How to Build Generational Wealth For Your Family
Once most debt has been retired, and basic lifestyle needs are met, most people focus on aspirational financial goals, such as buying a vacation home or a better car. Some don’t immediately think of their children’s financial future. However, creating wealth to be shared and passed down to the next generation and their children can be an important and necessary part of boosting a family’s financial security and building their financial future. Learn more about building generational wealth below.
What is generational wealth?
Generational wealth is assets that are passed down through generations. Leaving something of value behind at the end of life (e.g., investments, real estate, etc.) contributes to the growth of wealth in the family. It also gives future generations a leg up when starting their financial journeys.
Generational wealth may also be called legacy wealth, family wealth, or inherited wealth.
How to build generational wealth
Here are some core tips on building generational wealth, and then read a deep dive on the best way to build generational wealth below the list.
Have a plan
When building generational wealth, a good place to start is to define financial goals and how those goals will contribute to the wealth of future generations. Below are examples of things to consider when defining financial goals:
- The number of children in the family
- Children’s education
- Inheritance amounts
- How money and assets will be divided
- Real estate and other investments
- Financial assistance (e.g., rainy day fund, paying for a wedding, etc.)
Make strategic investments
Investments are one of the best ways to grow wealth. Smart investments have the potential to increase in value over several generations. An example is real estate. Real estate is a long-term investment that can provide a steady cash flow and continue to create value as time passes. Properties can be passed down to the next generations, saving them money (e.g., providing them with a family home) or as another income stream (e.g., rentals). The real estate market can fluctuate, but it is a reliable way to create wealth overall.
Another example is investing in the stock market. Again, there is the potential to have this investment grow for many years. However, the stock market can be a risky investment, so it is a good idea to start with low-cost and low-risk markets or enlist the help of a stockbroker or financial advisor.
A family business can also be a wise investment. It can create wealth that can be built on and passed down to the next generation. Furthermore, if they are not interested in taking on the family business, it can be sold to realize cash.
Have multiple income streams
Another way to contribute to generational wealth is by creating multiple income streams. For example, real estate and stock market investments can be considered an income stream depending on their use. However, passive income is one of the best ways to create additional wealth with minimal effort.
Passive income is money earned without an ongoing time commitment or investment after the initial set-up. Examples are rental properties, publishing online courses, writing a book, selling digital products online, etc. For example, rental properties will need to be funded at the initial purchase. The asset is a reliable revenue source with minimal further investment, besides maintenance and other landlord duties.
Invest in education
Post-secondary education can be valuable for creating a lucrative career that will allow individuals to support themselves financially. However, this education often comes at a high price tag and can result in thousands of dollars in financial debt. Helping children avoid this debt by paying for their schooling is a great way to put them on the path to a better financial future.
Improve financial literacy
Financial literacy is the ability to understand and use financial skills effectively. This is crucial to ensure financial wealth. For example, if your child does not know how to budget effectively, they are more likely to accrue debt or not have a surplus of money to pass down to their kids. Poor financial literacy will likely lead to poor financial decisions and a potentially grim financial future. Therefore, parents should make financial education a priority.
Protect your wealth
Distributing wealth and assets can be tricky, even more so after someone dies. One of the best ways to make this easier is by legally protecting wealth. An example of this is a will.
A will is a legal document that outlines how estate, assets, investments, etc., will be handled after death. Having a will ensures that wealth is distributed how the parent sees fit. Without a will, inheritance rights, estate distribution, financial arrangements, and other duties will be handled according to the country or state laws.
Best way to build generational wealth is with evergreen assets
According to Nate and Holly from Living Wealth in episode 153 of the Dollars and Nonsense podcast, one of the best ways to build generational wealth is to use evergreen assets. Evergreen assets are explained briefly below, but it is discussed in greater detail in the episode, Episode 153: Learn the Best Way to Make Lasting Generational Wealth For Your Family.
An evergreen asset is an asset that will never go away. It will continue to produce value as it is passed down from generation to generation. Examples of evergreen assets include land, real estate, businesses, commodities, etc. Wealthy people commonly invest in these assets.
In contrast, the middle class is taught to invest more in assets like pension programs, 401(k)s, retirement programs, etc. These investments are not evergreen. It may give families value, but it will not typically contribute to generational wealth. The government also often controls these investments, while evergreen assets typically have minimal government intervention.
Evergreen assets are intertwined with the world of infinite banking despite insurance policies not being considered evergreen by nature. However, if used correctly, the policy can contribute to generational wealth. The key is to treat whole-life policies and infinite banking like a family banking business that is passed to future generations through the death benefit from the preceding generation.
Understanding this concept and teaching the power of infinite banking to the next generation is important. Essentially, infinite banking uses whole life insurance policies to become your own banker.
Instead of banks having control of your finances, a fund is created to be used and borrowed from, and the policy owner sees fit. Borrowing money from the policy can accrue interest, but the policy owner captures the interest.
Money from the policy can be used to buy evergreen assets, additional policies, etc., which will also be passed down. Essentially, infinite banking can help grow generational wealth indefinitely. However, this is contingent on ensuring infinite banking principles are taught and understood by your heirs.
Learn more about infinite banking on the Living Wealth website: https://livingwealth.com/. You can also check out the free beginner’s course, request a private consultation, listen to our infinite banking podcast or read our blog.
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