How to build nest egg and pass on wealth to your children and grandchildren

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Building generational wealth can be the key to ensuring one’s family and legacy lives on and while it may seem like a goal too large for one lifetime, building it is actually quite simple. Generally, putting one’s own financial situation first by paying off debt and savings is the first step but even this is not entirely needed to create generational wealth.

While building generational wealth is not intended to make oneself a billionaire, it can forge the way for one’s children, grandchildren and great grandchildren to live that life of luxury. 

The world’s richest families, such as the Waltons who own Walmart and have a net worth of $215billion (around £161billion), are masters of this practice, which is what has given them such great financial and social standing over the decades.

One of the easiest trends to spot with these ludicrously wealthy families is the fact that very few of them pass on wealth in cash form but rather use asset accumulation to build their wealth. 

In theory this is the simple part: acquiring assets and savings that one doesn’t plan to use in their retirement and ensuring these get passed onto their children when they die, but what assets are actually worth looking into?

Clever Girl Finance shared on their website the six different methods of building generational wealth.

Investing in the stock market

Because the stock market often requires a lot of patience and time, it is arguably the most common way to create generational wealth over the long term and there is no shortage of gurus to look towards for advice. 

Investor mogul Warren Buffett has continuously supported the stock market, saying in 2017: “Consistently buy an S&P 500 low-cost index fund. Keep buying it through thick and thin, and especially through thin.”

Invest in property

Owning the right type of property in the right location can set one for life with steady cash flow and appreciating value over the years. 

While it is not easy in the modern day to get onto the property ladder, paying off one’s mortgage as early as possible and buying more properties can quickly snowball into a real estate empire that can be passed on.

Private equity portfolio manager at BNY Mellon Wealth Management, Reuben Bianchin commented: “Over the last two decades private real estate has provided a consistent level of income with average annual cash returns of four percent where there has been a steady level of yield. That’s very attractive for a certain type of client.”

Build a business

This is where the Walton family made their mark with the founding of Walmart in 1962. Since then the business has been passed down with the current generation, Jim and Alice Walton, being worth $54billion (around £40billion) each.

Not every business will be guaranteed success, and not on the scale of Walmart, but it is a surefire way to provide income after one has died.

For this to work, one’s children have to be involved and included in the business from a young age, knowing how to works and what it needs to be successful.

Additionally, one cannot force their children into the business either, and if it is clear they have no intention of running the business then selling it can create an equally great fund for generational wealth.

Life insurance

In the event of a tragic or unexpected loss, life insurance can often save the day and provide what one never got a chance to. 

Additionally, the untimely death of a breadwinner can cause great financial stress on the family one leaves behind and life insurance can help to fill in the gaps to prevent financial tragedy for the following generations.

Investing in education

Learning and perfecting sought-after skills can help one secure higher-paying jobs whilst ensuring a solid financial education can maximise the opportunities one has with the salary they already receive regardless of its size. 

There should also be an emphasis in teaching personal finance and good money management at home.

In simple terms, children cannot maintain what they have never been taught existed in the first place, so helping them to learn about budgeting, taxes, wealth building and debt will help to ensure that whatever one leaves to them after they die, they will be able to handle it well.

However, education is becoming more and more of a burden with the average student loan debt being over £45,000. As such, good planning and saving is needed in order to avoid this debt – or, if that can’t be avoided, paying it off as quickly as possible is a must.

Create multiple income streams

Saving, investing and paying off debt is incredibly difficult if one is living paycheque to paycheque, while they may not be able to increase their salary at a single job, they can increase their income by creating multiple income streams.

The average millionaire has several income streams, meaning that if one fails it will likely not even affect their net worth. 

This technique helps to harden one’s financial stability against tragic circumstances like being retrenched or having an accident with long-term effects. 

Xavier Epps, finance expert and founder of FinanceGuyX said that this method could be incredibly lucrative for  younger people: “Young people have more skills and access to resources today than older generations — they can turn their hobbies into side hustles that can supplement their income. If their side hustle does well, they can consider leaving their nine-to-five job and become a full-time entrepreneur with more control of their financial growth.”

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