What You Need to Know About Building and Protecting Generational Wealth
You may have heard the term “generational wealth” before, but what is it exactly?
Generational wealth consists of the assets passed from one generation to the next. They can be tangible, such as cash, investments, businesses, property, and valuables, or intangible, including financial literacy and personal finance habits you’ve learned from your parents and grandparents.
What Creates Generational Wealth?
Generational wealth is accumulated gradually through financial planning and smart investments to ensure a smooth handover of assets from you to your heirs. But it’s also true that, historically, changing market conditions, such as inflation and fluctuating interest rates, have impacted different generations differently.
What is the average wealth of generations? As of 2022, Baby Boomers held 50.4% of America’s wealth, Generation X had 29.9%, and the Silent Generation retained 13.1%—leaving the Millennials with just 6.6%. That has implications for the generational wealth of Millennials, but there are ways to bridge this gap.
How Can Millennials Build Generational Wealth?
Millennials and money have a complicated relationship, with living costs and housing rising dramatically during their teens and adulthood.
Nevertheless, there’s a lot of talk of a “great wealth transfer,” where descendants of Baby Boomers and the Silent Generation will inherit many of their assets in the years ahead. Some reports estimate that 70% of generational wealth doesn’t make it past the second generation and 90% disappears by the third.
But if you’re a millennial, there are still ways you can start accumulating wealth today. Ask yourself these three questions:
1. Are You Conscious of Your Spending?
E-commerce and subscriptions are too easy these days, and there may be opportunities to limit your discretionary spending so you can save more.
2. How Can You Diversify Your Income?
Along with saving more, you can earn more with a side hustle. Leverage your skills, hobbies, and professional network into a new revenue stream.
3. Can You Launch Your Own Business?
Many Millennials have embraced freelance life. Maybe you can take it to the next level and start a company.
These are options for Millennials to consider, but there are also methods for building generational wealth that apply to anyone of any age. Here’s a look at five basics that will help you get started.
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How to Build Generational Wealth
1. Educate Yourself—and Your Kids
You can and should cultivate financial literacy so that the tangible assets stretch further and last longer. Understanding how to save, spend, and invest wisely is critical.
2. Build Your Stock Market Portfolio
Speaking of investing, the stock market is one of the greatest ways to grow generational wealth over the long term and protect against inflation. Low-cost index funds and high-quality stocks can be the beginning of a robust, resilient, and diversified portfolio. Exchange-traded funds (ETFs) are also an effective way to track the market and are popular for their minimal fees.
3. Prioritize Real Estate Investment
Investing in real estate may be easier said than done, but it is the fastest way to multiply your wealth. Not only does the property’s value almost inevitably appreciate over time, but you accrue massive residual income as your renters pay off the investment you purchased.
4. Life Insurance Can Provide Relief
People often consider life insurance a crucial piece of the generational wealth puzzle, regardless of how touchy the subject may be. If you’re currently a family member accumulating wealth and have others depending on you, it just makes sense to safeguard their financial well-being should something happen to you.
5. Create a Plan for Wealth Transfer
Work with a financial advisor, a tax specialist, and an attorney to devise a legacy plan for allocating your assets to your successors. A strong legacy strategy typically involves creating a will, naming account beneficiaries, and sometimes establishing a trust.
These five steps will enable you to build generational wealth and protect it. It’s all about envisioning the future because even if it feels far away, there’s no time like the present to set you and your family up for enduring prosperity.