What Is Generational Wealth and How To Build It

Rich people see wealth as a liberating tool. To them, wealth is a resource that unlocks endless possibilities and creates freedom for their families. 

Families, in this case, don’t just stop at children─ it extends to their third, fourth, and fifth generations. With a mindset to build generational wealth, it’s no wonder they never stop pursuing more opportunities. 

What do you know about generational wealth? Learn about this type of wealth and how you can build it over time.

What Is Generational Wealth?

Generational wealth is enough assets and valuable resources to be willed down several or countless generations. Wealth from the parents passes down to children, great-grandchildren, and so forth.

Generational wealth includes both intangible and tangible assets. It contains things with monetary value like heirlooms, property, and investments. And intangibles like values, habits, education, and traditions.

How To Build Generational Wealth

Most often, when people talk about building generational wealth, they’re referring to the monetary type of wealth. Many families aspire to make more money to provide financial comfort to their children.

You need a change of mindset to start building generational wealth. It takes hard work and sacrifices to grow wealth and ensure it passes to your children and grandchildren.

Making more money is a piece of the puzzle. Honest answers about building wealth lie in your financial habits, earning power, and financial education. Here are some steps to take to start building generational wealth.

Change Your Spending Habits

An easy way to build wealth is by leveraging your current earnings. There’s so much you can do to change your payments in the short run. But you can cut on expenditures to save more and grow an investable amount. 

Learn how to reduce spending and spend your money well. Try to live within your means to avoid debt, build an emergency fund and grow your savings. If you’re struggling to control spending, it can be challenging to grow wealth regardless of your earnings.

Track monthly expenditures to see if your spending is reasonable. Evaluate your cash flow to establish where your money goes. Bad spending habits can cause endless stress and lead you into a debt cycle. 

Think about automating your savings once you have a clear picture of your cash flow. Your brain is likely to resist changes, so don’t allow room for relapsing. Dorothy Loorbach shares on TED Talks how she learned the hard way about the value of automating savings after losing a lot of money. 

Create More Income Streams

Saving more when you’re not earning enough is only possible until you can’t reduce expenses anymore. There’s a level where you can’t make any more compromises.

Plus, the dream of generational wealth can seem distant if you only rely on accumulating savings. You need to see your assets and investments blooming to get extra motivation for building wealth. This is why you should consider creating more income streams.

The majority of millionaires have at least four income streams─ most of them being passive. They have businesses that generate profits and investments for interest and dividend income. 

Having more than one income stream gives you more money to invest in your financial future. Your financial muscle grows and gives you a solid foundation for building generational wealth.

More money means you can save more, invest more, and increase your income streams further. This is why it’s a must to increase your income streams when you want to grow wealth.

Use your current source of income as a stepping stone to more wealth. Learn new skills and start side hustles to increase your revenue. The average side hustle brings in $1,122 a month. 

If you’re stuck in one job, learn how to invest even a small amount of money. Take advantage of things like health benefits and a 401k. You can start investing with as little as $50 on apps line M1 Finance and Fundraise.

Build an Investment Portfolio

Saving more will make sense if your money starts working for you. You don’t grow wealth by stashing money into your account but by investing it to generate passive income. 

Your goal should be to grow so much wealth that your future generations can afford to stay without working. Think about investing your savings into a passive income-generating income stream.

A portfolio of passive income streams can include real stocks, bonds, mutual funds, and royalties. These investments can help you make money without losing your initial investment. 

Learn about building investment portfolios and network with other investors. Get to understand the ins and outs of investing in finding profitable investment opportunities. Low-priced investments are likely to sell at the highest possible profits in the long term. 

Think in the long term when building your investment portfolio. Short-term investing is likely to be expensive and riskier. A long-term investment strategy is much safer and suitable for growing generational wealth. Most investments take a long time to pay off.

Also, it’s always best to diversify your investment portfolio. Investing is speculative so you’re never sure which assets will appreciate and which ones will depreciate. A diverse portfolio is key to lowering your investment risk. 

Build a Generational Business

Building a generational business is the best but the toughest way of creating generational wealth. 50% of companies fail within the first five years and only 30% survive a decade. 

The good news, there are many multi-generational businesses to seek inspiration from. Some of the oldest companies globally have been running for more than a thousand years. For example, the Staffelter Hof Winery in Germany is 1136 years old.

The question is how these businesses have remained relevant and competitive for many years. If you want your business to outlive generations, you’ve got to be strategic. Align the company with your purpose and you’ll be able to marshall all the resources to make it successful.

Think about building the business on a clear mission and vision. Many perpetual companies have a mission to impact our lives and make the world a better place. George Cadbury founded Cadbury in 1824 with a vision to complete the work environment fun. 

Getting a legal advisor is also essential throughout your business life and building generational businesses. You want the right structures and leaders in your business. Once you pass it over, you’ll want to be sure those in charge will carry it on. 

You’ll need clear methodologies for resolving disputes and ensuring smooth transitions. Partnerships, even those made of family members, can break down due to the challenges of businesses. Venerable Law can help you develop a strategy to protect the future of your business. 

A generational business will change hands as new leaders take it over. The big problem is you never know who’ll be in charge of future generations. This is where Venerable Law comes in with a strategic continuity and succession plan to keep your idea alive for generations. 

Mentor Your Children and Next of Kin on Financial Education

Your children and grandchildren hold the keys to your legacy. They are likely to be the first beneficiaries of your wealth. Your goal is to give them a life of financial comfort, but they may squander it within a few months or years. 

If you want your wealth to last generations, make sure you bring up financially responsible children. Teach them from a young age about personal and family finances. Teach them how to make money and how to invest and multiply it.

Make sure they learn how to manage and run a business from a young age. Make them appreciate hard work, financial skills, and financial independence. They need to know how to make their money and run a family business.

Beyond that, invest in their education. Ensure they see education as an empowerment tool rather than a job searching tool. Educated children will have extra tools for growing wealth and caring for their businesses and assets. 

Homeownership and Real Estate

A practical and popular way of building and passing generational wealth is homeownership. A good home is expensive regardless of where you live. Giving one to your child can help them save on mortgages and use the money to grow their investments. 

For many people, homeownership is a symbol of stability and independence. A home is a milestone and an investment that can come with fantastic wealth-building opportunities. 

If you’re still living in a rental, you should consider saving for a good home. You’ll enjoy tax breaks on mortgages while you can still leverage your home for equity. This will enable you to have more money for another business, savings, or downplaying for another home.

Owning more homes can be vital in overcoming your financial worries and protecting your future. Every extra home is an opportunity to earn rental income and have more equity. 

But if you want to pass it to your kids, make sure it isn’t your next egg. Pay off the mortgage before you retire—plan for your retirement costs such as healthcare to avoid extracting equity from your home. Self-made billionaires like George Arygyros made their fortune in real estate. 

Life Insurance

If you’re building a generational wealth plan, you’ve got to be thinking about your demise. In the event, you die, what happens to your family? Only 52% of Americans have life insurance. 

Life insurance is part of a healthy generational wealth plan. It’s another form of inheritance you can leave for your children and grandchildren.

Disability, severe illnesses, and death are the three things that can stop your dream of building more wealth. If you pass away, at least your family and children can inherit a non-taxable amount.

Death is expensive. Burial and funeral expenses can weigh down a bereaved family. Life insurance can reduce their financial headache and also help protect other inheritances. 

Look for life insurance covering diseases, disability, and death. You have to cover the cost of treatment when you can’t work. A good life cover will ensure you or your family don’t get into debt when you’re sick, disabled, or dead. 

How To Pass or Transfer Generational Wealth

Once you build your wealth, you’ll want to pass it down in the right way and to the right people. You’ll want to pass it without dispute. Here are some steps to consider when creating your succession plan.

Professional Succession Planning

Professional wealth structuring and succession plan is a safe way to protect your family and assets. It allows for an orderly transfer of responsibilities and wealth, enhancing your financial control.

Professional succession happens in front of your financial and legal advisors. It ensures your estate continues to grow and your family can meet all the financial obligations. Get in touch with Venerable Law succession experts to discuss the future of your estate.

Writing a Will

A will is a legal document showing your last wishes. It’s a tool for communicating how you want your wealth to be shared after you pass away.

A will, if abided by, can ensure your wealth goes to the right people. It specifies the apportioning of your estate by names and amounts. Get a legal advisor to ensure your will meets legal requirements and is enforceable.

As a rule, you need legal advice when growing your businesses. This may mean you have a succession plan in place. If that’s not the case, draft your will straightaway. A will can prevent family arguments after your death. 

Name Account Beneficiaries

An easy way to pass generational wealth is to name beneficiaries for each account. A beneficiary is next of kin or someone who can access your asset after your demise.

Choose your beneficiary the moment you open a new account. You can save your spouse and children a lot of time and arguments when you designate beneficiaries. 

Set up a Trust

A trust is a legal entity holding your property for your beneficiaries. A trust follows your wishes by releasing the wealth per your wishes and requirements.

Trusts are usually expensive. But they’re one of the ways of passing down generational wealth tax-free. 

Protect Generational Wealth With Venerable Law

Building generational wealth takes time and sacrifices. Follow our guide to start growing your money into businesses and assets. 

A well-thought generational wealth transfer plan can provide stability in your bloodline. Let Vulnerable Law help you protect your generations. Contact us today to create a custom plan to cater to your needs.