Generational wealth is when assets are passed from one generation of a family to the next. These assets can refer to financial savings, stocks, bonds, property or even businesses.
In effect, the first generation accumulates wealth and property in their lifetime and then hand it over to their children when they die. If everything is properly planned, those children continue to accumulate assets and the wealth builds, to be passed onto their children, and so on.
Generational wealth can be built through a whole range of different assets including:
Other valuable items such as antiques and heirlooms; or
Life insurance policies.
In terms of actionable steps that you can take to build generational wealth, there are a few strategies you can use:
1 – Set up a trust
A trust fund is where your assets are placed into an account that is held by another person. This is so other people can benefit from it other than the original owner. It can hold multiple kinds of assets such as:
Items of high value (such as antiques or fine art).
Setting up a trust provides a wealth of benefits for both the creator and the recipients of the trust.
The main advantage of using a trust is that any accumulated wealth is properly controlled so that the recipients receive the most benefits. When it comes to generational wealth, this is important since you want those assets to be protected for future generations. For guidance on how to set up a trust fund you can refer to our informative blog on the topic.
2 – Invest your money
Investments have become a popular way to generate wealth among younger generations in recent years. This is because you can choose to ‘set and forget your money’ meaning you put aside funds and leave them to accumulate over the years without putting in any active effort.
Investment options that you can consider include:
Mutual and exchange-traded funds
Retirement investments accounts
3 – Start a Business (that will eventually be passed down)
If successful, a business can be a great way to pass down a legacy to future generations. Your children or grandchildren can always choose to sell the business and invest the proceeds in multiple ways.
While any person can create their own wealth, once they pass away, it is their family that benefits from it. Whether we like it or not, individuals who have access to family wealth have a bigger advantage in life than those who don’t. This is because those with generational wealth have a financial head-start that allows them to spend on expenses, pay off debt, or use for investments and building a business.
On top of that, with the many financial burdens such as low wages and high costs of living, it is harder to generate your own wealth. For example, it can take years to pay off credit card debt or even school loans.
If you plan to grow your family, having generational wealth is extremely important. Even though it is in the long term, you want to still provide financial comfort for your future generations.
The most important step in building generational wealth is to start as soon as possible. Wealth generates overtime, so the earlier you start, the more money you can set aside for future generations.
Protect your wealth
Something just as important is to make sure you are protecting your assets. It’s reasonable to want to have a peace of mind knowing that your wealth will be passed onto future generations without any complications. You want to prevent any future family conflict by making it clear how your estate will be passed down.
One of the ways you can make sure that your wealth is passed down based on your wishes is to develop a Will. Writing a Will allows you to list everything you own, and how you want them to be distributed.
Safewill is an online Will platform that will help you to create, update, and store a Will easily and affordably online. You can get started writing your Will today from the comfort of your own home.