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- Avoid high-interest debt. One of the foundational pillars of building generational wealth is steering clear of high-interest debt. Accumulating debt with exorbitant interest rates can impede financial progress and limit your ability to invest in assets that contribute to long-term wealth creation.
- Invest for the long run. Building generational wealth requires a perspective that extends beyond short-term gains. Embrace a long-term investment strategy, leveraging the power of compounding to grow your wealth steadily over time.
- Hire an accountant. Navigating complex financial landscapes necessitates professional expertise. Hiring an accountant helps you maximize tax advantages and identify strategic financial opportunities.
- Hire an estate planner. Crafting a comprehensive estate plan is pivotal in preserving and transferring wealth to future generations. Hire an estate planner to assist in structuring your assets, establishing trusts, and developing a clear succession plan.
- Overview
- The Importance of Building Generational Wealth
- The Challenges of Building Generational Wealth
- Build a Strong Financial Foundation
- Invest in Education
- Invest in Financial Markets
- Invest in Real Estate
- Create and Preserve Assets
- Maximize Tax Benefits
- Avoid Debt and Financial Pitfalls
Generational wealth refers to assets passed down from one generation to the next. Building generational wealth can provide long-term financial security and opportunities for your children, grandchildren, and beyond.
is about more than just financial resources, according to
, certified financial planner (CFP) and CEO of Kovar Wealth Management in Lufkin, Texas. “Its value extends beyond the monetary aspect—it’s also about imparting enduring family values and wisdom, creating a legacy that benefits and shapes the lives of future generations,” he says.
Learn more about why generational wealth is important, how to lay the foundations to build wealth for your family, and how to ensure that your legacy is passed on in the most efficient way.
Generational wealth refers to passing down assets from one generation to the next.
Before you can build generational wealth, start creating a strong financial foundation by prioritizing savings, growing an emergency fund, and thinking through future plans.
Achieving financial success takes a lot of hard work, sacrifice, and planning. Not only can it help you enjoy things in your lifetime, but it can also help your heirs reap the benefits of your legacy and enjoy a financially secure lifestyle after you’re gone.
Think of it as a wealth snowball. For example, generational wealth paves the way for enhanced educational opportunities and, consequently, greater earning potential for your kids, according to Kovar. And then they can continue building upon that foundation for their kids (your grandkids).
Building generational wealth is not an easy undertaking, but it’s especially challenging if you grow up in
or face systemic barriers. Unfortunately, that has been the experience of many marginalized groups in this country.
For instance, in 2019, the median wealth of White families was 6.5 times that of Black families, 5.5 times that of Hispanic families, and 2.7 times that of Asian and other families, according to the Congressional Budget Office.
Another key finding in the report: Black and Hispanic families each owned about 24 cents for every $1 of white family wealth, on average, as of the second quarter of 2023.
is the fact that Black Americans are less likely to own a home, which is one of the major ways that people pass on wealth. The underlying reason for this is, in part, systemic
discriminatory practices in home selling
Building generational wealth is as much about setting a strong example as it is about making the right financial decisions. You can model the building blocks of healthy personal finances to your family, which includes the following best practices.
“It’s not how much you make, but how much you keep. That’s the key to accumulate savings and wealth,” says Jason “JB” Beckett, founder of
in West Columbia, South Carolina.
Many people fall into the trap of saying they’ll save what’s left over at the end of the month but never end up getting around to it, or they spend beyond their means. A better approach is to create a budget to control your spending so that you have guaranteed funds available to save, and set up an
Here’s how to get started:
Pick a percentage or dollar amount that you are able to allocate toward savings goals after your expenses are covered.
Once you’ve made some progress on your emergency fund, you can allocate some of your
toward other big financial goals. A popular one is to save for your children’s education. If you’re aiming to build generational wealth, you can think of
for your kids as an investment in their future earning power.
That’s because degree attainment is directly correlated with an increase in lifetime earnings—in the millions, as a study by the Georgetown University Center on Education and the Workforce found. According to the study, someone with a high school diploma can expect to earn $1.3 million over a lifetime; a bachelor’s degree holder will earn $2.3 million; a master’s degree can lead to $2.7 million in lifetime earnings; and a professional degree holder can earn $3.6 million.
To build wealth in a meaningful way, the sooner you get started, the better. “Starting early and consistently saving, even in smaller amounts, can lead to significant growth over time, thanks to the power of
While investing in the stock market comes with some risk, if you
across stocks, bonds, and other assets, you can balance risk with growth potential. One popular strategy for beginners is to invest in
, which is a collection of many stocks designed to mimic the performance of major market indexes like the S&P 500.
Another popular investment avenue to explore is
, thanks to its potential rental income and
in property value. Plus, it’s a strong investment to pass on to your next of kin.
“Exploring various property types, from residential to commercial, can diversify your real estate
If you’re not ready for that level of investment or don’t want the commitment of running a property, Beckett suggests looking into
real estate investment trusts (REITs
is just step one in creating
wealth. The next part is making sure that your assets are protected so that they remain available to pass on to future generations. You also want your heirs to be able to retain as much of their inheritance (if relevant) as possible, which is why tax implications come into play.
To ensure your children are protected and set up in the best possible way financially, consider the following actions.
As your assets grow and become more complex, working with financial professionals and attorneys on
is the smart move. Some considerations include:
Creating a business that you can pass down
strategies and vehicles can help you retain a greater share of your returns. Some strategies include:
Traditional individual retirement accounts (IRAs)
, offering you an upfront tax break as you invest. You pay taxes when you withdraw your money in retirement.
when you withdraw, since contributions are made with after-tax dollars.
and enjoy tax-free growth. Then, if used for eligible medical expenses, money comes out tax-free, too.
to learn what strategies are best for you, and ultimately shield the most money from taxes as possible.
Living within your means and having a healthy emergency fund are the two best ways to avoid unnecessary, high-interest debt like high credit card balances. Those types of borrowing costs can prevent you from making progress on your savings and wealth-building goals.
If you do have some debt to contend with, prioritize paying your highest-interest accounts, while still maintaining your contributions to your emergency fund and retirement accounts (though it’s OK to scale back temporarily). Try to use any
Nov 24, 2020 · Learn how to create a generational plan that goes beyond estate planning and communicates your intentions to your heirs. Find out the three foundational components of a generational plan and...
Dec 14, 2022 · Generational wealth is any asset that is passed down from one generation to the next, such as cash, stocks, real estate or businesses. Learn how to build and protect generational wealth,...
- Build a plan. Although building and passing on generational wealth is a simple concept, in practice, it does require some planning and thinking in advance.
- Pay off debt. If you are currently paying off high-interest debt, you may want to prioritize getting rid of ALL your debt before building appreciating assets.
- Invest in the stock market. Once you’ve paid off high-interest debt, you can focus on building assets to pass on to the next generation. The stock market is a good place to start since compound interest means the return on investment increases exponentially the longer you invest.
- Invest in real estate. Investing in real estate is another great way to build wealth that lasts for generations. If you put in the initial effort and pay off the mortgage, real estate will offer steady and reliable cash flow for generations to come.
Aug 16, 2024 · Building generational wealth requires intentional planning, disciplined financial management, and a long-term perspective. Here are some of the most effective strategies to consider: 1.
Dec 10, 2023 · Speaking with your children about money, investing for the future, moderating debt, having an estate plan, utilizing life insurance, and using current laws in your favor are steps you can take to...
