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Producing generational wealth might sound like a daunting task, especially if you don’t come from a well-off family. However, building generational wealth is simpler than you might think and can protect you and your family for many years to come.
Here are 7 tips on how to build generational wealth, no matter your circumstances:
- Talk about money with your family.
- Start investing slowly.
- Learn financial literacy and teach your children.
- Invest in passive income sources.
- Invest in your child’s education.
- Build a family business.
- Plan your estate effectively.
I’ll talk about these in more detail in the rest of this article. By the end, you’ll understand that building generational wealth isn’t just about having money, but understanding how to use that money for the greater benefit of your family.
Let’s get started.
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1. Talk About Money With Your Family
Talking about money can be awkward, especially with your loved ones. Discussing financial problems and decisions with your spouse and children might seem incredibly uncomfortable.
Still, it’ll help both you and your children understand the value of money in the long run. Having those conversations doesn’t need to fall into the realm of discussing financial problems, per se.
Even the act of including your children in financial decision-making can help them understand in the long term how to manage their money in the future.
2. Start Investing Slowly
Generational wealth isn’t about waking up one morning with more money than you know what to do with. It’s about using incremental steps to ensure your family is covered in the long term.
These steps could be short-term goals, such as putting a small amount in an investment portfolio every month. They don’t have to be significant steps, and they certainly shouldn’t be intimidating.
Instead, these need to be small steps that work for you and your family, allowing you to build wealth incrementally.
3. Learn Financial Literacy and Teach Your Children
Prioritizing your children’s financial education is essential to their skillset. This information will take them far into the future, with the skills to manage their money to the best of their ability.
If you’re not financially literate, there are ways to ensure that you learn at least the basics. For example, you should understand that a good credit score is essential, and you should know the basics of using a budget, savings, retirement planning, and investing options.
By understanding the basics of wealth management, your family will have the tools they need to generate wealth and manage it to the best of their ability.
It ensures that your hard-earned money won’t disappear, but instead will grow throughout each generation.
4. Invest in Passive Income Sources
It has been said that a typical millionaire has around 7 different streams of income, so you can bet that one of the best streams to use is passive income.
Passive income is money earned from a source other than your employer. This could be royalties from books or ebooks you have written, cash-back from rental properties, or even just payments coming from your investment portfolio.
Passive income is so crucial to generational wealth because it can create more money for you over time than a salaried job.
By having multiple sources of passive income, you could generate a steady income of money ready to be saved, re-invested, or put into your child’s education.
5. Invest in Your Child’s Education
The cost of education — especially higher education — is very high and rapidly rises over time. Ensuring that your children don’t have to come out of education burdened with debt has a significant impact on the way their financial futures will play out.
Saving enough money to at least partially pay for their education is one way to make sure they have a good start in life. It allows them to focus on their future without the anxiety that comes with student loan debt and gives them an advantage when thinking about the future.
If you’re saddled with student loans, often generational wealth isn’t something you can think about until later in life. Investing in your child’s future by saving for their education ensures that they can begin to generate family wealth as soon as they finish college — they’ll surely thank you for it in the long term.
6. Build a Family Business
Building a family business that lasts through generations can be difficult, especially if you and your children don’t share the same interests.
However, if you’re lucky enough that your interests align, or it’s a business they can maintain passively on the side, then it might be a good idea for you.
While it might be a lot of work creating the company, it’ll be a lot easier for your children to continue the work once it's up and running.
Building a family business also helps you connect on another level with your family, including them in business and financial decisions and teaching them essential skills they’ll need for years to come.
7. Plan Your Estate Effectively
If you’ve managed to build up some generational wealth, you’ll need to have a good plan in place for when you pass away.
If you don’t plan adequately, you might find that your children are saddled with paying a considerable amount of inheritance tax, which in some cases could amount to 50%.
A basic plan to start with is creating a will. Doing so will legally align any wealth you’ve accumulated and prevent disagreements over its distribution.
It’s recommended to consult a financial planner and legal advisor since sometimes inheritance laws can be convoluted and difficult to bypass.
There are many things to think about when it comes to generational wealth. Creating a viable, long-term plan can help you and your family reach intergenerational financial freedom.
Devising a plan for the future using incremental steps can make and maintain financial wealth for many generations to come.
Pick up financial literacy knowledge and share it with your kids. Even if you don’t have much money now, there’s no harm in investing slowly. It’s better to start small than not start at all.
You can always increase your contribution next time. All the best!
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