generation. This is owing to the fact that many of the unborn generations do not actually have what it takes to maintain the wealth that they have inherited. And sometimes, the generational wealth does not last long because it is evenly divided among the children (beneficiaries) who in turn manage their individual portions. It then becomes difficult to manage it as a family wealth, except in cases where there are clear financial objectives strictly pursued by the family.

They are Arrogant and Lazy

There is this notion that generations that benefits from wealth passed across to them mismanage the wealth. This is not entirely true. While there are generations that waste assets given to them, there are equally others that manage the wealth properly into something bigger. And of course, there are opinions that beneficiaries of this generational wealth have actually been taught financial literacy on how to manage the resources. In fact, many of these beneficiaries are always ready to bear the responsibility of protecting the legacy left behind for them.

Beneficiaries have Knowledge of What to do with their Money

Another false assumption is that many of the beneficiaries of this generational wealth actually know what to do with the resources at their disposal. This is absolutely not the case. In some cases, many of these beneficiaries do not even know the modus operandi of some of the assets they have inherited. It is even assumed that generational wealth comes with a lot of burden that many people cannot bear. Financial planners have pointed out that generational wealth comes along with financial stress. This implies that many beneficiaries might not be able to manage the resources properly due to the circumstances surrounding its management.

They are trained by their Parents on Finances

Why would anyone think parents of beneficiaries of generational wealth actually train their children on finances? This is not entirely the case. It has even been reported that many of their offspring do not even know anything about money until they are well advanced in age. Being born into affluence does not necessarily mean that they know everything there is to know about resources management. Some financial planners have even pointed out that many of these beneficiaries do not know anything about investing.

Conclusion

Now, it is crystal clear that generational wealth offers a life of comfort for beneficiaries. And of course, its unique importance in the lives of the beneficiaries cannot be undermined. It is therefore imperative that anyone willing to pass down wealth generations unborn follow the steps highlighted in this article on ways to build wealth. Building generational wealth is an intentional act that requires taking a whole lot of risks as well. Risk taking sets you on the right path to achieving your wealth objectives. If the aforementioned ways of building generational wealth is strictly adhered to, it becomes easier to build wealth that would last for generations.