Five Simple Ways To Build Generational Wealth
/Contrary to popular belief, you do not have to be a millionaire to build wealth for your future generations or for your own personal legacy.
If you have children, one of the key steps for building generational wealth is to teach them about money as soon as possible. Keep reading for more simple ways to build generational wealth.
How to build generational wealth
Building generational wealth is surprisingly very boring. There are very few shortcuts or secrets. Financial health is a lot like physical health - it takes time, effort, and consistency to be healthy.
Invest in real estate
Real estate investing can be a lucrative income-producing asset that also helps to boost your overall net worth. If you have ever thought about generating a stream of passive income, then investing in rental properties could be a good idea.
One of the most important benefits of investing in a rental property is the monthly rental income from your rental property. It can be a great source of recurring revenue and a way to build generational wealth.
A rental property can act as a hedge against ups and downs in the stock market. Be sure to read this article about the pros and cons of investing in real estate.
Save money
Another simple way to build wealth is by saving. You may be thinking, duh(!), but it continues to surprise me how few people actually have a consistent habit of savings. Saving is a simple concept, and like most things, the simple ideas are the ideas that usually reap long-term rewards.
The biggest reward that it offers is literally saving you from a financial crisis and/or providing a cushion for when you want to take a chance on a big idea. Savings accounts have very very very low-interest rates and therefore, are not tools for building wealth. However, folks that do not have cash savings tend to use high-interest credit cards to make purchases. The cost of using credit cards or personal loans will erode your efforts of building generational wealth.
I recommend having a weekly money date and using that time to consciously save money. Click here to watch a short video about a money date and to download your free checklist.
Contribute to 401k or self-directed retirement account
Most companies provide 401k plans that allow their employees to contribute pre-tax dollars from their paycheck to a retirement plan and reduce their taxable income. Some companies will match your contribution, hence giving you “free” money to your wealth-building fund.
If you are a freelancer or small business owner, there are other options for retirement accounts such as the Solo 401(k) and SEP-IRA.
With these accounts, compound interest is your best friend. Like magic, it will help grow your wealth at a faster rate than other vehicles such as a savings account which generally has a very low-interest rate.
With the help of compounded interest, your contribution can grow to be a healthy nest egg. Another option is to contribute to a Roth 401k, which allows an employee to contribute post-tax dollars from their paycheck. This type of retirement account helps people avoid a high tax bill when they retire.
Invest in stocks
Stock market investing, such as ETFs , is another way of building generational wealth. It is more liquid than real estate investing - meaning you can more easily access the cash- and generally requires less time to manage.
Similar to retirement accounts, the compound interest works in your favor and will support you on your path of building a legacy of wealth.
Start a small business
Whether you decided to do your business full-time or as a complement to your full-time career, generating additional income flows is a guaranteed strategy for building wealth. In addition to the extra cash, a small business can also open up opportunities for access to loans and other means for leveraging assets to create wealth.
How to transfer generational wealth
Now that you have an idea of how to create a strategy for building generational wealth, let’s review some options of how to transfer it to your successors.
An estate plan
An estate plan is a series of legal documents, such as a will, trust, and power of attorney. A will has instructions on how you want your assets to be managed and distributed. It may not be a fun topic to think about what needs to go in your will, but it’s a necessary exercise if you want to preserve the legacy you’ve worked hard to build. Be sure to consult an attorney or financial planner that specializes in estate planning to walk you through this process.
Beneficiaries
Beneficiaries are people assigned to receive your assets in the case you die. Although you may have a will in place, the beneficiaries can override those designations.
Charitable remainder trust
A charitable remainder trust (CRT) is a way for you to earn money while also donating to your favorite charity or charities.
The technical definition is: A charitable remainder trust is an irrevocable trust that generates a potential income stream for you, as the donor to the CRT, or other beneficiaries, with the remainder of the donated assets going to your favorite charity or charities.
The flexibility of a CRT means that it can be a helpful addition to building wealth for your family and/or for your tax management strategy. Click here to read more about CRTs.
Custodial accounts
Custodial accounts are accounts that are in the name of a minor (i.e., your child) but managed by a guardian or parent. The parent can invest and save on behalf of the minor until they reach the legal adult age.
Disclaimer: the content presented in this article is for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.
