If you are like most college-educated Americans who live in their own home or have a business, Blanked Homes’ owner, Lior Abramovich, warns there is a huge chance that, at some point, you had to borrow money to make those things possible. There is also a chance that you are still repaying some of those loans.
For people like you and millions of others, things like student loans, mortgages, and borrowing money to start a business appear perfectly normal. If we didn’t have access to credit, how could we make it through college or raise money to buy a home?
But the problem isn’t that you have to do these things; the problem is that your children will have to repeat those same cycles. When it is time for them to go to college, buy their own home, or start a business, they will go through the same financial struggles their parents faced.
Why does it have to be that way? What happened to all the progress their parents made? Why does it seem like every new generation has to always start life from level zero? Shouldn’t the money their parents made during their lifetime carry over into the lives of the children?
If you ever asked these questions or wished you were born into a wealthy family, you will understand generational wealth. In this post, we talk about generational wealth: what it is and how to start planting the seeds of generational wealth for your family.
Generational wealth: What is it, and why is it so hard to build?
Generational wealth is anything of material value that is transferred from parent to children or grandchildren, and on and on. These valuable assets remain within the same family for decades or even centuries. They can be intellectual property, land, buildings, shares, jewelry, etc.
In theory, the idea of generational wealth is very simple: create wealth, retain it, and transfer it to your descendants. But in practice, it is not so easy to do. The reality is most people who make a lot of money lose all of it in their lifetime; they leave nothing to their children.
But even in families where one generation leaves wealth to the next generation, that wealth often doesn’t make it to the third generation. Most people who inherit wealth from their parents (a massive 70%) don’t leave any of that money to their children because they spend it all.
The reason this happens is manifold:
- The generation that created the wealth did not teach their children about money.
- The generation that inherits the wealth only knows how to consume, not produce.
- The first generation didn’t appoint a trustee to ensure proper administration of the estate.
- The generation that inherited the wealth lost it to wrong financial choices.
- The wealth is lost because there was no intergenerational wealth management plan.
How to build generational wealth
Most families with generational wealth can point to an outstanding person in their lineage who was the origin of that wealth. This wealthy founder is usually an individual with exceptional abilities who took great risks to set up a solid foundation for the family’s wealth.
The paths taken by these founders are often very diverse. The only commonality among most wealthy founders is their keen ability to make and keep money and their foresight to create structures to ensure wealth is preserved for future generations.
You can also become a wealth founder for your family; the outstanding individual future generations will look back to as the reason for the privileges they enjoy in their lifetime. How do you become that person? What are the steps to building generational wealth?
Steps to building generational wealth
1. Start investing today
Your primary objective should be to amass as much wealth as possible within the shortest time. You can do this via a combination of active, passive and semi-passive income sources. These assets should include an assortment of short-term and long-term investments, such as;
- A portfolio of well-maintained properties in high-demand areas.
- Investments in stocks and bonds.
- A business that you can hand down to your children.
- Buying life insurance.
2. Craft your financial plan
A financial plan serves as a roadmap from your current financial position to your desired future. It outlines your goals as well as the strategies for achieving them. A good financial plan will help you track your spending, budget your income, tackle debt, plan for retirement, and lots more.
A financial plan helps to create purpose and instill discipline. It is an essential tool for building generational wealth because it can help to keep you on course toward your goals. It also offers practical measures for assessing your progress.
3. Create structures to protect and transfer your wealth
To build wealth that will impact the lives of future generations, you need a set of structures and systems. These systems and structures ensure that the wealth is not lost even if your heirs do not have the financial acumen to manage it.
Vital elements of this system include writing a will, appointing impartial trustees to hold, transfer, and manage your assets on behalf of your beneficiaries, and teaching your children about making and managing money.
Every rich family you hear about on the news today originated from the actions of someone in their past. You can also be that someone for your family.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.