Many of the clients I speak to wish to leave a financial legacy to future generations. Sometimes, it’s because they received an inheritance themselves and wish to provide the same to their children and grandchildren. Other times, it’s because they are self-made and hope their hard work will create financial security for their loved ones for generations to come. Regardless of where you fall on this spectrum, creating a financial legacy may be important to you, too. Below, we’ll discuss generational wealth, which is a term that refers to the transfer of financial resources from one generation to the next.
No two families’ circumstances are exactly the same, but the following tips are likely to prove valuable on your journey to creating generational wealth for your family:
Building generational wealth won’t happen overnight. It requires a long-term mindset and commitment. The earlier you start, the more time you have to build wealth and take advantage of compound interest. Consider opening a savings account for your children or grandchildren, contributing to a college savings plan such as a 529, or investing in a low-cost index fund.
To create generational wealth, you need to have specific goals in mind. Identify what you want to achieve and create a plan to get there. For example, you may want to pay off your mortgage early, save for your children’s education, or build your retirement nest egg to a specific amount. Setting clear goals can help you stay focused and motivated.
Live Below Your Means
Living below your means is a key strategy for building wealth. (It’s also an excellent lesson to teach your kids and grandkids by example). Be intentional about controlling your spending and prioritize saving and investing through each stage of life. Build and follow a budget that allows you to save a portion of your income each month, and consider automating these savings to make it easier to stay consistent.
Investing is another critical component of building generational wealth. It’s important to invest wisely and diversify your portfolio to manage risk. This can be a difficult balance to achieve on your one, so consider working with a financial advisor to create a personalized investment strategy that aligns with your goals and risk tolerance.
Build Multiple Streams of Income
If achieving generational wealth is your goal, building multiple streams of income can provide financial security and help you reach your goals faster. What does this look like? Well, you might consider starting a side business, investing in rental properties, or creating passive income streams through investments. Multiple income streams are also valuable in terms of providing a safety net in case one source of income is interrupted.
Teach Financial Literacy
Teaching financial literacy to your children and grandchildren is essential for building generational wealth. Teach them about budgeting, saving, investing, and credit management. Encourage them to start saving and investing early and to make smart financial decisions. Include them as you make thoughtful, intentional decisions about your own money, and allow opportunities for them to ask questions. As I mentioned above when discussing living below your means, they can learn an awful lot from your example, too, so be sure to practice what you preach.
Create a Legacy Plan
Creating a legacy plan is an important step in building generational wealth that lasts. A legacy plan outlines how your assets will be distributed after your death and can include trusts, wills, and other estate planning tools. It’s important to work with a qualified estate planning attorney to ensure that your legacy plan reflects your wishes and protects your assets. You’ll also want to share the details of your legacy plan with your heirs to help them prepare for managing an inheritance and maintaining the generational wealth you’ve worked hard to build.
Giving back to your community and charitable organizations can also be an aspect of building generational wealth. It might seem counterintuitive to give money away, but actively practicing philanthropy can help you instill the value of giving back in your children and grandchildren and create a legacy of giving. You might consider establishing a family foundation or donating a portion of your assets to charity, and allowing your family members to help determine where charitable gifts are directed.
Is Generational Wealth on Your Mind? Let’s Talk!
As you can likely tell from the above tips, building generational wealth is a journey. It won’t happen overnight, but with the right strategies and mindset, it’s certainly a journey worth taking for your family.
Would you like to discuss how to create generational wealth with a strategy specific to your unique circumstances? At Attleboro Wealth Management, we want to help you achieve success. We can help talk you through your savings and investment “buckets” and determine a plan to help you achieve your goals in a comprehensive, tax-efficient way. Reach out to us today for a no-obligation conversation.