If you’ve stumbled upon this article, it probably means that you’re thinking about the future. Maybe you’re worried about the generational wealth gap that’s looming over the heads of our younger generations. Perhaps you’re just setting out on your financial journey and are strategizing on how to start building wealth early. Wherever you might be on your financial journey, you’re in the right place. In this guide, we’ll be sharing actionable strategies on how to build generational wealth that’ll last for many generations to come. It’s all about creating a legacy that will serve your family, one that will help counteract the effects of any economic storm.
What is the Definition of Generational Wealth?
Generational wealth describes an accumulation of assets and property that gets passed down from one generation to the next. It could describe the wealth that is generated by one person that is then passed down a single lineage, while it can also describe family wealth that is created collectively and distributed amongst each passing generation of family members.
The goal of generational wealth is to pass it down without erosion. Data shows that generational wealth is easy to lose, so much so that most families lose their wealth within two or three generations. You can prevent this from happening by protecting your wealth, plus any future wealth generated, by implementing an iron-clad estate plan and strong family value system.
We talk more about this in our in-depth generational wealth guide. Next, we’ll dive into actionable steps for building generational wealth that’ll last.
6 Tips for Building Generational Wealth
Building generational wealth might seem like a lofty goal, but it’s achievable with proper planning and diligence. It’s helpful to take any big goal and break it down into smaller, actionable steps. Keep in mind that building wealth takes time; small, consistent contributions over time is more effective than making sporadic money moves. Here are 6 tips for building generational wealth that you can start taking action on right away.
1. Develop a long-term growth mindset
The first thing you’ll want to do is develop a long-term growth mindset. That’s because when you’re working on goals that could possibly take decades to achieve, it’s easy to get lost and lose steam along the way.
Research shows that writing down your goals increases your chances of achieving them by 42 percent. We recommend that you write down your wealth goals, including targets you’d like to hit when you reach certain ages or milestones in your life. Consulting with a financial planner may be helpful in determining realistic goals.
We also recommend spending a few minutes journaling to connect with your “why.” These are your core beliefs and desires that are driving you toward these goals. Gaining clarity on your “why” will provide you with something to return to if you ever start feeling lost, distracted, or even frustrated along your journey.
For most people, this includes creating a large vision that doesn’t just focus on you, but the legacy that you want to leave behind for multiple decades into the future.
2. Invest your assets
One of the most effective ways to grow wealth more quickly is to put your money to work. Putting money into a savings account is a perfectly noble concept -- it’s a great place to put your money away for safekeeping. However, even the best interest rates are roughly between 0.4% and 0.5%, which is nowhere near our inflation rate of 7.9%. With inflation at an all time high, many are putting off estate planning as well as setting up investment accounts. However, this is a mistake to be wary of because putting off estate planning now, means putting off starting to build multigenerational wealth for your future.
Instead, it’s recommended that you invest in the stock market and real estate to grow your assets in a more significant way. The idea of investing in stocks might be intimidating at first. However, there are a number of apps that have made investing more accessible to beginners, such as SoFi and Acorns. Ellevest is an investing app that was designed specifically with women in mind. Many offer intuitive platforms while supporting you with tutorials, support, and education. You can also work with a financial advisor who can advise you on investment decisions that best fit your individual circumstances and financial goals. We recommend starting small with a few low-risk investments, and upping the ante as you gain more experience and confidence.
Real estate is another popular way to build wealth in the long-run. Save for the occasional economic downturn, real estate consistently appreciates in value over time. What’s great is that buying a home is dual-purpose - it’s an investment that you get to live in! Your primary residence can eventually be sold, or passed on to a loved one. This in itself can provide profound financial relief for your family. You can also work your way up to investing in rental properties to lock in passive income for many years to come. Many of America’s wealthiest families own a collection of income-producing properties, including residential homes, estates, and commercial buildings.
3. Invest in your child’s education
Your children will have increased access to high-paying opportunities with a college degree. If you’re able to set your child up so that they can go to college without taking out any loans, you’ll give them a head start financially.
So many young college graduates have a hard time juggling their student loan payments with a low salary and high costs of living. This can quickly lead to additional debt, which will delay the process of building a solid foundation of their own. With so many students enrolling in master’s degree programs directly after college, the total amount of student debt can frankly be crippling.
To save up for your child’s education, explore ways to set aside funds on a regular basis in an environment in which it can grow. For example, many financial institutions offer a 529 Plan, which is a tax-advantaged education savings option. You can also protect investments and funds by placing them into a Trust, which will eventually get distributed when your child enrolls in college.
4. Talk to your family about financial planning
So much of the generational wealth you’ve built will fall into your family’s hands. If you want it to last, it’s important to have open and transparent communication with them.
Many of us were conditioned to believe that it’s inappropriate to talk about money, to the point that it can be awkward and uncomfortable. However, by avoiding these critical conversations, children often grow up without any financial literacy or understanding of the family wealth plan. This lack of communication is in part to blame for the wealth erosion that happens all too often.
It will prove valuable to hold honest conversations with your family about core values and beliefs around money. It’s also helpful to talk to them about your assets, your estate plan, and your generational plan, so that they understand what they will one day become responsible for. Through trust, communication, and education, you’ll increase the chances that the legacy you’ve behind will benefit as many generations as possible.
5. Create trust(s) to protect your assets
One of the most popular estate planning methods of protecting assets is creating a Trust. A Trust is a fiduciary agreement that is often included in an estate plan, and holds assets for one or more beneficiaries. Through the Trust, you can specify which assets you want to go to whom. You can also dial down on some stipulations to make sure your hard-earned wealth is protected and distributed in a way that aligns with your generational wealth vision. Stipulations can be set up in a way that sets up your beneficiaries for success as well. For example, you could stipulate something along the lines of, “I want my daughter Suzie to inherit the balance of the high-yield savings account at [Name of Institution] when she turns 21, and only upon her completion of Columbia University’s 5-Week Online Finance Program.” This example illustrates how a stipulation can help ensure that a beneficiary will receive their inheritance once they have the tools to use it wisely and responsibly.
Further, placing your assets in a Trust will protect them from the probate process upon your passing. Because Trust assets are owned by the Trust, and not by you (the individual), and therefore are not liable for examination by probate court. This can preserve your wealth by avoiding expensive court fees, and can drastically reduce tax liability.
6. Set up an estate plan to protect your money
A Trust is just one aspect of estate planning. Your estate plan can also include key documents such as a Last Will & Testament, Power of Attorney, an Advance Directive, and different types of Trusts, such as Special Needs Trusts or Irrevocable Life Insurance Trusts.
You can learn the unique functions of the estate planning tools listed above by clicking on their respective links. However, this is meant to demonstrate just how many options there are to suit your individual needs. Every family has a different vision on how they want to build and pass down generational wealth, and that’s why every family’s estate plan looks different.
However, here are some themes that every family should consider:
How to best protect your assets while you’re alive today
How to minimize taxes at the time of transfer
How to set up future generations for success without potentially jeopardizing any federal benefits they might receive
How to ensure that future generations can continue building upon the wealth instead of eroding it
Protect Your Legacy with an Estate Plan
If the idea of building a long-lasting legacy seems overwhelming or even inaccessible, your feelings are honored. In the generational wealth gap article we referred to earlier, we talked about how Americans are reeling from the effects of the 2007-2008 Financial Crisis, the Great Affordability Crisis, and the economic hardships caused by the COVID-19 pandemic. These events have delayed wealth planning activities for many Americans; many of us are just trying to get by.
If we were to look for a silver lining to all this, it’s that Americans are increasingly taking their financial matters into their own hands. It only takes some counseling and education to understand that building generational wealth isn’t something that happens overnight. It requires small, mindful steps over the course of a lifetime. The good news here is that anyone can begin taking these aligned steps, no matter how small they might seem. Every single penny counts.
While you’re researching how to build generational wealth, it’s just as important to understand how to make it last. Setting up an estate plan is one of the only surefire ways to protect your assets for the long haul and increase the odds that any wealth you’re able to pass down will make it pass the three-generation “curse.”
If you’re feeling ready to create a solid estate plan that will not only protect your wealth, but will also support your family’s future, Trust & Will has a number of options that are designed to fit your needs. Explore how you can get started today.
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