Leaving money and assets to your kids, grandkids, and your family’s future generations can make a big financial difference in the lives of your loved ones. Building and achieving generational wealth might seem unattainable. But with proper financial planning and habits, building generational wealth can be possible at all income levels.
Dave Ramsey: Is It Worth Converting Your Traditional 401(k) Into a Roth 401(k)?
I’m a Financial Advisor: These Are 7 Key Habits of 401(k) and IRA Millionaires
What Is Generational Wealth?
Generational wealth is defined as “financial assets passed from one generation of a family to another,” according to Investopedia. Financial assets include cash, stocks, bonds, real estate, family businesses, and other investments.
LegalZoom reports the racial wealth gap is increasing in the United States. According to the Federal Reserve, minority families hold only about one-tenth of the wealth of white families. However, it’s possible to shift your financial habits and priorities to start saving for your family’s economic future, even if you struggle with building wealth.
Joshua Goldstein, an attorney and partner in the trusts and estates practice at Davidoff Hutcher & Citron, said that generational wealth “supports the welfare, health, and education of your family beyond your children’s generation.” He adds that you have achieved generational wealth “when you have built up an asset base that can provide for your grandchildren and enable that generation and beyond to make decisions about their lives without having to be concerned about the costs of things.”
Steps To Build Generational Wealth
Here are six indicators and tips when it comes to building generational wealth:
You’re educating your children about wealth. Instilling good financial habits and teaching your kids about wealth management is key. Financial literacy is learned and it starts with the family unit. Some examples of good habits to teach your kids include saving money regularly, investing money as early as possible in life, and living below your means to avoid debt.
You’re building a business. Building and owning a business is one way to create sustainable generational wealth. If you can build up a successful business that creates a significant revenue stream, this becomes an asset you can pass on that will benefit your next of kin. It’s a smart idea to create a business that fills a need and a demand in your community.
You’re investing whatever money you can. Investing early and often in life is key. History shows that purchasing assets and holding them for the long term can result in big gains later on, even with ebbs and flows in the economy. Even small increments of $10 per week or $50 per month can result in a large sum of money that grows and appreciates over decades. Setting up automatic investments in your trading account to purchase stocks, mutual funds, or ETFs is a smart way to get started. No dollar amount is too small to start.
You’re taking advantage of life insurance policies. Purchasing a life insurance policy now allows for tax-free money to be transferred to your family in the event of your passing. Your family will receive what is known as the “death benefit,” which is the amount of money your insurer will pay out to your beneficiaries if you die during the policy’s term, according to Progressive. To add, the IRS says that life insurance proceeds received by beneficiaries aren’t included in gross taxable income and you don’t have to report them.
You’re examining your financial behavior. Carefully considering your financial behaviors is crucial to ensure consistent wealth creation. Whether it’s putting away more money in savings each week or each month, cutting back on unnecessary expenses like coffee out or dining at restaurants, or staying informed about the latest financial news, you’re setting yourself up for success. In turn, your family will benefit later on.
You’re selecting beneficiaries for your accounts. Be sure to select beneficiaries for all of your financial accounts and assets without delay. This can include bank accounts, investment accounts, retirement accounts, life insurance policies, etc. Selecting beneficiaries for your financial assets without delay will avoid your assets being held in probate. This a legal process where a court has to sort out your financial situation and determine how to distribute your assets, according to Securian Financial. Selecting beneficiaries in advance will avoid any delays in your family benefiting from your financial assets soon after your passing.
Building generational wealth is an important element of financial wellness for you and your family. Having peace of mind that your future generations will live more comfortably and financially secure is something to feel good about.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 6 Key Signs You’re On Track To Build Generational Wealth