As parents, our goal is to provide our children with a better financial life than we had ourselves. None of us want to see our children struggle financially.
This is even more true for those coming from underrepresented communities where financial resources and education are lacking.
Ultimately, the goal is more than just financial security. The goal is to create generational wealth and leave a financial legacy. It’s to leave wealth that goes beyond our lifetime and impacts the lives of future generations.
Though a lot has been said and written about building generational wealth, few share the holistic approach. So, in this post, we’re going to delve into the critical steps necessary to build generational wealth for your family—beyond just passing down money.
But before we delve into the steps themselves, let’s take a moment to define generational wealth and understand the nuances that set it apart from mere financial inheritance.
What is generational wealth?
While a simple Google search might describe generational wealth as the act of passing down financial assets from one generation to the next, this definition merely scratches the surface.
Yes—passing down money, houses, and other assets to your children or grandchildren is technically generational wealth.
However, true generational wealth extends beyond just passing it down.
Instead, it’s also the preservation, growth, and responsible management of these resources within the family.
So when working to create generational wealth, you must also consider how this wealth will remain within your family so that your efforts aren’t wasted.
Why is building generational wealth important?
Imagine what your life would be like if you had no financial worries. What if your college was funded, you had a house in your name, and your retirement savings was already put away for you?
I’d assume that you’d spend much of your life free to do whatever interests you. You’d take risks without worry and really speak up for causes you believe in—without the fear of being fired or your income being impacted by it.
This is why generational wealth is important. It not only gives a leg up financially, but it’s a form of freedom.
6 Steps to Building Generational Wealth
Now that you understand how we define generational wealth and why it’s important, let’s delve into the actionable steps that can help you achieve it.
1. Becoming financially stable
I’m sure you’ve heard the flight instruction to secure your own oxygen mask before assisting others, right? Well, in the same vein, building generational wealth starts with your financial stability and well-being.
The obvious truth is that it’s impossible to pass on wealth that you haven’t acquired yourself. So the journey begins with establishing your financial foundation and ensuring your house is in order.
This involves living within your means, putting money away in savings, and eliminating debts. It also means having a reliable and consistent source of income streams.
Ultimately, you have to become financially stable in the present before thinking about the future.
2. Prioritize your health
Prioritizing your health is the second crucial step in the journey to generational wealth.
Why? Because if you’re in poor health, you won’t have the energy or ability to generate wealth, let alone enjoy it and pass it down.
Being in good health is necessary for building wealth. So having bad health not only impacts your ability to do wealth-building activities, but it can become a burden financially. Medical expenses and debt can take away from your savings and investments.
So, if you want to pass down wealth, begin by caring for your health. It’s a legacy worth leaving.
3. Invest
Once you’ve secured financial stability and well-being, it’s time to harness the power of investing. Investing is a cornerstone of creating generational wealth.
Here’s why…
Time is a limited resource. This means that there’s only so much money you can make through traditional means. Ultimately, you can only work a limited number of many hours in a day to make money.
Investing allows you to bypass those limitations. Instead, you can leverage your money to create more money— ultimately building wealth over time.
There are many ways that you can invest. From securities like stocks, funds, and bonds, to tangible assets like real estate. The key is to find an investment strategy that aligns with your financial goals, and then commit to it.
Investing is a long game, but its dividends are well worth it. Ultimately, it’s one of the many streams of income that you can leverage to build wealth.
Of course, we have many resources on ways that you can invest. I suggest starting with our article on how to start investing.
4. Protect your assets
Imagine dedicating all of your efforts to creating wealth, only to see it taken due to unforeseen circumstances.
This is why protecting what you’re building is important. the importance of safeguarding your assets. Protecting your assets involves establishing legal and financial structures that shield your hard-earned wealth from risks.
Insurance coverage is an important part of asset protection. This includes
- Home Insurance
- Life insurance
- Car insurance
- Health insurance
These are all basic coverages that you should begin with.
However, protection extends beyond insurance. Diversifying your investment portfolio is another critical aspect of safeguarding your wealth.
Spreading your assets across various investments reduces the impact of economic downturns affecting one particular investment type.
Ultimately, you’ll want to get help from a qualified financial advisor to develop your diversification strategy based on your financial goals.
5. Create an estate plan
Though losing your wealth to an unexpected event is hard, having the government decide how and where it’s distributed after you’re gone is even worse.
This is why you need an estate plan.
An estate plan is legal documents that dictate how your assets will be distributed—specifying how, when, and where they will be allocated.
Having an estate plan takes away unnecessary legal intervention. And rather than leaving the fate of your hard-earned wealth to chance, your estate plan ensures a that your wishes are executed and your wealth is inherited appropriately.
While having an attorney help your draft these documents is the ideal route, a more budget-friendly option is to do it yourself. For this, you can check out our article on how to create an estate plan.
6. Teach your children about money
As the saying goes, “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.” This principle rings particularly true when it comes to generational wealth.
Research shows that a staggering percentage of wealthy families lose their wealth within a few generations. Because of these statistics, there is a “3 generational rule” that says wealth is lost by the 3rd generation.
A primary culprit is often the lack of financial education and open conversation about money. To counteract this within your own family, it’s essential to teach your children about financial literacy.
Financial literacy is more than just budgeting; it encompasses wise money management, frugal living, investing, saving, and making informed financial decisions.
It’s important to equip your children with the tools to succeed financially, ensuring they don’t just inherit assets but also the knowledge and skills to preserve and grow them.
Final Thoughts: How do you build generational wealth?
Building generational wealth is more than just about a financial inheritance. It includes preserving, growing, and responsibly transferring wealth across generations.
By focusing on financial stability, health, investing, asset protection, estate planning, and financial education, you’re laying the groundwork for wealth that extends beyond yourself.
This journey is about more than money. It’s about leaving a legacy of wisdom, ensuring that your family’s financial well-being flourishes for years to come!
Are you ready to build generational wealth?
As Certified Financial Education Instructor (CFEI), she has been teaching personal finances to women & youth for over a decade.
Fo is an established writer and expert contributor on the topics of personal finance, budgeting, debt payoff, money mindset, saving, entrepreneurship, investing, motherhood, personal development, and more.