What You Should Know About Generational Wealth

The Importance of Generational Wealth + How You Can Do Your Part

By

Matt Lyons

on

Jan 21, 2021

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Generational wealth is the money and/or assets that have been passed down from a family, generation to generation. Common assets may include investments, real estate, family businesses, and other available holdings. Other kinds of wealth may be intangible, such as family reputation, relationships, community impact, education, and values. 

Wealth can have importance because it gives you more options in life overall. When you’re not worrying  about paying bills or being able to afford leaving a job, you get the freedom to explore and live a life that’s true to yourself. Wealth is then passed on to generations and generations to come, giving your loved ones more options in life. Wealth doesn’t mean everything will be perfect and there won’t be any problems, but it certainly provides lots of advantages. 

How to Build Generational Wealth

Even if you’re  decades away from passing on any kind of legacy, there are things you can do to set the stage for your own family’s generational wealth. 

Invest in the Stock Market

Investing in the stock market can lead to some pretty great opportunities financially, allowing  you to work to build up your wealth and protect your money from inflation. If you’re considering investing in the stock market, you should come up with some sort of long-term plan and diversify your portfolio overall to make more money over time. An index that tracks the stock of almost 500 of the United States’ largest companies, the S&P 500, has returned a 10% average before inflation since 1926. It can be difficult to navigate the stock market at first, which is why it’s best to start through low-cost index funds. These funds can provide long-term growth opportunities at low fees. 

Take a look at the top 10 stocks of 2022:

Invest in Real Estate

Typically you will find that real estate appreciates over time, meaning that investing in real estate can be a great way to build wealth. Investing in real estate can be done in a variety of different ways, including investing in REITs purchased like stocks, or actually owning physical property. It can be difficult to understand the ins and outs of real estate, and many of those who try and invest in real estate end up failing without the proper knowledge. Here are some things to consider before you go ahead and purchase any rental property:

  • First time as a landlord: If you are considering investing in a property, it will be your duty to take care of any potential repairs and maintenance. As a landlord, make sure you take time to screen each and every one of your prospective tenants. Some things you may want to ask from a potential tenant include references, employment status, monthly income, recent credit report, or even a bank account that shows they have savings to cover rent in case of a foreseen circumstance. 
  • Prepare for unexpected costs: Property related costs can come up at any time, so it’s important to have the money available if these issues do happen to arise. If you’re thinking of buying a rental property, you can follow the 50% rule as a good rule of thumb. With this rule, you will prepare all of your finances assuming that the expenses could reach as high as 50% of your gross annual income. 

Start a Family-Owned Business

Creating a family-owned business can be a good way to bond a family through similar interests, as well as an efficient way to build some of that generational wealth. It’s estimated that more than 30% of family-owned businesses have made it to the second generation. If you have children already, getting them involved in a family business while they’re young can encourage them to take over the business one day when they’re ready. 

Members of the Mars family
Jacqueline Mars and her two granddaughters, who are a part of the multigenerational family candy business. Jacqueline has a current net worth of $31.7 billion thanks to her grandfather Frank Mars who originally founded the company. Image courtesy of Business Insider.

How to Pass Down Generational Wealth

When building generational wealth, it’s important to create a plan to divide your assets in case of an emergency. 

Write a Will

A will provides instructions for your estate and how your assets will be handled. A will can communicate how children should be cared for after a death for instance, but can also list financial assets so that your family members have an easier time finding them.

Set up a Trust Fund

A trust fund is a legal entity you can use to transfer assets to your beneficiaries. Trusts may be expensive, but they include some great benefits such as reducing estate and gift taxes

Establish Account Beneficiaries

If you want to make sure that your assets are being passed down to the right people, you should name specific beneficiaries for each one of your accounts. When specific beneficiaries are named, this will make it easier for your family as they won’t have to scramble and figure out who gets what!

Start Building Today

Building generational wealth can be quite the process, but the benefits have the potential to greatly outweigh the risks. Work to follow some of the ideas mentioned, and you might be surprised to find out just how much you could impact your family for generations.

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