Building and preserving generational wealth are two interconnected but distinct processes. They have their own steps and strategies. In this post, we'll cover both pieces of the generational wealth puzzle.
How to Build Generational Wealth
Most of us want to build up a nest egg so that we can retire, maintain a great lifestyle, and ensure that no matter what happens, our spouse and children will be okay. Building towards retirement and a work-optional lifestyle is an important stage. If building your wealth or preserving generational wealth is a priority, then these two checklists are for you!
Checklist for Building Generational Wealth
Keep in mind as you go through this checklist that working with a fiduciary financial advisor that you trust will help you check all the boxes and feel much more confident in your numbers.
1. Establish Clear Financial Goals Based on What Matters to You
Define what generational wealth means for your family.
Set specific, measurable, and time-bound financial goals. And ensure that you consider your lifestyle and values when setting your goals. It can help to work with a qualified financial planner when going through this process.
2. Increase Your Financial Knowledge Base
Educate yourself and your family on financial planning basics, investment strategies, and wealth management.
Consider professional courses or workshops if you have the time. Or read widely to expand your knowledge. When you work with a good fiduciary financial advisor, you’ll also be able to ask questions and expand your financial knowledge through that relationship.
Some great books include:
The Psychology of Wealth by Morgan Housel
The Essays of Warren Buffett, compiled by Lawrence A. Cunningham
The Intelligent Investor by Benjamin Graham
Stocks for the Long Run by Jeremy Siegel
3. Develop Multiple Income Streams to Have Financial Resilience
Ensure your investment portfolio is in diverse income-generating assets like stocks, bonds, real estate, and businesses to reduce dependency on a single income source.
The old cliche to not put all of your eggs in one basket couldn’t be more true when it comes to wealth building.
4. Invest Wisely For the Long Haul
Use investment strategies that match your risk tolerance and financial goals.
Consider long-term investments that offer compound growth and don’t fall into get-rich-quick schemes that could decimate your wealth. It only takes one catastrophic investment to rapidly reduce one’s wealth if you’re not diversifying or being mindful of risk.
5. Optimize Tax Strategies to Avoid Money Leaks
Work with tax professionals to ensure efficient tax planning and take advantage of tax-efficient investments and savings accounts.
One of the largest money leaks for many people is tax. Yet tax is often overlooked. Ensure you’re working with a tax-savvy investment advisor as well as an accountant. Make sure that they can work together to minimize tax legally.
6. Do Your Estate Planning So Your Family Is Protected
Create a will, establish trusts, and define clear inheritance plans to ensure assets are distributed according to your wishes.
Your financial advisor should help you with your estate planning.
They can provide advice garnered from years of experience helping their clients through this process. This can include holding family meetings at their offices to go over the estate with your attorney.
7. Get the Right Insurance Coverage
Protect your wealth with adequate insurance coverage, including life, disability, and property insurance.
It’s important to buy insurance from someone you trust so you don’t get “too much” or “too little” insurance. In addition, there are ways that you can use insurance in your estate planning. You’ll want to speak with a professional about this to find out if it makes sense for you.
8. Involve the Next Generation So They Don’t Throw It All Away
Educate your children about finances and involve them in family financial planning discussions to prepare them for future responsibilities.
The topic of money and investments should not be taboo if you want to help your children grow to become wise money managers. Ideally, your children should have an even better financial education than you had growing up. It can be hard to start this process, but it will pay off in the long run.
Checklist for Preserving Generational Wealth
1. Continue Your Ongoing Wealth Education
Continuously educate yourself and your family members on wealth management, investment strategies, and the importance of preserving assets.
Bringing your children to financial meetings may be an appropriate way to maintain their financial education. When you do your estate planning, make sure you have a meeting with all your family members, as this will educate everyone involved.
2. Do Regular Financial Reviews (At Least Once Per Year)
Conduct regular reviews of your financial plan and investment portfolio to adjust for changes in the market, personal circumstances, and financial goals.
A financial plan is not a one-and-done affair. Whenever there is a big change in your life or financial circumstances, it’s important to review your financial plan and make the necessary adjustments.
3. Strengthen Legal Structures
Regularly update your estate plans, wills, and trusts to reflect changes in the law and family circumstances. Ideally, put an estate plan review on your calendar every year.
4. Diversify Investments
Continue to diversify investments to mitigate risks and protect against market volatility. As one’s wealth grows, there may be the temptation to take greater and greater risks. However, it’s important to protect yourself from the temptation to put a large percentage of your assets into one investment.
Partnering with a fiduciary financial advisor and holistic wealth management team may be a smart move. Your team will help ensure you don’t make any catastrophic decisions that could negatively affect your net worth.
5. Implement Strong Governance
Establish family governance structures, such as family councils or regular meetings, to make collective decisions about family wealth.
6. Cultivate Family Unity
Foster a sense of responsibility and unity among family members to prevent conflicts and ensure cooperative management of family assets.
Nothing ends generational wealth quite like a family conflict. No matter how great or small the wealth, it’s quite common for families to be broken apart due to money matters. This is particularly common after the patriarch or matriarch of the family passes.
It’s critical that you ensure this doesn’t happen to your family. Brainstorm different ways you can help your family become stronger and more unified. Having a shared goal can be helpful.
7. Charitable Giving
Consider creating a family foundation or regularly donating to charitable causes, which can also offer tax benefits and help maintain the family’s legacy.
When you give to charities and causes that you care about, it will give you a feeling that money can’t buy. It’s a win-win situation!
8. Monitor and Manage Debt
Keep debt levels manageable to avoid eroding wealth through high-interest payments and financial strain.
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About 360 Financial
360 Financial is an independent wealth management firm with a team of specialized financial advisors and financial planners. As fiduciaries, 360 Financial’s advisors provide services to business owners, entrepreneurs, and professionals. We help investors with sudden wealth, retirement planning, tax planning, estate planning, and business financial planning.
Headquartered in Minnesota, we serve investors across the US with online and in-person wealth management and financial planning services.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
