How to Build Generational Wealth

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Generational wealth Do you know more than 10,000 baby boomers are turning 65 every day? Moreover, over the next 20 to 30 years, $84.4 trillion in generational wealth is expected to change hands, from Gen X to millennials and baby boomers to the silent generation. AND your ability to participate in this significant intergenerational wealth transfer depends on how you build your generational wealth.

Generational wealth is not only about financial resources. Instead, it’s all about creating a legacy for you, your children, your grandkids, etc. However, the real question is, how to build generational wealth and pass it on to future generations?

Please continue reading to explore the importance of generational legacy, how to lay a solid foundation for building wealth for your family, and how to pass on your legacy more efficiently. 

Importance of Building Generational Wealth 

Before sharing the essence of our guide, it is integral to understand why generational wealth is substantial and how it can guarantee a secure future. The term “Generational Wealth” may serve different meanings for different individuals. However, it generally includes your property, investments, financial wealth, and even intangible assets like education and knowledge.

Generational wealth offers a robust foundation for future generations to thrive. That means when you pass down resources and wealth to your children and grandkids, you empower them to pursue their aspirations and dreams without starting from scratch. 

Also, if you build generational wealth through thoughtful investments, you will be able to provide your descendants with quality educational opportunities and financial freedom. Many case studies are available that highlight the power of generational wealth. 

For instance, you can get inspiration from the Rockefeller family, the owners of Standard Oil. They accumulated a vast fortune that has been passed down through generations. Even today, the Rockefeller family is one of the richest families in the world!

Tips for Building Generational Wealth 

Building generational wealth can be challenging, especially if you face systematic barriers or live in poverty. But that does not mean you can’t create a wealth snowball for yourself and your heirs. 

If you’re struggling to build generational wealth, here are some financial moves you can make to achieve your goal:

1. Prioritize Savings 

Let’s face it: no amount of money will keep a fool wealthy. So, prioritizing savings and spending your money wisely is the first and foremost step in building generational wealth. Here are some common money traps you’re likely to fall into when it comes to spending or saving money:

●You think of saving what’s left over at the month’s end but spend beyond your means.

●You don’t have emergency funds to rely on if anything goes wrong suddenly.

●You buy items you don’t need, i.e., a grand vacation, a new house, or a new car.

●You forget to keep track of your monthly expenses.

So, if you want to save money for the future, you must avoid these traps. Finance experts suggest creating a budget to control your expenses and setting up an automatic monthly payment.

Also, you can create separate accounts if you have multiple saving goals. This approach will help you move towards your savings goals after covering your expenses. Additionally, we suggest putting your money in certificate of deposit (CD) accounts for guaranteed returns. 

2. Focus on Passive Income 

Passive income refers to the money that you don’t have to work for in the traditional sense. For example, you don’t have to complete specific tasks or go to the office regularly to earn a few more chunks. In short, it is something like planting a seed. You need to do the work to plant the seed and then watch how it grows exponentially. 

We understand that saving 10 to 15% from your full-time job is insufficient to build long-term generational wealth. So, to gain financial security that can be passed down to generations, you have to think about side hustles and more cash flow. 

Some of the wealthiest individuals, like Bill Gates and Warren Buffet, rely on passive income to help create their legacies. For example, Gates has diversified his investment portfolio over the years, including stakes in companies across technology, healthcare, energy, and other industries. These investments generate passive income through dividends, interest payments, and capital gains.

3. Focus on Building an Emergency Fund

If you want to build generational wealth efficiently, make sure to have financial security in case of an emergency. It would create a significant economic burden if you have to pay for emergencies from your monthly income. 

Sometimes, not having an emergency fund can cause you to cash out your retirement accounts or get a loan at high-interest rates. This approach will not only incur penalties but will also put a significant opportunity cost. 

So, you need enough money saved in your emergency fund account to cover sudden expenses. Building up the desired fund will take some time, so you must be consistent. Here is how you can build an emergency fund:

●Set your budget between $500 and $1000 to create your emergency fund. Once you meet this specific goal, you can aim to expand it further to cover greater financial difficulties. 

●Consider creating a high-yield savings account that can earn interest on your contributions.

●Control your temptation to withdraw money from your emergency funds. 

4. Invest in Stocks 

The financial/stock market offers meaningful opportunities to build long-term, lasting generational wealth. Though investing in stocks comes with a few risks, it can help you diversify your investment portfolio to increase the value of your investment.

Furthermore, the extensive stock market comes with multiple investment options, including bonds, stocks, and other assets, to help you balance risk with potential growth. Unlike other investments, the stock market benefits from a stepped-up basis. 

Let’s imagine you bought 2,000 shares of VTI at $50. But when you die, VTI is at $400. Instead of selling, you pass down your stock market shares to your son. At the moment your son inherits your shares, the IRS resets its original costs basis to $400. So, your son sells those 2,000 VTI immediately for $800,000. 

Also, your son will owe zero taxes on this sale because he did not profit as per the current IRS rates. Isn’t it a profitable generational wealth planning scenario? 

5. Invest in Real Estate 

In addition to the stock market, precious physical metals and real estate are another ideal form of generational wealth transfer. Whether you have a rental property or an ancestral home, investing in real estate can help build a robust foundation for your generational wealth plan.

If you don’t have enough funds to invest in real estate or you don’t want to commit to running a property, you can get help from a real estate investment trust (REIT). REITs are the companies that own, operate, and finance income-generating properties. 

6. Involve Your Kids in Money Conversations

Remember, building wealth is not the only thing you need to create generational wealth. You have to make sure that your wealth and assets are protected and available to pass on to future generations. 

So, remember to involve your family and children in money conversations to build a strong financial foundation. For instance, you can include children in your family finances from a young age through games and fun. This way, your kids will be able to understand the basics of financial independence and how to value money. 

In conclusion, there is no single way to build generational wealth and get future financial freedom. The idea is to start creating a solid foundation for your generational wealth as early as possible. 

Also, it is better to invest in the stock market and real estate, build an emergency fund, prioritize savings, and educate your kids about personal finances to get financial security. Lastly, get professional tax advice from experts specializing in generational wealth management after collecting a sizeable amount of money. 

Moreover, create a written family wealth legacy plan to pass down your generational wealth efficiently, define your generational wealth transfer, and name beneficiaries for your accounts.

Image Credit: DepositPhotos 

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Jason Butler is the owner of My Money Chronicles, a website where he discusses personal finance, side hustles, travel, and more. Jason is from Atlanta, Georgia. He graduated from Savannah State University with his BA in Marketing. Jason has been featured in Forbes, Discover, and Investopedia.