Generational wealth: it's a hot topic, and if you haven't heard of it, you definitely need to know about it.
Generational wealth is garnering a lot of attention today, and for good reason. It's not just about having money to splurge; it's about the freedom and autonomy that financial stability can bring to your family for generations to come. This idea of long-term security has become increasingly important in an age of economic volatility and rising costs of living. Furthermore, it aligns with a shift in financial mindset - from earning for one's lifetime to building a legacy that outlives us. That's why the concept of generational wealth is making waves and sparking conversations, especially among millennials.
Building generational wealth is easier said than done, though. There's a wealth gap in the U.S. (and everywhere else), and the sluggish economy isn't any help. That's why we're here to explore how you can go about building wealth from little to no money, as well as how to preserve that wealth you've worked hard to build for future generations to come.
What is Generational Wealth?
Generational wealth, also known as family wealth or legacy wealth, is essentially the financial assets passed down from one generation to the next. It is wealth that is transferred from parents to children, and then potentially onto grandchildren and beyond. This can include anything tangible that has monetary value - such as cash, stocks, bonds, properties, businesses, and even intellectual property.
Generational wealth isn't new by any means. Heirship along royal bloodlines, for instance, has provided an example of generational wealth throughout known history.
However, what is relatively new is the concept that any individual has an opportunity to grow generational wealth. You don't have to be royal, and you don't have to come from wealth. In America, going from "rags to riches" is a possibility, under the right conditions. In fact, the greatest generational wealth transfer in American history is happening right now.
The intent of generational wealth is to provide financial security to future generations, and to alleviate them from having to start from scratch. The main goal is not just to create wealth for personal use, but to establish a financial foundation that ensures a family's economic stability for years to come. It's more than just money - it's a legacy that can shape the lives and opportunities of future generations within a family.
This concept has gained significant importance, particularly in unstable economic climates, where a strong financial foundation can act as a buffer against uncertainties. The generation of wealth is not confined to a single lifetime, but extends beyond, weaving a safety net for those to come.
Before we begin to explore how to go about building wealth for yourself and others down the line, we must first address some challenges that must be overcome.
Millennial Financial & Economic Hurdles
Millennial Americans are in an economic pickle, so to speak. This generation has endured a historic number of financial disasters in one lifetime thus far:
The Dot-Com Implosion
The 2008 Financial Crisis
The COVD-19 Pandemic
What this means is that Millennials in particular have faced the largest number of blocks with regards to building wealth relative to any other American generation in history. Examples of economic and financial hurdles for Millennials as a whole include:
Student loan debt
Lower savings
Tighter credit
Inflation and increased cost of living
Stunted career growth
Millennials have been hit hard by a series of economic setbacks. First and foremost, student loan debt has been a major burden for many in this generation. Higher education costs have skyrocketed, leaving graduates with substantial debt that can take decades to pay off.
The savings crisis is another significant issue. With salaries barely keeping up with the rising cost of living, saving for the future often feels like an insurmountable task.
Credit has also become a constraint. Tighter lending standards following the 2008 financial crisis have made it tougher for millennials to secure credit for significant purchases like homes and cars.
Furthermore, inflation and the increased cost of living have eaten away at the real value of their earnings. The cost of essentials, such as housing, healthcare, and education, have increased at a rate far outpacing wage growth.
Last but not least, numerous financial crises have led to stunted career growth. Many millennials graduated at the peak of the Great Recession with very limited career opportunities. Recent graduates with degrees found themselves working part-time and odd jobs. Most recently, the economic slow-down during COVID-19 have resulted in massive layoffs by some of the largest employers in the country. Career growth is not going as planned for the largest workforce in the nation, to say the least.
Wealth Inequality
We cannot have a discussion regarding wealth without addressing wealth inequality. Historical and systemic discrimination have caused a significant wealth divide between racial and ethnic groups.
According to the Federal Reserve, the median net worth of a White household is about 10 times greater than that of a Black household, for example. This wealth gap reflects centuries of policies that have restricted opportunities for people of color, including redlining, job discrimination, and unequal access to quality education. Even when controlling for factors like education and income, the racial wealth gap persists due to these structural inequities. Addressing this wealth gap is crucial, not just for achieving financial equality, but for ensuring that generational wealth can be a reality for all communities, regardless of race or ethnicity.
These hurdles have made wealth-building a challenging task for millennials, emphasizing the importance of strategic financial planning and management.
Overcoming Economic Crisis with Wealth-building
If we've learned anything, it should be that the economy is ever-changing. Long gone are the days in which we could follow an easy path of "go to school, get a job, obtain financial stability." Even when we do our very best, external factors can easily throw us for a loop.
Because the economy is so volatile, it is increasingly evident that relying on a steady paycheck is no longer viable. This may have worked for previous generations that enjoyed a relatively stable growth economy, but millennials have yet to enjoy this. (At least, not for long.)
Wealth-building is a proactive step towards controlling one's financial circumstances. It provides a safety net, enabling us to weather economic downturns, and can also create generational wealth that benefits our descendants. Moreover, wealth-building allows for financial independence, and the freedom to make life choices without being heavily dictated by financial constraints. As such, despite the hurdles, millennials must seize the reins of their financial futures through consistent saving, investing, and strategic estate planning.
How to Build Wealth (With Little to No Money To Start)
1. Take a Financial Literacy Class: Why don't they teach us the basics of money in grade school? Until this systemic issue is solved, we need to understand how money works in this country, including money loopholes and pitfalls to avoid. Taking a financial literacy class can provide essential knowledge, skills, and tools to manage your money wisely. These courses typically teach budgeting techniques, saving strategies, investing basics, and more. Knowledge is power, and understanding how to manage your finances is crucial in building wealth.
2. Take Advantage of 401K Matching: Financial experts and money coaches will give conflicting advice about where to start first. Emergency savings? Pay down debt? Invest? Luckily, virtually anyone will agree on one thing: take advantage of any available employer offers for retirement contribution matching! This is one known case where there is such a thing as free money. By contributing to your 401K, your employer will often match what you put in. This is doubling your retirement savings. Contribute the minimum required for now; you'll have peace of mind knowing that your retirement savings are growing while you prioritize other financial goals.
3. Ask for a Raise: When is the last time you asked for a raise? Advocating for yourself and negotiating a salary can feel awkward, but this is like leaving free money on the table. Women especially have a hard time demanding a higher salary. However, this is an impactful way to start earning more money right now without having to work a second job.
4. Start Saving: Even if it's only a small amount, the important thing is to start and make it a habit. Always pay yourself first. We strongly recommend opening a separate high-yield savings account that will grow while you sleep. Other financial advisors may encourage you to tackle debt first, but we believe in paying yourself first. This is because emergencies, such as a flat tire, or worse getting laid off, will derail you from your wealth-building activities. Having an emergency fund set aside will help you stay on track. No matter what it takes, be aggressive about building up an emergency fund, even if it means downsizing or adding sources of income. First start with one months' worth of living expenses, then three months', and so on until you've hit six months. When you have about three months' worth saved up, you can start putting your emergency fund contributions on autopilot and begin tackling other financial goals.
5. Budgeting: Create a budget and stick to it. This will help you understand where your money is going and where you can cut back. Be sure to check out our guide on how to set up a household budget here.
6. Eliminate Debt: Pay off your high-interest debts as quickly as possible. The less money you owe, the more you can save. Debt with low interest rates, such as student loan debt, car payments, or mortgages can be put on the back burner until you have the means to tackle them. Mentioned earlier, you may want to consider adding additional sources of income to help you pay off debt faster so that you can free up your resources for saving and investing. This can come in the form of side-hustles, selling belongings, asking for a raise, changing jobs, downsizing your lifestyle, or finding modalities to earn passive income.
7. Invest: Even small investments can grow substantially over time. Consider low-cost index funds or robo-advisors as a starting point. Self-made millionaire Ramit Sethi provides tip on investing for wealth here.
By following these steps, you can slowly but surely start building your wealth, eventually leading to financial independence and generational wealth. Don't forget that building wealth is a marathon, and not a sprint. Consistency and patience is the key, even if you don't get results immediately.
How to Make Wealth Last Generations
So what makes wealth generational?
So far, we've introduced our best tips on how to build wealth for yourself, starting from ground zero. Next, let's address how we can make sure that wealth can be handed down to the next generation, and the next, and the next.
This is much easier said than done. In fact, many cultures believe there's a generational wealth curse. The Chinese have the idiom, "wealth does not last beyond three generations."
Luckily, we can make sure history does not repeat itself by learning from other people's tragedies. It provides an important clue that you need a strategy to make sure wealth actually lasts.
The answer? An estate plan.
An estate plan is a process of anticipating and arranging for the disposal of your assets after you pass away. It involves creating a legal document that outlines how your assets will be distributed, who will manage your finances, and who will make decisions on your behalf when you are no longer able to do so. Estate planning can also involve minimizing taxes and protecting your assets from creditors.
Here is how you can use an estate plan to create generational wealth:
Asset Distribution: Outline how you would like your assets to be distributed after your death. If your goal is to create generational wealth, you might choose to distribute your assets to your children, grandchildren, or other heirs.
Financial Management: Designate someone you trust to manage your finances after your death. This person will be responsible for ensuring that your wealth is maintained and continues to grow.
Tax Minimization: Work with a financial advisor or estate planning attorney to design an estate plan that minimizes the tax burden on your heirs. This can help to preserve more of your wealth for future generations.
Protection from Creditors: A well-designed estate plan can help to protect your wealth from creditors. This is especially important if you own a business or have other significant liabilities.
Creation of Trusts: Establishing trusts can be an effective way to manage and protect your wealth. Trusts can also provide a means for providing for future generations.
Implementing these strategies through an estate plan can be a powerful way to create and maintain generational wealth. Remember, wealth that lasts doesn't happen by accident. It's intentional, carefully planned, and thoughtfully executed.
Start Your Wealth Building Journey with Trust & Will Today
The journey of wealth-building and establishing generational wealth is a path that requires intentionality, strategic planning, and smart financial practices. The role of estate planning in this journey is paramount. It's not just about amassing wealth but safeguarding it for your children, grandchildren, and the generations to come. Trust & Will is here to ensure this process is seamless and tailored to your specific needs. Don't leave your financial future and that of your family to chance. Take the first, intentional step today. Create an estate plan with Trust & Will and set the foundation for your generational wealth legacy now.
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Trust & Will is an online service providing legal forms and information. We are not a law firm and we do not provide legal advice.
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