Many people want to be able to take care of their family’s financial needs. Some even want to be able to support future generations. This is something that takes careful planning and hard work. It requires being able to build generational wealth.
Within this article, we’re going to look at what generational wealth is and a few little-known ways to build generational wealth for your family.
What Is Generational Wealth?
Generational wealth is when families pass down financial assets from one generation to the next. Financial assets that can be passed down could include cash, investments, real estate, art and more.
Before you work on building generational wealth, you need to have a good understanding of financial literacy. Financial literacy includes things like understanding how to budget, knowing your credit score, having financial goals, knowing how to borrow and repay debt, saving money and being confident enough to begin investing. Being financially literate helps you manage your money so that you can then work on improving your family’s generational wealth.
Little-Known Ways To Build Your Family’s Future
Most people understand that they could simply earn more money at their jobs to build their family’s future. However, there are other ways to build your family’s future besides having a high-paying job. Here are five other ways to start building generational wealth for your family that you might not have considered before.
Estate planning is when you prepare your financial situation for the event of your death or incapacitation. During estate planning, you will determine which of your heirs gets which of your assets. Part of estate planning usually involves preparing a will. A will is a document that outlines your specific wishes for your assets. A lawyer can help you draft a will, or you can use an online resource like Trust & Will.
Estate planning can also help minimize family members fighting over your assets after you die.
Build a Family Business
A family business is a unique way to pass something along to your family. If the family business is profitable, it can be passed along, helping to support future generations.
It’s important to understand that the success rate of small businesses is fairly low. According to a report by Fundera, 20% of all businesses will fail within the first 12 months. However, when successful, family businesses can last multiple generations.
“We decided to launch small family-owned microbusinesses, leveraging the skills and talents of family members,” said Thomas Codevilla, co-founder and partner of SK&S Law Firm. “These ventures not only generate additional income streams but also provide valuable entrepreneurial experiences to the younger generations.”
Of course, your family may not want to take over the family business. In that case, they could sell, creating another opportunity to build generational wealth.
Invest In Your Child’s Education
Education is something that many parents choose to invest in for their children. The payoff for investing in education won’t be seen for many years, though. But education is unique in that it is something that can’t be taken away. Once completed, your children will always have their education. This can lead to higher-paying jobs, which can build your family’s wealth for years to come.
While most of us don’t like talking about death, it can have a large impact on your family’s finances.
Life insurance can be a simple way to build generational wealth for your family. If you have a policy in place and you pass away, the benefit amount will then be awarded to your beneficiaries. This can be used to pay down debt or invested to help grow your family’s wealth. Life insurance can be especially beneficial if you are the sole or primary earner in your family.
However, you can also choose to take out a whole life policy that accumulates a cash value.
“The cash value grows tax-deferred, and policy is exempt from creditors or lawsuits,” said Andrew Lokenauth, founder of The Finance Newsletter. “Whole life policies can be used as collateral for loans while keeping death payout to heirs intact.”
The downside to whole life policies is that they come with a much higher price tag than term life policies. Instead of being good for a set number of years like a term policy, whole life provides lifelong coverage.
Build Multiple Sources of Income
Building multiple sources of income can have several benefits. If something were to happen to your job, you would have another source of income to support your family. This can help you avoid going into debt during a time of unemployment. The money could also be used to build an emergency fund, grow your investments, or pay off debt. All of this will help improve your family’s long-term financial situation.
If you’re struggling to come up with ideas of how to generate additional income, think about what you’re passionate about. If you enjoy writing, you could become a freelance writer. If you enjoy design and have a good understanding of technology, you could start building websites. The possibilities are endless.
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