Generational Wealth has been associated with the ultra-wealthy, such as the Oppenheimers and the Rockefellers, who were able to establish trust funds that would last for decades. However, one could ask, is it possible to create Generational Wealth with just a few millions or thousands?
The answer is yes! You have the ability to create generational wealth from just a few thousands or better still, a few millions. There are numerous tools at your disposal to ensure that the generation after you is well-off. Before we look at how to build generational wealth, let us define generational wealth.
What is Generational Wealth?
Generational wealth refers to property and assets passed down from one generation of a family to the next. Real estate, stocks, bonds, intellectual property rights, family businesses, and other investments are among the assets passed from one family to the next.
It is safe to conclude that generational Wealth is made up of:
Assets are passed down from one generation to the next.
Assets passed include a wide range of asset classes amassed by one generation or many previous generations.
Wealth can be passed down through inheritance after death, or it can be passed down to the next generation while the generation passing the wealth is still alive.
How to build generational wealth
Now that you understand what generational wealth is, it is time to start accumulating it. Anyone, educated or not, can build generational wealth; we have seen many cases of self-taught individuals accumulating wealth, as well as those with only a high school leaving certificate.
Given that wealth can be amassed by anyone, our steps are based on people who are starting over in life. Here are the steps you can take to amass wealth.
Step 1: possess skills and find a job
A starting point to wealth creation is through possessing skills and monetising the skills that you possess. Majoring in a subject allows one to learn a trade, and the best way to major in a subject is through further education and training. However, there are some exceptions where a person can learn a trade on their own or with the assistance of a professional without receiving formal education.
After acquiring a skill, you can look for work or start your own business to begin earning money. You will be capitalizing on the skills you have gained through formal education or experience by doing so. Because you now have an income, you can take the next step in your wealth-building journey.
Step 2: Save money and make investments
Now that your business is profitable or that you are earning an income, it is time to start saving and investing. You can use a variety of methods to save money and make investments. Before you begin saving and investing, it is critical that you become acquainted with various saving and investment methods so that you can invest or save to earn passive income.
For example, you can apply the 20/30/50 rule by allocating 50% of your income to necessities, 30% to discretionary income, and 20% to savings and investments. To strengthen your saving and investing techniques, we recommend reading the following books on saving and investing:
Best for Beginners: Broke Millennial by Erin Lowry,
The Richest Man in Babylon by George S. Clawson,
Best for Building Wealth: The Automatic Millionaire, and
The Intelligent Investor by Benjamin Graham.
You can add more books to the list that you want to read, such as industry-specific books to better understand a specific industry, and so on.
Step 3: Get a Life Insurance
The next step after saving and investing is to get a life insurance policy. A life insurance policy can be a game-changer for someone looking to build generational wealth because it provides a guaranteed lump sum payment when the policyholder dies or suffer a critical illness that is insured.
As a result, if you die prematurely, your heirs will be able to inherit the money from the life insurance policy and cover any debts and estate taxes that are due. Combine your life insurance policy with a disability insurance policy and an income protection plan to ensure that you are covered for rainy days.
Step 4: Get a retirement annuity
You still need to get covered for your retirement, even if you are covered for death, premature death, and disability. It is ideal to invest in a retirement annuity to ensure a steady income at retirement. A retirement annuity has many advantages, and if you die before reaching the retirement age, your contributions to a retirement fund, including interest earned, will be paid to your estate, giving your heirs more money to inherit.
Step 5: Invest in your children education and teach them personal finance
After working so hard for so many years to create a portfolio that will last for generations, the last thing you want is for your children to squander the wealth. It is estimated that 90 percent of wealth disappears within the third generation as a result of wealth transfer. You must invest in your children’s education and teach them about personal finance from an early age.
Step 6: Plan your estate
The final step is to make an estate plan. Estate planning entails creating a will, establishing an opening of trust, and planning for taxes. Here, you want to ensure that the money you’ve saved over the years is transferred and used as you intended.
Is generational Wealth worth building?
It is a matter of personal opinion as to whether one should build generational wealth or not. Andrew Carnegie, once the richest man in the world, wrote “… wealth generally deadens the talents and energies of the son, and tempts him to lead a less useful and less worthy life than he otherwise would”. Carnegie spent most of his net worth building schools and libraries in the US and around the world.
However, others prefer keeping all their wealth and passing it on to the next generation. It is wise to build wealth, either way, wealth can take anyone from point a to point b, therefore, your children should have enough to sustain their lives while building a career for themselves.
Generational Wealth doesn’t require billions of rands and any South African can pass wealth from one generation to the next. It begins with earning an income and then building on that income while advising your children to earn an income in order to protect and grow the wealth that you will pass on to them.