Have you ever wondered how the rich seem to keep getting richer? While there isn't a single magic answer, generational wealth is often the engine behind that prosperity. It might feel like a concept reserved for billionaires, but the truth is that all wealth starts somewhere. It usually begins with someone who had very little but decided to build a nest egg for the people they love. Let's look at how you can be that person for your family.
What actually is generational wealth?
Simply put, generational wealth is the transfer of money, property, or other assets from one generation to the next. While we often think of this in terms of families, the concept can actually apply to individuals, businesses, and organizations as well.
The Sam Walton story: Inspiration over expectation
It helps to look at real-world examples. Sam Walton is a prime example of someone who started with nothing. His journey was a true rags-to-riches story. He worked hard, saved his money, and invested wisely.
As a result, he built a business, Walmart, that generated enough wealth for multiple generations. Today, his family is the wealthiest in the world. While Walton’s story is truly remarkable, we think it should be viewed as inspiration rather than an expectation. It is proof that you can build a legacy that lives way past your expiration date.
Why passing it down matters
The benefits of building this kind of security are numerous. Perhaps the most important benefit is that it is designed to allow families to maintain their standard of living and financial security from one generation to the next.
Inheriting money or property can generally help families better weather tough economic times, pay for education, start businesses, and much more. Furthermore, it creates a safety net that can be used in case of unexpected expenses or financial emergencies. Lastly, it allows you to give back to the community, as families with accumulated wealth can often use it to help others who are less fortunate.
How to maintain your roadmap as you age
As you get older and continue to grow your assets, there are a few things to keep in mind to maintain your security.
First, make sure you have a diversified portfolio that includes a mix of different types of assets. This helps protect you from economic downturns and market fluctuations.
Second, create a financial roadmap that includes both short-term and long-term goals. This helps you stay on track as you work to build value over time.
Finally, remember that this takes time. There is no need to rush the process. If you focus on making smart decisions and saving regularly, you should be well on your way to creating a lasting source of wealth for your family.
5 steps to start building wealth today
Whether you are lucky enough to have received an inheritance or are starting from scratch, these strategies can improve your chances of success no matter your situation.
1. Start with paying off your debt
The importance of paying off debt cannot be overstated. Not only does it usually free up money you can use to grow your assets, but it also helps improve your credit score and increase your financial security. When you are burdened with debt, it can be difficult to make ends meet, let alone save for the future. By paying it off, you build a stronger foundation.
2. Live below your means
A solid goal is to try and spend less than you earn and invest the difference. When you live below your means, you may be able to save money and invest for the future. You may not be able to live as lavishly as you'd like in the present, but by sacrificing now, you set yourself up for a better potential future.
3. Invest in assets, not liabilities
It is vital to know the difference. A liability is something that costs you money, like a car payment. An asset is something that generates income, like a rental property. By investing in assets, you may be able to generate passive income that helps build wealth over time.
4. Diversify your investments
This means putting your money into investments that usually perform differently so that you aren't too exposed to any one security. Broadly diversified portfolios often increase the chance you will meet your financial goals.
5. Teach financial literacy to your children
If you can instill sound financial principles in your children at an early age, they will be more likely to practice them when they are older. This leads to decisions that benefit the entire family. By teaching financial literacy, you help ensure that your family has a better chance for prosperity for generations to come.
The Facet Difference
Building a legacy is a journey, and you don't have to walk it alone. At Facet, we believe that financial planning is essential to living well, which is why we rejected the traditional industry model that charges based on how much money you have. Our membership-based model means you get access to a team of CFP® professionals who work with you on every aspect of your financial life. We focus on your values and your life goals, providing objective, fiduciary advice to help you build the future you want.
