How to Build Generational Wealth

We often hear it said that “athletes aren’t born, they’re made.” Wilma Rudolph, an American Olympian Track Runner, wasn’t born with the ability to win gold. In fact, Rudolph was the last person anyone thought could run in the Olympics. She was born with Polio and many doctors told her she would never walk again, yet she paved a way for herself through strength, discipline, and fortitude to win 3 gold medals and break 3 world records in 1940.

Generational wealth holds a resemblance to that theme. We like to think generational wealth is for those who were handed a silver platter when they were born. However, just because the baton of generational wealth is passed to the next generation doesn’t mean they get to walk to the finish line. They must sprint just as fast towards the same goal and on the same principles as those who came before them. Generational wealth is built and maintained from diligence and persistence by the whole family.

Conditioning

Now the question is how do you even start training for the race? Well – it begins with handling your own finances in the best way possible. Contrary to the title of many books and podcasts, there is no “Get Rich Quick” strategy to generational wealth. It’s a long tedious process that you must work to build a strong foundation for financial success. This includes: cleaning up debts, saving for emergencies, saving for retirement, planning for college educations, and, lastly, building an opportunity fund.

Cleaning Up Debts

You cannot build wealth while acting rich. In order to keep up with Jones’ people find themselves taking on debt for the best car, the newest tech gadget, and the nicest house. Yet, pay for these items with debt is detrimental. Before they know it, they are paying $6,000 a month toward minimum payments. This is not living within your means. If you want the ability to build generational wealth, start by eliminating debt and budgeting yourself according to your monthly income. Not having debt payments will help make living on a fixed income in retirement easier and allow you to save more towards retirement/goals today.

Saving for Emergencies

Once your debts have been paid its time to start saving for emergencies. At Wiser, we tell our clients to save 3 months of expenses in their savings account, so that they are prepared for any hurdle in life. For some people that looks like $15,000, for others it could be $150,000. Evaluate this number based upon your family’s budget. It is unique to you. By building this up it will allow you the confidence to step into other avenues of building wealth.

Saving for Retirement

Next, it’s important to begin saving for retirement. The money you have been contributing to your debt payments can now go towards a brokerage account, 401k, or IRA. If you are working, contribute the maximum amount to your 401k to receive the maximum match from your employer. Whether you are working or not, you can contribute to an IRA and Brokerage account to build your wealth. You want some of your money in the market to keep up with inflation. Remember: stay diversified while maintaining an aggressive stance within your portfolio based upon your personal risk tolerance.

Plan for Education

By educating the next generation you are preserving your family’s wealth. Many states now offer 529 plans that reap strong benefits for their residents. You can also open a private 529 account with your financial advisor if you prefer. However, you can get great tax benefits by contributing to a state 529 account. If you don’t use all of the money in the 529 you can always transfer the beneficiary to another child, cousin, or grandchild.

Georgia’s 529 plan can be found at: www.path2college529.com

Build an Opportunity Fund

You’re on the block, it’s time to build your opportunity fund. This is where generational wealth begins. Opportunity funds look different for everyone, some will choose to invest in the stock market. Others will purchase 2^nd or 3^rd homes to create passive income. There are even some that will begin investing in a family business. A great way to encourage your family in your opportunity fund is to transition it into something they foresee growing in. For example, if your daughter wants to open a boutique, you can help by utilizing your opportunity fund and providing capital for her business to launch. This helps spearhead the furtherment of generational wealth and gives the next generation a purpose behind the wealth.

Run the Race

All that being said, to run the race, the most important thing is to have your finances conditioned first. It’s time to eliminate the debts, contribute to savings and investment accounts, and establish an opportunity fund.  Once you have established generational wealth – download this guide on how to pass the baton of generational wealth to your next generation.

Have more questions? Contact Us

Michaela Dowdy
Financial Planning Associate