How To Build Generational Wealth From Scratch

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If you don’t come from money, building generational wealth may seem like an impossible feat. But even those currently living from paycheck to paycheck can build a solvent financial future for the next generation. It just takes patience, dedication and a little ingenuity. Here are a few simple steps to get you on your way.

Start By Saving

“One way to start is by opening a high-yield savings account,” said Adam Garcia, CEO of The Stock Dork,  “These accounts typically offer higher interest rates than traditional savings accounts, which can help your money grow over time.” He advised looking for accounts with minimal fees and easy accessibility.

Garcia also suggested beginners put money into a money market fund. “Money market funds are mutual funds that invest in short-term, low-risk securities such as Treasury bills and commercial paper,” he explained. “They offer potential for slightly higher returns compared to savings accounts while maintaining a focus on capital preservation.”

That said, Garcia warns that it’s important to be mindful of the fees and expense ratios associated with your desired money market account and make sure they match up with your investment goals.

An easy way to achieve your savings goal is to automatically put away 5%-10% of your paycheck each week. While this doesn’t seem like much now, in 10-20 years, you’ll have a sizable nest egg.

Make Your Money Work Better for You

Look Towards Retirement

Henry Habgood, a wealth manager with Washburn Capital Management said, “Even if you have no money, it’s important that you plan your life like you do.” This means setting up an Individual Retirement Fund (IRA) or a 401(k).

According to Garcia, both types of accounts provide tax advantages and long-term growth potential. “Contributions made to retirement accounts can grow tax-deferred or tax-free, depending on the type of account, allowing your investments to compound over time,” he added. Garcia also suggests seeing if your employer offers matching contributions to retirement funds.

Not only can you set up a retirement fund for yourself, but many financial institutions offer Custodial IRAs for minors. They operate like a Traditional or a Roth IRA and can be used later in life to pay for your child’s college or their retirement.

Just like with a savings account, setting up automatic contributions to retirement funds helps alleviate the mental burden of parting with a lump sum each month.

Take Out A Life Insurance Policy

Creating generational wealth means protecting your family’s finances, no matter what curveballs life throws at you.

Paul LaPiana, CFP, head of brand, product and affiliated distribution at MassMutual explained, “Life insurance provides unique benefits to both the insured and to the insured’s family or descendants.”

Make Your Money Work Better for You

This doesn’t just mean money after the policy holder dies. “Life insurance policies can provide cash values to cover emergencies or to help supplement retirement income,” explained LaPiana. “Policies can be designed to provide future long-term care benefits or provide a resource to pay for chronic care needs.”

Life insurance policies aren’t just for adults. LaPiana advised that taking out a life insurance policy on young children can provide them with security throughout their lives. And if you’re worried about cost, don’t be. According to Moneygeek, the average monthly cost of life insurance for a 10-year $100,000 policy is $11.02.

Think Outside the Box

If you’re starting from zero, consider looking for wealth-building opportunities that don’t require an initial cash infusion. Garcia suggested creating an alternative revenue stream by monetizing a hobby, renting out equipment or leasing a spare room. “Side hustles can provide additional income streams, accelerate savings and create entrepreneurial opportunities,” he said.

It’s also smart to take stock of what your family already has in their possession. This means getting family heirlooms appraised. Many pieces of artwork and even collectibles will appreciate over time. So while the finds in your parent’s basement aren’t worth a whole lot now, they could be worth a significant amount to future generations.

Another option is growing your social capital by networking within your community. “Your network can offer valuable resources, opportunities and collaborations that can help accelerate your wealth-building journey,” said Garcia. He suggested attending industry events to make connections with people who can help guide your career.

Make Future Generations Money Minded

Building generational wealth now is useless if future generations are just going to squander it away. You want to make sure your family understands how to not only preserve your wealth but to help it grow.

Make Your Money Work Better for You

“When you’re starting out, that is usually done by creating great spending habits for the entire family to follow,” said Habgood. These habits include living within your means, creating and sticking to a family budget and avoiding unnecessary debt.

He added, “Longer-term, you want to turn your family into stewards of your wealth, even from a young age.” This requires teaching your children the value of what you will eventually be passing on to them and how to avoid pitfalls like bad investments.

Habgood noted, “If done right, that wealth can go to support not only the family but also a lot of great causes that are particularly important to those family members.”

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