Generational wealth can take many forms, but it is often built through owning real estate, long-term investing in stocks and bonds, starting a business, or a combination of all of those. Smart estate planning can also help make sure that generational wealth isn’t lost through taxes that would otherwise be avoidable.
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What is Generational Wealth?
Generational wealth is basically a family wealth or asset that is passed down from one generation to the next, repeatedly. They are passed down through the generations so that they are contributing to the growth of generational wealth in the family for the future.
It is also known as family wealth or legacy wealth or Inheritance. Generally, the parents pass down the wealth to their children and, ideally, their children’s children.
Generational Wealth includes not only money but financial assets – such as property, real estate, investments, stocks, bonds, investments, family businesses, or anything with a monetary value – that can be passed down from one generation to the next.
Why is Generational Wealth Important?
In simple words, Wealth gives you more options and freedom in life.
Generational wealth is important because you have more freedom to think and live the life you want when you don’t have to worry about paying your bills, your next paycheck or whether you can afford to quit the job that doesn’t interest you.
Also, every parent who has struggled all their life toward financial success knows what it takes to get there. All those grindings and hardships make them grateful for what they have managed to get. And they wouldn’t want their children to endure the same hardships and hassles.
They would always want their wealth to pass down to their children so that they would not go through the same fate as them.
Generational wealth can give our children the ability to attend school without student loan debt or, they can inherit a family business and become entrepreneurs.
How to Build Generational Wealth
The concept of building generational wealth is easy. You simply have to acquire assets or save cash that you don’t intend to spend in retirement. Then you pass those assets along to your younger generations when you pass away.
Here are some of the ways to build generational wealth:
1. Start a Small Business You Can Pass Down
Small businesses are an excellent way for building generational wealth for your loved ones.
A business is an asset you can transfer to your children. More than 30% of family-owned businesses are estimated to have made it to the second generation.
If you decide to start one, make sure you offer a product or service people will always want so that the business does not run dry in the upcoming days and generations.
The goal behind grinding in your business should be to hand over the small business to your children ultimately!
Read More: How to Start a Business in USA 2023
For anyone interested in passing down their business to their children, it’s a good idea for them to start involving them in the business at a very young age. It can help encourage them to take over the business.
However, if your children are not interested in running the family business, there’s still an option to create wealth by selling the business.
So, building a business to pass down to your children is one of the best ways to build generational wealth.
2. Invest in Real Estate
Real estate can be a great tool to build wealth.
Real estate investing is an incredible income-producing asset that can make money and add to your overall net worth.
Since most real estate generally appreciates over time (except in extremely unfavorable market conditions), it’s an excellent way of growing wealth across time.
However, there are many ways to invest in real estate. If you own a house, you are already investing a portion of your net worth in real estate, but it hasn’t been turned into an asset yet as it will cost you money out of your pocket. Renting it out to tenants and collecting monthly rent is how you turn a house into an income-generating asset.
The great thing about real estate investing is that you can buy multiple properties by financing and taking out loans. And by renting them out, the tenants are the ones paying down the debt service through monthly rent while you reap the benefits of monthly cash flow and real estate appreciation over time.
It can provide great cash flow opportunities for investors and it’s an investment that your family can inherit as you pass them down.
Related: BEST Types Of Real Estate Investments To Invest
3. Invest in the Stock Market
The stock market is how you create generational wealth over the long term. It has the potential to continue growing and compound for decades.
Stock market investing provides an opportunity to build wealth passively and protect your money against inflation. Most people who invest in the stock market with a long-term plan and diversify their portfolios make money over time.
Warren Buffet is the prime example of someone who has amassed a ton of stocks which is equivalent to hundreds of Billions now.
Investing in the stock market can be intimidating and scary at first; that’s why as a beginner, a simple way to get started is through low-cost index funds, which provide long-term growth opportunities at relatively low fees.
S&P 500, which is an index that tracks the stock of 500 of the largest U.S. companies is one of the safest areas to invest as a newbie.
Stock market investments are more liquid than real estate which is why they are a great form of generating generational wealth. Also, the stock market might be a better option than real estate if you’re not a fan of managing tenants.
4. Invest in your Child’s Financial Education
Investing in your child’s financial education is how you create and preserve the generational wealth that will set them up for financial success!
Although other things in life come and go, Education is something no one can take away from you.
If you have the ability to educate your child, provide them with financial education and help them make it through college without any debt, then you are setting up a great financial future for them.
You can start by teaching your kids about personal finance at an early age. It starts with having open conversations about money at home. Talking about your financial wins and mostly about financial mistakes and losses and what you did wrong will teach your kids to avoid those mistakes.
It can be intimidating to take on that task, especially if you’re figuring out your finances, but most people learn more from their failures than their successes.
Financial Education can provide a way for your children to support themselves financially and in many other ways. They will have the opportunity to pursue high-paying jobs, start their own venture, or manage others’ businesses that can help them navigate their finances.
Giving your kids a financial education and raising them financially independent are the most important things you can do to start building long-lasting generational wealth.
5. Buy Life Insurance Policy
It’s always important to prepare for the worst, especially for your untimely death.
Life insurance is a great tool to pass down wealth. It provides a safety net for your family if you were to die unexpectedly. If you have children or dependents who rely solely on your income, their financial situation would be negatively impacted by an eventual passing.
Life insurance can be an affordable option to ensure that your loved ones would be financially safe and cared for if you were no longer here to provide for them. Those life insurance companies will pay your beneficiaries as part of the death benefit for a relatively low monthly premium.
Hence, consider reaching out to a professional insurance agent to provide you with different life insurance policies to choose from. Or, speak with a financial advisor whose financial services include life insurance policies.
Therefore, buying a life insurance policy is necessary to protect your family from possible financial hardship!
The Bottom Line
Most families can pass wealth from one generation to the next through inheritances and other means. Passing this generational wealth gives the next to have more freedom to get opportunities. Also, on the dark side it will create more silver spoon babies, often lazy and not wanting to go through hardship. So, make sure you give them financial education as well such that they will add more to the generational wealth.
