What Is Generational Wealth and How Do You Create It?

Generational wealth may sound like something reserved for the elite 1% of Americans, unattainable for everyday people. However, nothing could be further from the truth. The term “generational wealth” simply refers to any assets passed on from one family member to another. This could include anything from a family business to stocks, savings, or real estate.

By building generational wealth, you can enjoy peace of mind knowing your family will have financial security even if you aren’t there to provide for them personally. Your family can also enjoy the comfort that this brings, especially if they currently rely on you as a primary earner. But just how do you create generational wealth? This personal finance article can help.

Generational wealth refers to assets that are passed down from one generation to the next generation. This could include investment accounts like stocks and bonds, savings accounts, life insurance policies, and even cash. It could also include things like cars, real estate, jewelry, businesses, and heirlooms or collectibles. Anything with monetary value qualifies — it doesn’t have to be cash.

Why? A savings account can be chipped away at and depleted over time. Plus, the money in it is very likely to lose value due to inflation. The key to building generational wealth is to invest in assets with growth potential. Here’s how you can get started.

If you want to pass down assets like a 401(k), house, savings — anything, really — you need to do some legal paperwork. Estate planning is the process of determining what happens to your assets when you pass on. Most people write a will to designate who gets what or set up a trust fund. A trust is a legal entity that holds property or assets, which can then be transferred to designated beneficiaries.

Although it’s a bit more tedious to set up and manage, a trust is usually a smarter option because it reduces gift and estate taxes on assets you leave behind. It also avoids administrative fees associated with probate. This is a legal process that a will must go through before an estate’s assets can be distributed. It involves authenticating the document and paying debts and taxes on the estate.

Another benefit of a trust is that you can create it with strictly defined conditions. For example, you might set up a trust for your children in which they only receive their inheritance in set increments, ensuring they don’t blow all the cash at once. You might also specify that they only get access to their trust after reaching key milestones, like completing their college education.

If you’re new to investing, you may want to play it safe. Opt for a low-cost index fund, for example. You’ll enjoy low fees while benefiting from long-term growth.

When purchasing life insurance, you’ll need to designate the beneficiary, the person who will receive the payout upon your passing. Making sure your beneficiaries are up to date is also an important component of comprehensive estate planning. For example, if you get divorced and/or remarried, you may need to update your beneficiaries.

Note that we do NOT recommend whole life insurance as an investment vehicle — it’s much less costly over time to use term life insurance.

You don’t need to hire a fancy financial advisor to build generational wealth. Increasing your net worth as described above can help you provide for the future. This kind of family wealth can lay the groundwork for a prosperous second generation, providing a monetary buffer to help ensure a brighter financial future.

If you’re the first generation in your family to build this kind of wealth, it’s important to create a financial plan. That doesn’t mean you have to scrimp and save every penny, pushing all your hard-earned cash into the stock market and other growth assets. You want to enjoy your life, too — not just make money for younger generations.

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What Is Generational Wealth and How Do You Create It? is a post from: I Will Teach You To Be Rich.

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