Being financially stable and secure is about more than the immediate need to get bills paid on time or debt paid off.
When people start families, they need to think about their future generations and financial stability. It’s essential to lay down a strong foundation for your children so that they can lay a solid foundation for theirs and so on.
What Is Generational Wealth?
Building generational wealth can include creating an education fund or having a life insurance policy in place. You need to start preparing for their futures today to be ready when it is their turn to do the same.
Building generational wealth means creating that solid foundation for your children’s future that can pass down from one generation to the next. This will create a legacy that will extend beyond you and your lifetime.
Why Is Building Generational Wealth Important?
If you get started with little to nothing finance-wise, you probably understand the importance of generational wealth. Think of everything your parents could have done for you if they had built generational wealth for your family.
Your life may have been easier if your college education had been paid for, and you wouldn’t have had to play catch up with student loans. Instead, you could have been putting the money towards retirement or your first home.
What if your parents had taught you financial literacy from a young age? You may have been able to avoid some financial mistakes in early adulthood, such as racking up unnecessary debt.
You could have learned to live below your means instead of always living above.
As you reflect on these things, ask yourself if you want your children to have the same experiences you did or if you want to give them a better one. Generational wealth is important because it sets your family up for a better future, setting your children up for financial success and well-being.
How Can You Build Generational Wealth?
There are a few different ways to begin the process of creating generational wealth for your family.
Teach Your Children Financial Literacy
Understanding how your children handle the family wealth you pass down when creating generational wealth is essential. This is why it’s necessary to know how to manage finances early on. This will help prepare them for success long term.
Build Some Type of Family Business
Successful family businesses are significant financial assets that can be passed down through families. Prepare them by teaching them good business practices and providing them with growth opportunities.
Getting your child involved in the business at a young age will prepare them for when it is time for them to take over. Early involvement also increases the likelihood of wanting to take over the business.
Invest in Real Estate
Diversify your financial portfolio and build wealth by investing in real estate. The best way to go about this is to have rental properties or an apartment building that you can pass on to the next generation when the time is right.
Your children will be set up to earn passive income on top of any other job they might have and help them invest in their children’s futures.
Have Life Insurance
Getting life insurance is a good idea because it will help protect your loved ones if something happens to you. Life insurance will replace your income and help support your family until they get back on their feet.
Build Your Retirement Fund
Retirement accounts are some of the best investment tools because they offer tax advantages and other benefits designed to help your money grow faster. Most employers offer a 401(k), where they will match your contributions.
By setting up your retirement account early, you are easing the burden on your children when you require care later in life.
Invest in Your Children’s Education
If you want to help your children get ahead early on in their lives, make sure you start an education fund for them as soon as they’re born.
The hope is that they will not need to take out any student loans by the time they go to college, saving them hundreds of thousands of dollars after they graduate. They can begin putting their hard-earned money into more worthy investments.
How Do You Pass Down Generational Wealth?
Now that you have the wealth you set out to build, and you need to have a plan to distribute it appropriately when the time comes. There are a few ways you can do this.
Have a Succession Plan
It is crucial to have a succession plan to pass down your wealth so that all transfers happen smoothly. It will also make sure that all wealth is distributed throughout the family appropriately.
So, even if one child continues the family business and the others do not, those who did not will still be cared for. Estate planning is a large part of this process. Estate planning is what your will is going to cover: the proper distribution of your wealth.
When you are doing estate planning, you must prepare everything so that all transitions will be as smooth as possible.
Make a Will
It’s imperative to make a will so that your assets are appropriately distributed to your family members when you pass away. In many states, a will is also the only thing that will ensure your minor children go to a guardian of your choice.
You should make a will as soon as you begin gathering assets such as real estate.
Make Sure Your Beneficiaries Are Up to Date
To ensure all your assets and investments are appropriately distributed, you’ll need to name your beneficiaries. Make sure you review and update this information consistently to know that the money you’ve worked hard for is going where you’d like.
You don’t need to be part of the upper class to create wealth and financial opportunities for your children. There are many different ways you can begin prepping now to ensure that their financial futures are secure and their needs will be met.
The most valuable thing you can give your children is financial knowledge so that when you pass, they will know how to handle the wealth that they will inherit responsibly. If they do not understand and acknowledge the value of your wealth, they will not treat it as it should be.
Set financial goals and make smart financial decisions so that your legacy can live on long after you are gone. Your children and grandchildren will thank you.
This post was produced as part of the Plutus Foundation Impact Series.
As a certified credit counselor, Max has coached over 250 Millennials to help take the stress out of money. After coaching, his clients live stress-free about money and have a simple plan they can follow to accomplish their goals. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches.