generational wealth

The Complete Guide to Building Lasting Generational Wealth 

What will you leave behind for your children and grandchildren? Treasured memories, a life well-lived, and hopefully a little something extra in the form of generational wealth. 

If you want to make your name an asset that commands respect for generations to come, now is the time to start building toward generational wealth. This guide will discuss what generational wealth is and how to overcome common roadblocks to attaining it.

What is Generational Wealth?

Generational wealth is more than just money or a retirement plan. It’s a legacy — something to be passed down from one generation to the next that can provide stability and security for years to come.

Legacy wealth includes the accumulation, preservation, and legacy of valuable assets and critical knowledge that exchanges hands across multiple generations. Unless you already come from a family that has amassed significant wealth, it may feel overwhelming to think about how you’ll manage to give future generations a better lifestyle. It’s also possible your busy daily life has made it difficult to stop and think critically about the future until now.

With time, patience, and knowledge, you can build a financial legacy alongside your other long-term financial goals — including paying off debt and saving for retirement. Even if you’re living paycheck to paycheck, it’s possible for anyone to strategically position their family for generational wealth that lasts for decades or centuries. In fact, if you’re starting from financial scratch, you must begin planning for the financial future of the next generation now.

Generational Wealth Breaks Class Barriers

If you’re like most people, you’ve likely already learned how difficult it can be to recover from financial mistakes. High-interest loans, credit card debt, and a poor credit rating are some of the many economic challenges that can keep families down for years. 

But what if your children didn’t have to overcome the same financial obstacles in their lifetime? Imagine if you could guarantee your loved ones an entire college fund and a down payment for a comfortable home.

In addition to breaking down financial barriers, generational wealth ultimately breaks generational cycles of poverty and poor financial decision-making. It allows families to build generational equity and power. By learning how to manage and grow your money now, future generations will have a solid foundation to make sound financial decisions — no matter what life throws their way.

Generational Wealth Destroys the Scarcity Mindset

One of the most significant barriers to generational wealth is the scarcity mindset. A scarcity mindset is a belief that there’s never enough money to go around, which can prevent people from taking calculated risks that offer the potential for high rewards.

For example, someone with a scarcity mindset might avoid investing in stocks because they’re afraid of losing money. On the other hand, someone who understands generational wealth knows that taking risks is essential to growing their assets. They also understand that long-term gains can absorb short-term losses over time as long as they continue to invest and don’t give up.

If you want to start building generational wealth for your family, it’s essential to be the first to break free from the scarcity mindset. Instead of being afraid of losing money, focus on the long-term potential for growth. With this approach, you’ll be more likely to take the necessary risks that will help you achieve your financial goals.

How Do You Build Generational Wealth?

As you work on shifting towards an abundance mindset, you may also want to brush up on your understanding of financial literacy. Financial literacy includes learning about topics like investing, saving, and budgeting. 

Once you have a firm grasp of the basics, you can start taking steps to build generational wealth for your family. Financial knowledge is the foundation of all generational wealth, as it ensures your legacy is handled with care so that it can continue to thrive.

Understand Your Big Financial Picture

First, make sure you have a solid understanding of your finances. Getting a complete picture includes knowing how much debt you have, your credit score, and how much money you have saved. Once you have a clear picture of your current financial situation, you can start making a plan for the future.

Next, create a budget and make sure you’re automatically transferring a fixed percentage of your income into savings. A budget will help ensure you’re always putting away money for the future, no matter what unexpected expenses surprise you.

Finally, start investing as soon as possible. The sooner you start, the more time your money will have to grow. So start by investing a little bit of money at a time, stay patient, and watch your investment add up significantly over the years. 

Teach your children about generational wealth and the importance of preserving it. First, introduce them to basic financial concepts, such as investing, saving, and budgeting, long before they start living independently in the world. Then, as they get older, you can provide more detailed instruction on managing money. You’ll set your children up for generational success by instilling these values early on.

Leverage Passive and Active Income

There are many different ways to grow your assets and create lasting generational wealth. However, one of the most effective strategies is to generate both passive and active income.

Active income describes money earned from your job or businesses you own. You can also think of active income as the money you exchange for your time and labor. Therefore, you should work hard to maximize your active income throughout your career. 

On the other hand, passive income is money earned without your direct involvement. Passive income could include rental property income, dividends from stocks, or interest from savings accounts. 

While active income is essential, passive income can be even more powerful when it comes to building generational wealth — especially when you approach it with an abundance mindset.

Make These 9 Key Money Moves

  1. Stick to a strict budget.

It’s important to know where your money is going each month. A budget will help you track your spending and make adjustments as needed. Automatically transferring money into savings each month will help you make headway on your financial goals without thinking about it.

  1. Diversify your investments.

Investing is the process of allocating money towards assets that have the potential to grow in value over time. Common examples of investments include stocks, bonds, real estate, and mutual funds. When it comes to generational wealth, diversification is key. By investing in various assets, you’ll be able to weather any economic storms that come your way. Some options include stocks, bonds, dividend stocks, and mutual funds.

  1. Invest in real estate.

Real estate is a solid investment that can provide you with passive income and the potential for long-term growth. If you’re thinking about investing in real estate, be sure to do your research and invest in properties that have the potential to appreciate in value over time.

  1. Create multiple streams of income.

In addition to diversifying your investments, you should also focus on creating multiple streams of income. This way, if one stream dries up, you’ll still have others to fall back on.

  1. Start early and max out your retirement accounts. 

The earlier you start saving for retirement, the more time your money will have to grow. If your employer offers a 401(k) or other retirement savings plan, be sure to contribute as much as possible. You can also open an individual retirement account (IRA) if you want more control over where your money is invested.

  1. Create an emergency savings account. 

An emergency fund is a crucial part of financial security. This is money you can tap into in case of a job loss, medical emergency, or other unexpected expense. Aim to save enough to cover at least three to six months of living expenses.

  1. Start saving for your children. 

In addition to saving for your own retirement, you should also start savings accounts for your children. This money can help them with things like education costs, down payments on a home, or starting their own business.

  1. Stay on top of your taxes: 

When it comes to generational wealth, it’s critical to manage your taxes carefully. Understanding your taxes includes knowing which deductions and credits you’re eligible for and making sure you’re taking full advantage of them. You may also want to consider hiring a tax professional to help you with this task. 

  1. Buy life insurance. 

A life insurance policy can provide financial security for your loved ones in the event of your death. Life insurance is vital for keeping your family secure, especially if you’re the primary breadwinner in your household. 

The Bottom Line

You have the power to alter what’s possible for your children and grandchildren. You don’t have to be a billionaire to build generational wealth. 

Generational wealth transfer is one of the most powerful tools you have at your disposal for financial security. With a few key moves–like a solid financial plan and investment strategy–you can set yourself up for success and ensure your family is taken care of for years to come. 

If you’re still uncertain educate yourself on basic personal finance topics with a beginner’s investing book or take a course. Say a few positive money affirmations and feel free to consult with a financial planner or fiduciary. However, advisers are not meant to be a substitute for basic financial education. Instead, they augment what you know and provide wealth planning services. 

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Theresa is a personal finance blogger. She writes content for busy professional women to take control of their money and investments. She enjoys reading, traveling, cooking, and writing. Her work has been featured on GoBanking Rates, Your Money Geek, Savoteur, the Corporate Quitter, Thirty Eight Investing, and more.