How To Build Generational Wealth Without a Big Salary, According To Jaspreet Singh
Written by
Gabrielle Olya
Edited by
Kristen Mae
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Many people believe that buying a home is the best way to build generational wealth, especially if you have a limited income — but money expert Jaspreet Singh says that this isn’t the case.
“When most people think of generational wealth, they’re thinking, ‘I own this home that’s worth $600,000 with a $500,000 mortgage. I’m going to work to pay down my mortgage to 0, that way then I can pass down this house to my kids,'” Singh said in a recent YouTube video. “But that’s not what real generational wealth looks like.”
Singh believes that real generational wealth provides income while you are living and then provides that income to future generations. Not only does a home not generate income, but it actually continues to cost money for whoever inherits it — even if you’ve paid off the mortgage.
“There’s no mortgage payment, which is great, but you still have to pay property taxes, you still have to pay your property insurance, and you still have to pay for the upkeep,” Singh said.
Even if your heirs sell the home, it isn’t generating income.
“You could just sell the home and you can pocket this $1 million [and] put it into your bank account, but now the problem is this $1 million isn’t paying you anything,” Singh said. “It’s just sitting there. And now if you live off of $100,000 a year, well, this money is going to be completely gone in 10 years.”
Instead of buying a home, Singh said there are three other assets you should focus on buying to create true generational wealth.
Stocks
There are a few types of stock investments Singh recommends for building generational wealth, the first of which is domestic dividend-paying funds. These are typically low-risk investments that pay dividends just for being an investor.
For those willing to take on more risk, Singh said to consider investing in a real estate investment trust (REIT). If you want to get “even more sophisticated,” Singh said to look into international ETFs.
“There’s higher risk, but also higher growth potential,” Singh said.
The way to turn these investments into generational wealth is to invest consistently over time and to keep reinvesting your profits, Singh explained.
“The reason why so many people fail with this type of dividend investing is because they look at something that’s paying out a 3 or 4% dividend yield and they say, ‘Well, I’d have to invest millions of dollars to make a solid stream of income, so it doesn’t really make sense for me to go out and invest in these dividends because I’m never going to actually have that type of money.’
“But that’s not the way that you succeed with dividend investments,” Singh said. “No. 1, you want to see asset appreciation, which is the growth in the value of your investments. No. 2, you want to see dividend appreciation, which means you want to be investing in a good company that’s also increasing how much money they’re paying you. And then you also want to be reinvesting the dividends that you get.”
By consistently investing in these funds with every paycheck and reinvesting your profits, your wealth will grow over time.
“This is how you can win in this strategy, even if you don’t make a ton of money, because now you’re following what I call ‘CPA’ — you’re being consistent, passive and you have an automatic investing strategy. … Even if you’re starting with just $100 a month, you can still see those gains, but you have to stay consistent.”
Real Estate
Singh acknowledges that investing in real estate does take some upfront cash, so it might not be feasible for everyone.
“I do not recommend you get into real estate unless you have some actual cash to go out and invest,” he said.
However, even if you don’t have enough saved now, that’s something you can work toward.
“The reality is, you get what you prioritize, and some people will prioritize investing in real estate and you’re going to find a way to do it,” Singh said.
Once you have enough cash saved up, Singh said to buy a rental property — not a home for you to live in.
“When I go out and invest in real estate, my goal is to get a 7% cash return on my money,” Singh said. “That means for every $1,000 I invest, I want to see $70 of cash flow every year entering my bank account after expenses.”
Singh said to focus on rental income rather than appreciation when choosing a property, because rental income is predictable while the change in the value of your property is not.
“The advantage of real estate investing is not just the cash flow — you also get the benefits of owning a hard asset,” he said. “There’s this real value that you can control.”
In addition, owning property entitles you to valuable tax breaks.
Your Own Business
The third way to create generational wealth is to start a business.
“Now this one is the most difficult, the most risky, but also has the most potential upside,” Singh said.
The way to build a successful business is to create a business that can run when you step away.
“If, hypothetically, your business makes $500,000 a year and after all expenses you have $250,000 of profit, well now you hypothetically could hire a new CEO [to replace you] at a $150,000 a year salary,” Singh said.
“That means the business is still making $100,000 in profits. This profit goes to the owner of the business, and if you are the owner of the business, well, now you can have a different CEO run the company, you can go move to the beach and still make this $100,000 a year.”
Singh acknowledges that starting a business is not for everyone.
“It is hard building a business, but for some people, you will love it; for others, you’re going to hate it,” he said. “If you hate it, don’t worry about this — focus on the stocks and real estate.”
More From GOBankingRates
