The great wealth transfer is already in progress. Every single day, there are about 10,000 baby boomers that are turning 65, and so we’ll be seeing trillions of dollars worth of wealth handed over to the next generation in the next two to three decades. Your power to participate in this transfer hangs on your ability to establish generational wealth.
Generational wealth is the riches a person accumulates in their lifetime that passes down to the future generation. This encompasses various types of assets such as businesses, savings, investments, collectibles, properties, etc.
However, the primary component of ‘generational wealth’ is not the asset itself. It is that you are passing all of these assets to the next generation. You have a lot of options in creating and sharing generational wealth while you are still alive, and you can also lay the foundations of your estates to continue your legacy even after you pass away.
According to studies, only 1 out of 100 will be well off financially after the age of 65 rolls. About 70% of families lose their wealth by the second generation, and around 90% of families flop their wealth upon reaching the third generation.
Hence, regardless of how hard you work to build up generational wealth, the next generation will only screw it all up if they don’t know how to carry on your legacy.
What It Takes to Build Generational Wealth
You may be the first person in your family to have the great opportunity to pass on wealth, or it could be that you may have received gifts of inheritance that assisted you in getting ahead. Either way, building enough wealth begins with establishing a solid financial footing for yourself. Here are some ways you could get there:
Buy a land
You must understand the difference between ‘personal wealth’ and ‘family wealth’ if you want to grasp the concept of generation wealth.
Let’s say you have self-earned $100,000 in your bank account. Since this is your personal wealth, you could use this money as much as you want. The account is at your discretion, so it could be depleted.
On the other hand, family wealth is illiquid. Basically, family wealth is mostly assets that are pretty difficult to change back into money.
It takes a lot of extra steps to use family wealth in reckless spending. Hence, if you want a generational wealth that would last several lifetimes, land could be an ultimate store of value.
The amount of land on the earth is limited and having the privilege to own a portion of it is already a big luxury.
Since the population is bound to continue growing, the demand for land will always be there. If you would buy land now, the future generation to come could benefit from its appreciated price.
Purchase cash-flowing properties
Particular assets have historically brought wealth to many of its investors, and these golden gods of cash-flowing properties include commercial properties, apartment rentals, and hotels.
Have you ever played Monopoly before? If you do, you must have known the drill. Basically, you just buy a property, you hold it, and you wait for it to increase in value, before finally cashing in.
It would be a good idea to buy at least two rental properties in your lifetime. This will lay the foundation of generational wealth. As long as there’s a demand for these properties, there will always be food to put on your table.
Of course, owning small-time properties won’t give make you live like a king. But with these, you and the coming generation are less likely to be hungry as long as they live.
Teach your kids the golden rule of buying at least two properties in their generation and pass this rule to the next generations. Over time, your family’s assets would accumulate, which the future generations will benefit from.
Buy Standard & Poor 500
If you have invested a generous amount of money in the early days of cryptocurrencies and stocks, you probably would have millions of dollars now. However, it isn’t your fault that you were hesitant before since you do not know how these investment vehicles would perform.
You might be a bit late for some of the best investments in the market, but there are still ultimate passive investment vehicles that would help your money grow in a long-term investment— the S&P 500.
The S&P 500 is an index fund made up of 500 top-performing companies in the United States. By buying this fund, you will be able to own a portion of 500 different companies at the same time.
Because of the diversification in S&P 500, if one of the companies fails, others that are performing well can compensate for the poor performance of the latter. This is why it is named the ‘golden goose’ for people who are trying to build generational wealth.
If you invested $100,000 in S&P 500 back in 2010, you would have more than $800,000 today. Imagine having your money grow eightfold without doing any work!
Even Warren Buffett, one of the greatest investors of all time, didn’t beat the performance of the S&P 500 in more than a decade. Vanguard and Fidelity offer the best deals when it comes to the S&P 500.
Buy, borrow, die
This strategy is the simplest yet most valuable when it comes to the creation of generational wealth. Whether you plan to build generational wealth or not, wealth accumulation boils down to three simple things:
- What you want to buy
- What you want to do with it
- What happens to it when you die
Basically, buy things that appreciate value over time. If you need money to buy a new asset, never ever sell an owned valuable asset; instead, try to borrow against it. Take a loan. Many people didn’t know this, but this is how most rich people made wealth.
For as long as you don’t waste the borrowed money on useless, unprofitable, dumb purchases, you can feel free to take a low-interest loan. Do this over and over again until you amass abundant wealth.
But no matter how rich you get, every one of us is bound to die. And ideally, you would want to leave this wealth to your kids down to your grandkids.
The problem is— the state doesn’t want you to do that. The government would require a cut for your heirs to take their hands on your hard-earned money. They would require them to pay inheritance tax.
In the United Kingdom, the successor of assets is asked to pay 40% of the total amount. In the United States, it’s about 15-40%, depending on where the heir lives and how rich you are. You need to find every possible way to lower taxes.
Buy and hold art and other things people are willing to pay for
History tells us that there’s value in desire. Just imagine people who paid thousands, and even millions of dollars on something that seems like rubbish to other people.
If you would come to think of it, why would Elvis’ second-hand guitar cost more than a brand new of the exact guitar model? It all boils down to its intangible value that only Elvis’ supporters could understand.
Look at things that people will still take fancy of decades from now if you want to build multi-dimensional wealth. One of the assets that stood against the test of time was painting artworks.
