How to Create Generational Wealth

Alix Tucker, CEO of Finance with Alix

There's no doubt that most of us dream of a financially stable future for ourselves and our families. But what if you could go even further than just simple financial stability? What if you could create generational wealth that could benefit not only your children but your grandchildren and beyond? Don’t think that it’s only the super-rich who can dream of these goals!

In 2019, The Washington Post wrote about the “staggering millennial wealth deficit,” where they own just 3.2% of the nation’s wealth in the United States. Economic disparities are just continuing to get bigger, so establishing generational wealth is more important than ever. That wealth doesn’t just act as a buffer in case of emergencies but helps generations to thrive and get access to education and more.

Luckily, with careful planning, dedication, and a few strategic decisions, you can work towards creating generational wealth like a pro. Let’s take a look at a few proven strategies that can help you establish that financial legacy.

Work for Equity or Own a Company

A friend of mine shared a fascinating family story about how her grandparents built their business from the ground up and turned it into a thriving enterprise. This not only formed a large part of the family’s wealth, which they used to invest in other assets but also allowed them to live a comfortable lifestyle.

Working for equity (such as through stock options or RSUs) or owning your business gives you a share in the profits and growth of a company - the bigger the company's success, the larger your piece of the pie. It's a bit like planting a small seed – you nurture it, and as it grows and flourishes, you reap the benefits of its fruits. With smart decisions and hard work, this can translate into real wealth that you can pass down.


Invest in Stocks and Index Funds

We've all heard stories of people who bought shares in companies like Apple or Amazon early on, with investments that have now become mountainous - maybe even turning them into millionaires. But even without finding the next big thing, investing in a diverse range of reliable, well-performing companies over the long term is a proven way to build wealth that can span generations.

When you start investing in stocks, it's not about trying to make a quick profit by timing the market. Instead, it's about consistently adding to your portfolio over time and allowing compounding interest to work its magic. By staying the course through market fluctuations, patience, and a proper strategy, investing in the stock market is a reliable long-term approach.

Source: Unsplash

Invest in Real Estate

Real estate has been a tried-and-tested avenue for building wealth for centuries. Throughout history, people have turned to property investments as a way to combine passive income and capital appreciation, where the value of the property increases. The tangible nature of property investments offers a sense of security and stability, which is why many families see it as an attractive option.

Whether it’s buying a single-family home, a commercial property, or a modern condo, if done carefully and with proper research, real estate can become a cornerstone of generational wealth and a strong hedge against inflation.

Own Life and Disability Insurance

No one likes to think about the possibility of their early passing or being unable to work because of illness or injury, but being protected is a part of generational wealth. Insurance is a safety net that can protect your family’s finances, all while serving as valuable capital for smart investing. Should anything unexpected happen, insurance provides financial assistance that helps preserve the wealth you’ve built.

Invest In and For Your Kids

Setting up robust financial foundations for your children is an essential step towards generational wealth - and there are many ways you can do this. For example, a 529 plan lets you save for your child's education while enjoying tax benefits. You could even open an investment account for your child when they are born and watch it grow as they become adults. Similarly, buying a single-family home in their name can create a stable source of passive income and a worthy asset they can either keep or sell when they come of age. Another option is to retire your children. By putting $10k into an investment fund for them when they are born, by the time they are 65 years old, the fund will be worth nearly $6M.

Use Custodial Accounts to Teach Kids About Investing

Besides providing a secure investment platform, custodial accounts offer an excellent opportunity for your children to learn the basics of investing under your supervision. It gives them hands-on education so they can experience the benefits and responsibilities of investing from a young age, preparing them for the future. 

A custodial account is essentially a financial account set up by a parent or guardian on behalf of a minor, focused on owning and managing assets like stocks and bonds. With this useful  financial literacy early on, they’ll be more equipped to manage and grow any generational wealth that’s passed down to them.

Teach Kids about Personal Finance in an Age Appropriate way

Start establishing the importance of financial literacy early on by tailoring your lessons to their age. Before the age of eight, introduce them to the concept of a piggy bank and budgeting. Teach them about the value of money and making trade-offs between wants and needs. As they grow older, introduce the idea of savings and earning money through chores, and encourage them to get a part-time job in their teenage years. These early lessons are sure to transform your children into financially responsible adults.

Final Word: Laying the Foundation for Your Family's Financial Legacy

Building generational wealth isn’t something that happens overnight, nor is it something that’s only accessible to the wealthy. There are so many wealth-building avenues out there that can help you pass down your financial legacy, whether it’s stocks or real estate. And there’s no such thing as too early - a good financial education is the secret ingredient to financial freedom and prosperity for your family.

So, as you head on your journey to building generational wealth, don’t forget that patience and consistency are key - this way, your financial legacy won’t just be a dream but a reality.

If you're looking for more advice and insights on building generational wealth, be sure to let us know in the comments below!