Skip to content

How To Build Generational Wealth

Do you want to learn how to unlock and build generational wealth that can be passed down your family line? We are increasingly living in a world where financial security is becoming the new norm, and with it comes the opportunity to plan ahead.

Building wealth over time — or generational wealth — means investing wisely today so you can achieve financial freedom for tomorrow.

Generational wealth is the transfer of assets and financial resources from one generation to the next and has been proven to widen disparities between wealthy and poor families.

A study done by the US Joint Economic Committee shows that 15% of multi-generation households are worth more than $3 million, compared to just 6% of single-generation households.

This gap also applies to poverty levels, with only 11% of multi-generational households in poverty, compared to 29% for single-generation homes.

By developing a strategy with your family to build generational wealth, you can ensure inter-generational financial stability and reduced disparities between families and generations.

While it may take effort and patience, investing in strategies such as saving money and investing early can help set up future generations on a path of sustainable success.

With careful thought and planning, anyone can create a long-term investment strategy that will set them up for success, especially when it comes to passing down their assets as inheritance.

Next, we’ll discuss the best strategies to begin building generational wealth that your whole family will benefit from for years to come!

Encourage Financial Education

Understanding how finances and money works is the first step to building generational wealth. A comprehensive financial education introduces the key concepts of managing and investing one's money, along with budgeting, salesmanship, savings, and credit associated with personal finance.

When people in your family should be introduced to financial education largely depends on their life stage; however, it can begin when children are still young by learning tips they will use throughout life (for example, the importance of saving).

Formal educational opportunities include taking classes or applying to after-school programs that build foundational knowledge on finances while informal opportunities include bringing family members together to discuss previous experiences with investments or debt management.

Overall, a comprehensive financial education has many benefits both now and in the future.

Invest for the Long Term

Building generational wealth requires thought and consideration in how you invest your money. One of the most popular investments for many is real estate.

People often buy a single property to rent out, hoping to create a steady stream of income that then can be used to diversify into another asset class such as stocks or bonds down the road.

Another type of investment for those looking to build their wealth over time is investing in mutual funds or indexed funds.

These types of instruments allow you to enjoy the benefit of having an experienced professional manage your money while also allowing you to take advantage of market movements with varied strategies, such as dollar-cost averaging and selecting socially responsible funds.

To ensure success in building generational wealth, it's important to diversify and have a mix of different types of investments that are tailored towards different long-term financial goals.

Use Leverage

Building generational wealth is an important goal that takes time, hard work, and sometimes even a helping hand from others. As you progress in your financial journey, taking out loans early on might be the only way to acquire investments such as real estate and reach your wealth-building ambitions faster.

VA and FHA loan options are two special types of federally backed loans for military members and first-time home buyers respectively, offering lower interest rates and more flexible repayment options than traditional bank loans might offer. Consider researching these loan opportunities to determine the best choice for you given your current situation.

In general, VA loans are great options for those who meet its rigorous criteria while FHA loans are usually more accessible due to its relaxed qualification rules but come with slightly higher interest rates.

Understand which of these loan opportunities work best for your long-term goals to get onto the path towards success.

Start a Business

Owning a business that has long-term value can be an incredible way to create and maintain wealth. According to a study by the Small Business Administration, more than 80% of small family businesses survive at least 1 generation, and nearly 4 in 10 survive through the third generation.

Types of businesses that may be conducive to long-term stability include those with high value intellectual property, such as software development firms and technology consulting companies.

Other ideas might be retail establishments that offer a unique niche product or service not provided by large chains, or medical practices like chiropractic services or physical therapy clinics.

Even if you don't plan to hand down the business from generation to generation, any of these factors have potential for long-term scenarios in which you can benefit from continued good performance over time and help preserve your family's commercial legacy for future generations.

Acquire Life Insurance

When it comes to life insurance, it is important to understand how it works. Life insurance provides financial support to loved ones in the case of death. Premiums are investment payments that are taken out while the insured individual is still alive and will payout once the individual passes away.

Depending on the plan, this money can be used for various costs such as funeral arrangements or ongoing expenses for the survivor(s). Not only does life insurance protect one's family from losing their home, its value also grows with time, providing a savings for beneficiaries after one has passed away. By investing in life insurance now, you can set your loved ones up for success well into the future.

Life insurance is an invaluable resource for individuals and families who seek financial security. It works by providing the policyholder with coverage against loss of life.

Depending on the type of policy, benefits may include those prohibiting financial debt, payment of final expenses such as funeral costs or other medical bills due to illness or injury, and even disability benefit payments. Through life insurance, you can also create a legacy for your beneficiaries in the event of your death.

A life insurance policy can provide ongoing financial prospects for beneficiaries that save them from a potentially crippling financial loss. In addition to providing a lump sum payout to help manage the immediate costs associated with death, it serves as a constant source of income that family members can rely on long after the policyholder has passed away.

Life insurance is therefore both an excellent way to alleviate any potential financial burden and to provide ongoing financial support for your loved ones after you are gone.

A person puts a block with dollar icon

Set up a Trust

A trust is a legal arrangement in which one party, the trustee, holds property or assets for another party, the beneficiary. Trusts are a great way to ensure that your assets are managed and distributed according to your wishes after you pass away.

When setting up a trust, it's important to balance your current and immediate needs with your long-term goals and intentions.

What's often overlooked is how trusts can facilitate the growth of generational wealth - an important consideration in the planning process.

According to a recent report from Forbes magazine, 64% of high net worth individuals believe that creating family trusts is essential for families looking to accumulate or protect their wealth over generations - something you should keep in mind when considering starting your own trust.

There are important considerations when setting up a trust. One thing to keep in mind is tax law – in some countries trusts are subject to different taxes and other fees than individuals are.

You must also consider who will serve as trustee, since that person has significant responsibility for the assets in the trust. Additionally, no two situations are exactly alike concerning trusts, so it’s important to consult with an expert when looking into setting one up.

According to a recent study from The National Bureau of Economic Research , households that owned corporate stock through a trust grew their wealth significantly more than comparable households without one.

This statistic helps illustrate the importance of trusts when it comes to passing generational wealth on through future generations.

Diversify Your Revenue Streams

Diversifying your revenue streams means creating various sources of income by investing in different opportunities. For example, you may choose to invest in stocks, mutual funds and real estate property; each of these provide distinct ways to generate wealth.

This strategy offers the best protection against market downturns due to its flexibility—while one avenue may perform poorly, others could continue to secure returns.

Investing in real estate is an excellent starting point when diversifying your wealth. It's a great way to ensure that your money is working for you and increasing in value each year.

By investing in real estate, you're creating more security than simply relying on the stock market or a job -- quite simply, it’s physical property that can't just disappear the way stocks or other types of investments can.

Real estate also helps build generational wealth because the value of real estate traditionally increases over time, meaning that if you choose to lease out a property instead of selling it, you could stand to gain an incredibly high return on your initial investment down the road as the value goes up.

Investing in real estate helps secure your future and can provide additional income-generating opportunities further down the line -- making it an ideal choice for those looking to diversify their wealth and start building towards long-term success.

According to a study conducted by global accounting firm PWC, 41% of US high-net-worth individuals use geo-diversity as a key tool for enhancing their long-term financial growth.

Diversifying your revenue streams is an essential tactic for growing generational wealth, as it allows investors to focus on fewer risks and expand their portfolios.

Best practices include consulting with experts when evaluating potential investments and establishing multiple streams of income with reliable returns that can be sustained over time.

Strategize With Your Family

As someone who cares deeply about their family and future, you understand the importance of building generational wealth. Generational wealth allows your descendants to benefit from planning that you have done for them and cultivate a prosperous financial outlook for your whole family.

It can be hard to discuss money topics with family and providing instructions after your death can feel difficult, but having these conversations is essential in order to make a successful plan.

Begin by framing the discussion around what will make your family happiest financially down the line and having everyone agree on common goals they want to achieve financially as a unit - this will help create an environment where everyone is open minded to potential strategies.

After assembling a team of reliable financial advisors, it is important then to address specific ways in which each person can best contribute and share knowledge throughout the process.

This collaboration could include establishing family trusts or creating shared investment strategies - all aspects that should speak to heirloom values rooted in families for years to come.

How To Pass on Wealth

Passing on your wealth to the next generation can be an incredibly rewarding experience. It’s a way of ensuring that your hard-earned money and assets will continue to benefit your loved ones long after you are gone.

But it can also be complicated, so it’s important to understand all the considerations involved in building generational wealth.

Here are some key steps for creating and distributing a legacy:

  • Make a will - This should be done to ensure that your property and possessions are divided according to your wishes.

  • Consider tax implications - Estate taxes, capital gains taxes, and other associated financial costs can significantly reduce the amount of money you pass on.

  • Determine Beneficiaries - Decide who you want to benefit from the wealth you build up during your lifetime.

  • Create trusts - Trusts allow you to manage assets while keeping them out of probate proceedings.

  • Establish guardianships for minors/dependents - You may decide to appoint someone as a guardian for any minor children or dependents in order to manage their inheritance until they reach adulthood.

  • Investigate life insurance policies & annuities - These can provide lump sums paid out after death and serve as an additional source of income that beneficiaries can use for future security.

  • Outline instructions & values in writing - Documenting instructions and values allows family members, trustees, or executors understand what is important and how it should be handled when distributing assets or possessions upon death.

Challenges for Creating Generational Wealth

Building generational wealth is a goal that many people strive for, but it can be difficult to achieve. There are several key challenges associated with creating and preserving long-term financial security for families.

The following list provides an overview of the main issues to consider when building generational wealth:

Lack of Education and Financial Literacy

To build generational wealth, individuals must first have an understanding of the different asset classes and financial concepts such as investing, saving, budgeting, taxes and estate planning.

Solution - Invest in financial education tools like books or courses to build up knowledge on how to build wealth.

Insufficient Savings

Having enough money saved is essential for building long-term wealth so that it can be invested in assets that can generate income over time.

Solution - Establish a budget with clear savings goals and track your progress regularly to build up an emergency fund and long-term investments.

Poor Investment Choices

Investments are key for growing wealth because they provide returns on money over time through interest payments or appreciation in value of the investment itself (like stocks).

Solution - Do research before investing into any asset class so you understand the risks involved and have realistic expectations about returns you may receive from them over time.

Unprotected Assets

It’s important to protect your assets from creditors by using legal structures such as corporations for business ownership or trusts for inheritance planning purposes which keep them safe from creditors if something bad happens financially down the line.

Solution - Use experienced attorneys who specialize in setting.

Find The Right Mortgage

For more than 20 years, Phil have been helping customers achieve their home purchase and refinance goals by providing them with invaluable resources and support.

Schedule a FREE Consultation
Phil Ganz

Subscribe to Get Your First Time Homebuyer Checklist

Sign up for the weekly newsletter to stay up to date on the latest real estate market trends, loan news, and so much more!