Generational wealth refers to assets, wealth, or resources passed down within a family from one generation to the next. This wealth is accumulated over time and is often used to provide financial security, opportunities, and advantages for future generations.
Here are 6 steps you can take to create generational wealth
1. Start Early
Begin by building your own wealth through smart financial decisions, investments, and savings. The earlier you start, the more time your assets have to grow and accumulate. Compound interest works in your favor. Starting small is major, especially if you are the first to do so. If you’re starting from scratch and invest $25 from the time your child is 5 until they are 21 with a rate of return of 10% – They will have nearly $12,000. You would only put in $4,800 but the growth through compound interest is almost $7,000! If you’ve got more wiggle room in your budget maybe you can invest $125 a month. In the 16 years that money could grow to $59,000.
2. Invest Wisely
Consider investing in assets that have the potential to appreciate over time, such as real estate, stocks, mutual funds, or businesses. Diversifying your investment portfolio can help mitigate risks and maximize returns. What I have found to be the easiest is investing in stocks through M1 Finance and Fidelity. The accounts are super easy to create and have automatic investing strategies for beginners.
3. Create Multiple Income Streams
Explore different sources of income, such as rental properties, side businesses, investments, or royalties. Multiple income streams can provide financial stability and increase your overall wealth. Do not rule out the stream of having a dual income household. This may be easier said than done. I’m currently entertaining the idea of a vending machine that the kids will have the responsibility of managing.
4. Eliminate Debt
Avoid accumulating high-interest debt and work on paying off existing debts. Reducing your debt burden will free up more resources for saving and investing for the future. There are many ways to reduce your debt. The snowball method worked for us. Make a list of debts from smallest to largest. Pay off the smallest 1st – while still paying your minimums on the other debts. Once that debt is paid, roll over the money you were putting towards that payment to the next smallest debt owed. Debt consolidation is a great option when the situation is right. For example, you can receive a new loan from your local credit union that has a lower fixed interest rate and use it to pay off your student loan and car note. Now you only have one debt payment to think about.
5. Establish Trusts
Setting up trusts, wills, or other forms of estate planning can help ensure the smooth transfer of assets to future generations. Consult with legal and financial advisors to create a plan that aligns with your goals and objectives. Depending on your situation, an advisor can help you navigate complex financial matters in order to make informed decisions. This is also a perfect time to teach your children about financial literacy, investing and wealth management. Instilling good financial habits early can empower future generations to continue building and preserving wealth. Financial games are a perfect way to gain confidence in this skill.
6. Pass on Financial Knowledge
Share your financial knowledge, experiences, and values with your family members. Communication and education are key to maintaining and growing generational wealth. Keep the focus on long-term growth. This will help in to avoid succumbing to short-term temptations or schemes that may jeopardize the sustainability of your wealth.
By implementing these 6 strategies and building a solid financial foundation, you can take steps towards creating and sustaining generational wealth that benefits your family for years to come.