Everyone has similar financial goals – save for emergencies and retirement, but what about beyond that? If you haven’t thought about what you’ll leave behind for your children and even their children, it’s time. When you talk about true wealth – generational wealth, you focus on taking care of those you leave behind.
We know it’s not pleasant to think about dying. But if you can set up a legacy for your children or family members, it makes it feel a lot more important.
Leaving a legacy or generational wealth isn’t just for the rich and famous – people like you and I can do it too. It takes dedication and commitment.
Are you ready to learn the top 7 ways to build a money legacy?
Let’s dive in.
Table of Contents
What Is Generational Wealth?
Generational wealth is money you pass down to future generations. Knowing that you’ve created a healthy financial future for your loved ones is something most people dream of, but don’t know how to achieve.
If you’re like most people, you put generational wealth out of your mind because you have more pressing matters. Current financial needs, debts, emergency savings, and retirement often supersede saving for future generations. Luckily, saving for future generations is easy when you manage your financial plan right.
Anyone can provide generational wealth and not just in cold, hard cash. Stocks, real estate properties, and other assets provide just as much value, if not more. It starts with one step. Take the plunge, set the intention, and you’ll pave the way to long term financial success for your loved ones.
Related Article: FU Money: What Is It and How Much To Save
Why Is Generational Wealth Important?
Think back to your younger years. If you drowned in student debt or never knew what it meant to save money, you likely suffered. You had to figure out how to make ends meet, let alone find a way to save. We can’t turn back the clock, but you can teach your children starting now how to manage money and start investing.
Generational wealth means more than having plenty of money. It means setting your kids, grandkids, great-grandkids, down the right financial path.
Imagine if they could pay for things (college, a car, a house) without a loan. Imagine if they learned wealth management early in life.
They wouldn’t experience the same financial stress you experienced in your life. They won’t have to choose between going to college or working full-time right out of high school just to make ends meet.
If you think of your future generations now, you can prevent them from making the same mistakes you made. There’s no greater legacy than being there for future generations long after your passing by providing the best financial support both cognitively and figuratively. Money can’t buy happiness, but it can certainly help.
How to Build Generational Wealth
Creating generational wealth doesn’t happen overnight. It doesn’t happen in a few months either. In order to build wealth, it is a lifelong process that starts with these steps.
1. Create a Strong Financial Foundation
Building generational wealth starts with a plan or a foundation. If you aren’t financially secure, you won’t be able to leave behind a legacy.
Assess your financial situation today. Pull out your bank statements, investment statements, and credit card statements. Take stock of your assets and liabilities.
Look at your budget too. If you don’t have one, create one now. In your budget, include these important line items:
- Debt payoff – You can’t leave your family money when you are in debt. Create a debt payoff strategy (debt snowball and debt avalanche are great) and consistently pay your debt down or off completely. Check out our debt payoff printables to help you get started on your debt-free strategy today.
- Emergency savings – Take inventory of your emergency fund. This should be an account separate from your regular savings and spending account. Most people have between 3 and 6 months’ of expenses in it and use it for emergencies (new HVAC system, broken water heater, car accident, medical emergency, etc.) If you don’t have one yet, create one. Open up a high-yield online savings account and start contributing to it as often as possible.To accelerate your savings, check out CIT Bank. You can open an account today and start earning.
- Retirement savings – Always save for retirement. Retirement planning is crucial to building family wealth. If your employer offers a 401K, use it, especially if they match your contributions. If your employer doesn’t offer retirement plans or you have more money you can save for retirement, open an IRA, Roth IRA, or taxable investment account.
These steps set your financial foundation. Once you get yourself out of debt, stock your emergency fund, create a retirement plan, and reach financial freedom, you can focus on building your generational wealth.
Use this step to be honest with yourself. Determine your net worth. If you don’t have any assets you could pass down right now, you’ll get there using these steps to start life planning and create generational wealth.
Need help getting started? Check out these tips on getting and staying motivated to reach your financial goals.
2. Invest in the Stock Market
You created your financial foundation. Now it’s time to get down to the nitty-gritty – setting up your generational wealth. The stock market is a great place to start and begin the diversification of your assets.
Many people assume only the wealthy can invest in the stock market, but today it’s easier than ever. Beginners looking to dip their toe in without getting overwhelmed love platforms like Acorn and Betterment.
You don’t need a minimum amount invested, so start with $5 if that’s what it takes. You can also speak with an investment advisor if you are not sure where to start.
Make sure any money you invest in the stock market you leave. You want the compound earnings. Think of it as a long-term investment strategy. Invest a few thousand dollars today and leave it for 30 years and leave a nice nest egg for your future generations.
3. Invest in Real Estate
Whether you want to build a real estate empire or just have a few rentals, investing in real estate can be a great path to building passive income that aligns with your longterm financial goals.
There’s the obvious – buying properties and managing them. You earn equity while providing renters with a place to live. If you keep the properties long-term, you can pass them down to future generations. If you sell them for a profit, you can invest the funds, keeping the earnings growing for future generations.
If managing real estate isn’t your thing, invest in passive real estate opportunities. Real estate crowdfunding gives anyone a chance to invest in real estate assets without a lot of capital. You along with many other investors pool your money to fund a real estate investment. Choose from residential and commercial opportunities.
You invest as much or as little as you want and you earn a prorated amount of the income based on your investment. This is a great way to start building wealth now.
4. Invest in Education
Today, the average yearly cost for tuition, room/board, and fees is $30,500. Imagine how much college education will be 10 – 18 years from now. If you know what it’s like to have student debt – you know the importance of investing in education.
Whether your children are newborn or already teens, putting money away in a 529 savings plan provides a head start. Not every child goes to college or needs the college-savings, though, and that’s okay. Your beneficiaries may use 529 funds for vocational and trade schools too.
5. Take Advantage of Life Insurance
Life insurance sets your family up if you die. Young families often take advantage of term life insurance. They take out enough to cover the mortgage, other liabilities, and to provide for the children should one parent (or both) pass away.
For affordable, online term life insurance, check out Bestow. Get a quote in seconds and insured in minutes.
As you age and can afford more, it may be in your best interest consider permanent life insurance. Unlike term life insurance, it doesn’t expire (as long as you pay the premiums). Permanent life insurance has higher premiums, but it covers the death benefit plus a portion of the premium gets invested, building cash value for your legacy.
6. Build a Business to Pass Down
Start a business and get your children involved. If it’s a business that your children can run and make money when they’re adults, you can keep it going, passing it down from generation to generation. Many large businesses started this way, but you don’t need a huge business to start wealth.
Think of businesses you can start and keep as a family run business. Small-town businesses, online businesses, and large franchises all have great possibilities. Start a business doing something that you love and maybe your children and their children will be interested too.
7. Prioritize Financial Literacy for Your Family
Kids are never too young to learn financial literacy and how to manage wealth. Why let your kids learn from their own mistakes when you can help them?
Teach your kids from your mistakes and empower them to be disciplined early in life. Teach them about saving, investing, budgeting, and creating long term goals.
Give your kids’ allowances and teach them how to manage it – not just run out and spend every dollar. Come up with unique ways to teach your kids financial education with actions rather than just words – kids often learn better by doing rather than listening.
Let older kids in on your finances so that they can see your habits. Show them how you decide how much to save. Talk to them about spending and how you set up your budget so you know how much you can spend.
Don’t forget to talk about creating a financial plan, too. Don’t send them out in the world trying to figure it out themselves – empower them now and they’ll get a head start in reaching their life goals.
How to Pass Down Generational Wealth
After creating financial wealth, you must plan how to pass it down. If you don’t do it right, your family may get much less than you intended.
Consult an Expert
You need an army of experts that provide a wealth of knowledge to help you pass down your generational wealth. As you create it, you need a certified financial advisor or someone to provide financial advice and to help you choose the right investments through sound financial-planning.
Diversifying your investments is the key to avoiding major losses. Let a certified financial planner point you in the right direction when it comes to financial planning and investment and also minimizing your tax liabilities (you aren’t setting up generational wealth for Uncle Sam).
Check out Empower for your money management needs. You can speak with an experienced financial advisor and create a long term financial plan that meets your needs.They also offer professional grade financial tools to help you start managing your finances today.
Along the way, you may need a CPA or tax advisor and everyone needs a lawyer. Again, you can have peace-of-mind by making sure your affairs are in order and you’re setting up your family for generational wealth, not a disappointment because Uncle Sam or the state took most of the money.
Write a Will
A will is a written statement regarding how you want your wealth distributed. A will allows room for plenty of detail, down to the smallest asset.
Even if you have an estate plan, it is also in everyone’s best interests that you also write a will so there aren’t any questions or misunderstandings.
Create an Estate Plan
An estate plan should effortlessly transfer your funds to your heirs or other beneficiaries upon your passing.
A lawyer is essential for estate-planning, as they know what loopholes to watch and how to handle unique situations. Don’t try creating an estate plan yourself, especially if you’ve created quite a bit of generational wealth.
Set up Trusts and Custodial Accounts
Like an estate plan, trusts and custodial accounts are for specific purposes. The intended trust beneficiary will receive the trust with the instructions for its use. For example, if you create a trust for college expenses or for your child’s first stock market investments, they may only use those funds for the intended purpose.
If you want to start generational wealth for your child and help them have financial freedom while you’re alive, consider a custodial account. You open an account in your child’s name but retain control until he/she is 18 (21 in some states).
Custodial accounts give you the chance to work with your child on financial literacy and managing wealth while retaining control of the money. Your children will learn early that it is important to work hard to create wealth that will last generations.
Name Beneficiaries for Your Accounts
Any financial account you carry, name a beneficiary. If you don’t, and you don’t have a will or estate plan, the funds end up in probate. Your family may see the funds eventually, but only a fraction of what you had originally since the court costs and state taxes take a large portion of the inheritance.
Even with all of these things in place, your family still needs additional information to keep the business of your life in motion once you pass away. The ‘In Case of Emergency’ binder has over 100 pages of simple, printable worksheets to help your family through all those things we hope never happen.
Check out this Family Emergency Binder to put all the information your family needs at their fingertips.
Challenges to Building Generational Wealth
When you come from a family that didn’t pass down generational wealth, it can be challenging to reach the level of wealth that allows you to pass it down to your children. When you must work hard to create what you have, you might not make your kids work as hard to ‘make life better for them.’
We often try to make up for what we didn’t have, ensuring our kids ‘have it all.’ But not implementing the ethic to work hard for what you have can make the generational wealth you built last maybe one generation, but typically not more than two.
Racial Wealth Gap
According to the Federal Reserve, black and Hispanic families make half of what white families do, and have about 20% as much wealth.
This may make it more challenging to build generational wealth, but there are strategies families can use to close the gap. Using a workable budget, saving as much as possible, and negotiating raises are key ways to fight the racial wealth gap and build generational wealth.
We’ve come a long way with racial equality, but there’s still much to be desired regarding the wage gap. According to the U.S. Department of Labor, African Americans make $0.76 for every dollar white people make, and Hispanics make $0.73 for every dollar.
These wage gaps make it difficult to build large enough savings for today’s generation, let alone build generational wealth to pass down to the next generation.
37% of adults claim they just ‘get by’ financially. They don’t have savings and definitely don’t have generational wealth or cash flow to pass to their children. Most people don’t realize the money decisions you make daily affect your financial success and ability to save.
Not only that, but millions of people don’t know how to invest, where to turn for help, or understand the importance of compound earnings.
It’s essential for families that aren’t financially literate to find ways to get there and to ensure their children and the younger generations learn the value of a dollar early.
Unclear Plans Regarding Transferring Wealth
No one likes to talk about death, so many families avoid discussing what will happen to their estate and other financial assets when they die. Unfortunately, this often leads to unexecuted plans and estates that go to probate, especially in the case of untimely death.
Rather than avoiding the conversation, it’s essential to have money talks often. At least a few times a year, you should meet with your family to talk about your financial situation and the plans you have for them financially when you’re gone.
This ensures everyone is on the same page and that your loved ones carry your plans out how you desire when you die.
8. Start Investing as Soon as Possible
The earlier you invest, the more time your earnings have to compound. Even if you can only invest spare change for now, start somewhere.
You can invest wherever you are most comfortable but start now. Whether that means setting aside a portion of your paycheck for retirement, buying an investment property, or putting a few dollars into stock market investing each week, let any capital you can spare grow by investing it.
Don’t assume you don’t have enough to invest. There are many platforms with low and sometimes even no minimum investment requirements.
The key is starting as early as possible, giving your money more time to grow.
9. Create Multiple Streams of Income
Never rely on one stream of income. Even if your income is enough to make ends meet, save, and invest, always have more.
Try to create a good mix of active and passive streams of income. Active income is money you must trade your time to earn, such as a part-time job or side hustle.
Passive income is money you earn while you sleep. Some passive income requires work upfront, but you can earn ongoing money, such as when selling digital products. You put the work in to create them and then continue making passive income as they continue selling.
Millionaires have seven income streams, so they never rely on one source. You may not need that many, but increasing your income streams as much as possible can help you build generational wealth.
Passing Down Generational Wealth During Life
You might consider passing down generational wealth while you’re alive and can see your loved ones enjoy it.
You can pass down generational wealth by giving your loved ones financial gifts. For example, you might buy your kids a house, start a retirement fund for them, or gift appreciating assets, such as jewelry or art.
Covering your children’s expenses are also a great way to pass down generational wealth. For example, you might pay for your child’s college education or cover large medical expenses. When your children are grown and have a family of their own, you might help them cover the cost of having a baby or buy a more suitable car for their growing family.
Federal Estate Tax
If you have a large amount of generational wealth, you might consider gifting enough money for your loved ones to cover the federal estate tax when you die. In 2023, the federal estate gift tax exemption is $12.92 million. If you have an estate larger than that, your loved ones will be responsible for the taxes on the estate, but you can cover them before you die.
Take Steps to Keep Your Generational Wealth
These steps are suggestions to help you achieve your goals, but you need to take action to keep any wealth you accumulate. Every family has their own likes and dislikes when it comes to wealth solutions.
For example, if real estate investments do nothing for you, but opening a family business sets your heart on fire, it’s time to pursue it. Figure out what your family can build together and create it as a family unit.
If real estate is something you love, invite your children to learn about it too. Let them see the ups and downs involved with wealth planning and help you make decisions or see how you make them.
The more information and chances you give children now, the better the generational wealth you will create with them. Empowering your children now will help them continue building the wealth, passing the legacy down from generation to generation.
Building generational wealth is about more than just your family being able to buy things once you’re gone. Check out this article to learn more about how financial awareness and planning can change your life.
Samantha Hawrylack is a personal finance expert and full-time entrepreneur with a passion for writing and SEO. She holds a Bachelor’s in Finance and Master’s in Business Administration and previously worked for Vanguard, where she held Series 7 and 63 licenses. Her work has been featured in publications like Grow, MSN, CNBC, Ladders, Rocket Mortgage, Quicken Loans, Clever Girl Finance, Credit Donkey, Crediful, Investing Answers, Well Kept Wallet, AllCards, Mama and Money, and Concreit, among others. She writes in personal finance, real estate, credit, entrepreneurship, credit card, student loan, mortgage, personal loan, insurance, debt management, business, productivity, and career niches.