3 Tips for Building Generational Wealth

Generational wealth is wealth that is passed on from one generation to another. It used to be what they called “old money” or “family money,” meaning the wealth is deep. This is different from becoming a first-generation millionaire in that the first-generation wealth might not last without some strategic moves on your part.

But how exactly do you start building generational wealth? Before we get to that, let’s answer a couple of questions about generational wealth. How much money do I need for generational wealth?

There is no exact figure to determine how much one individual or family needs to consider its wealth generational. However, it has to start with the current generation building the assets in order to be passed down to children, grandchildren, and so on.

What does it take to build generational wealth?

Generally, this means an accumulation of assets that can be transferred to the next generation through wills and other estate planning. To ensure you have your family set up correctly, be sure to consult a financial advisor and estate planning attorney to protect your assets.

Here are three steps to take to build generational wealth:

1. Become debt-free.

No matter how you feel about debt, it’s next to impossible to build wealth if you are tied down with debt payments that leave you with no money to invest. List all of your debts and reorder of smallest to largest balance. From there, working with your budget, make a plan to pay off each balance using the snowball method. The snowball method is simply this: pay the minimum on all of your debts except the smallest one. When that is paid off, roll that payment into the minimum payment of the next smallest debt, and so on. As you pay off more debt, the amount you can pay gets larger and larger, knocking the debt out sooner.

2. Live below your means.

This is certainly not the most creative way to build wealth, but it is sure. By living below your means (which also means making a budget), you’ll have extra money left over to attack debt or invest in your family’s future. While some people go to extremes and can live on less than 50% of their income, that is a good start if you can start with getting to the point where you live on 80% of your income. No matter how you start, it’s important to keep your lifestyle low maintenance and simple to have that extra money each month.

3. Start a business.

Let’s be real; you can only cut expenses so far. But by creating an income from a business, you’ll have more room in your budget to pay off debt and then invest in real estate, mutual funds, etc., and build that generational wealth. If you never have any money, it’s hard to build savings or have any assets at all to pass down.

When it comes to building generational wealth, we love to skip to the part where we invest money but often neglect the part where we have money to invest. If you’re unsure how to get out of debt and start building generational wealth, hire a financial coach, planner, or advisor to help get you started. Then, when you have assets and want to know where to start, see an estate planning attorney to make sure your assets are correctly and legally protected.