How to Build Generational Wealth

Many people want to be wealthy because they imagine all the things that they could buy with that money. Others want to be able to send their kids to college, travel the world, and retire comfortably.

three generations

And while there’s nothing wrong with either of those motivators, there is another option.

It’s called generational wealth, and it allows you to create wealth that will not only sustain your family today but for generations to come.

What is generational wealth?

Generational wealth is the ability to continuously create, maintain, and pass down assets from one generation to the next. And whether you realize it or not, you’re probably already familiar with this concept.

Think of the wealthy families you see on TV and movies. The preceding generation worked hard and built the family fortune, and then passed it down to their children. Then, the following generations continue to sustain and build on that family wealth.

Why is generational wealth important?

The concept of building generational wealth isn’t just about making enough money to buy a nice house or fund your current lifestyle. It’s about setting up your children, grandchildren, and future generations for a better life.

It also requires that you adopt a very different mindset when it comes to making and spending money.

5 Ways to Build Generational Wealth

No matter what your current circumstances are, creating generational wealth is an option that’s available to everyone. Here are five ways you can start building generational wealth right away.

1. Get Your Spending Under Control

The first place to start is by getting your spending under control. If you’re unable to manage your spending, then it won’t matter how much you earn. That’s why it’s important to learn how to spend wisely.

Start by tracking your spending every month and evaluating where you’re spending your money. It will likely be very eye-opening for you to see where that money is actually going.

Once you’ve tracked your spending for a full month, it’s time to come up with a budget, and look for any areas where you can cut your spending. By creating a zero-sum budget, you ensure that all of your money is assigned a purpose and isn’t being wasted throughout the month.

And if you don’t have one already, start saving up a six-month emergency fund. An emergency fund will keep you from getting off track when financial emergencies arise.

2. Create Multiple Streams of Income

If you’re relying solely on one stream of income, it will be nearly impossible for you to create generational wealth. And if you unexpectedly lose that source of income, you’re going to be in a very vulnerable financial situation.

That’s why it’s important to create multiple streams of income. The first place to start is by maximizing your current source of income.

If you have a full-time job, take advantage of all the benefits offered to you by that job. These benefits could include things like health insurance, a 401(k), and any other investment options.

A popular option for many people is to start a side hustle to boost their monthly income. Starting a family-owned business, investing in real estate, and stock market investments that you can eventually pass on to your children is a great way to build generational wealth.

3. Diversify Your Investment Portfolio

Working hard at your job, side hustle, or business will be the most beneficial if you can put that money to work for you. Don’t see it as extra money you have to spend every month because that’s not the way to build wealth.

Investing is one of the best ways to build passive income streams that you don’t have to work for. Make sure to create a diversified portfolio by investing in things like real estate or the stock market.

Investing in the Stock Market

If you’re a new stock market investor, it may seem a bit intimidating, but it’s worth it to take the time to learn. Investing is the stock market is a great way to have your money work for you and build generational wealth. Start small and come up with a simple dollar-cost averaging strategy.

If you don’t know which individual stocks to choose, check out low-cost index funds and ETFs. These funds allow you to diversify and invest in numerous companies. You can set up an account with one of the top online brokers and get started immediately.

Investing in Real Estate

One of the most popular ways to build generational wealth is investing in real estate. Countless Americans have done it and it doesn’t require a college education. There is a plethora of information online that can teach anyone how to do it. Furthermore, the amount of money needed to start building your real estate portfolio may be much less than you think.

4. Invest in Financial Education

One of the best investments you can make is in financial education. Develop an in-depth understanding of how money works. If you learn how to invest, manage your money, and make sound financial decisions, it will give you the tools you need to create more wealth.

Financial literacy is also something you can pass down to your children. Wealthy families have been doing it for centuries. They also invest in their children’s education to give them the tools they need to be successful and take care of themselves down the road.

5. Teach Your Children Financial Responsibility

To reiterate, building generational wealth is not just about you and it’s not just about the financial assets you pass down. Even if you’ve managed to build wealth, it’s possible that later generations could squander this money.

That’s why it’s essential to teach your children about financial literacy and responsibility. Have them start making financial goals from a young age. Teach them where money comes from and about the principles of spending, saving, and giving.

And teach them how to work hard and earn their own money from a young age. If you have a family business, get them involved in it in some way right from the start.

By teaching them good financial habits, you’ll help them learn the skills they need for wealth management after you’re gone.

6. Invest in Life Insurance

Life insurance provides a much-needed financial security net for your loved ones in the event of your death. It can help to provide your family with a reliable source of income in your absence, as well as to cover any debts or other expenses you may have left behind.

In some cases, life insurance can even be used to fund your children’s education, or to provide for the care of elderly or disabled family members. Having life insurance in place can give your family the peace of mind that their financial security is taken care of, even when you’re not around.

How to Pass on Generational Wealth

Building generational wealth is only the first step in this process. Once you’re on your way to achieving this, you need a plan for how you’ll pass this on to the next generation. Here are three steps to help you get started.

1. Create an Estate Plan

Once you’ve built your estate, you need to come up with a plan for how it will be managed. And the more complex your estate is, the more complex the plan will be. That’s why it’s a good idea to consult an attorney to help you manage your financial assets.

Your estate plan will outline how all of your various assets will be managed. The more specific your plan is, the easier it will be for future generations to manage your estate.

2. Write a Will

Maybe you’re not quite at the point of needing to consult a lawyer on managing your estate. But at the very least, you should have a will in place. A living will outlines your wishes for what happens to your assets once you’re gone. It can also help minimize a lot of family arguments and tension.

3. Choose Your Beneficiaries

Whenever you open a new account at a financial institution, you have the option to choose a beneficiary. A beneficiary is simply the person who will receive access to those funds after you’re deceased.

You must pick this person ahead of time. If you don’t, this could cause a lot of disagreements within your family. And it could also result in the wrong person gaining control of your financial accounts.

Generational Wealth FAQs

How is generational wealth created?

Generational wealth is created by making wise investments, building a business, and creating a financial plan that allows for the accumulation of assets over time.

What are the benefits of generational wealth?

Generational wealth can provide future generations with financial stability and freedom, allowing them to pursue their passions and live life to the fullest. Additionally, it can provide a sense of security and financial legacy for family members.

What strategies can be used to create generational wealth?

Strategies to create generational wealth include wisely investing in stocks and bonds, starting a business, and setting aside money for the next generation.

What are the best investments for building generational wealth?

The best investments to build generational wealth vary depending on the individual’s risk tolerance and goals. Some of the most popular investments include real estate, stocks and bonds, and mutual funds.

What is the best way to protect generational wealth?

The best way to protect generational wealth is through proper estate planning. This includes setting up trusts and wills to ensure that assets are distributed according to the individual’s wishes.

These documents can ensure that the wealth is passed on to the next generation in a tax efficient manner.

What are the challenges of passing on generational wealth?

Passing on generational wealth can be a challenge as it requires a long-term commitment to saving and investing. Additionally, it can be difficult to manage the wealth to ensure it is not lost or depleted.

Bottom Line

Building wealth takes a lot of hard work, and unfortunately, most families aren’t able to sustain it for multiple generations. But that doesn’t mean that it isn’t possible for your family.

And it’s definitely worth the effort. By building generational wealth, you not only secure your own financial future but that of generations to come.

Start by getting your spending under control, maximizing your income, and focusing on investment strategies to grow your wealth. And make sure to teach your kids good financial habits so they will be prepared to sustain and build on this wealth after you’re gone.

Jamie Johnson
Meet the author

Jamie Johnson is a freelance writer who has been featured in publications like InvestorPlace and GOBankingRates. She writes about various personal finance topics including student loans, credit cards, investing, building credit, and more.