The first in a three-part series on building generational wealth.
Many of my clients are not benefactors of generational wealth; however, they want to make good financial decisions in order to build their own wealth, which could then allow them to pass along wealth to future generations. Building wealth for them translates to long-term financial security, and with good financial planning, a comfortable, stress-free retirement.
While some of my clients enjoying financial success have had substantial incomes or a financial windfall or a liquidity event that helped them build wealth, many more have had modest incomes and no windfalls. All, however, have been diligent and intentional about making effective financial decisions, including how they save, how and where they invest, how they manage debt, and how they protect their families from unforeseen unfortunate events.
Here are some things we focus on to help our clients get started on their journey to building generational wealth:
Setting Financial Goals
Creating a solid foundation for building generational wealth starts with setting clear and achievable financial goals. This step is crucial as it ensures your financial decisions align with your long-term vision for wealth accumulation. Without a clear set of goals, it’s easy to get sidetracked and make decisions that don’t contribute to your overall financial success.
Setting your financial goals involves long-term planning and saving, following the “3 generation rule wealth,” which suggests consistently saving and investing income over three generations to accumulate wealth, and breaking down long-term goals into smaller, more manageable milestones to track progress and maintain motivation.
Regularly reviewing and adjusting your financial goals is essential to ensure they remain relevant and aligned with your changing circumstances. Life is unpredictable, and your financial situation can change, so it’s important to revisit your goals and make necessary adjustments.
Building your foundation for generational includes prioritizing savings and creating an emergency fund to provide financial security in case of unexpected events. By setting aside a portion of your income regularly, you can create a safety net that protects you and your family from financial setbacks.
Proper estate planning is also vital. Ensuring that your financial assets are well-managed and that your estate plan is up to date can help you avoid unnecessary tax implications and ensure your wealth is passed on to your heirs in the most tax-efficient manner possible.
Creating an Action Plan
To turn your financial goals into reality, it’s essential to create a detailed action plan, which involves setting SMART goals—Specific, Measurable, Achievable, Relevant, and Time-bound. By breaking down your long-term financial goals into smaller, more manageable steps, you can make steady progress and stay motivated.
Identifying all your assets and liabilities is a critical part of this process. This includes ownership details and beneficiary designations, which are important for proper estate planning and ensuring that your wealth is correctly allocated. Knowing what you own and owe helps you make informed decisions about your financial future.
It is also important to establish an emergency fund to provide financial security in case of an emergency or loss of income. The funds should be reserved for true emergencies. Make regular, automated contributions to steadily build this fund without having to think about it.
The key to accumulating savings and wealth is not how much you make but how much you keep. Creating a budget for savings, making lifestyle choices that support your financial goals, and starting to invest in retirement early are all effective strategies for building wealth. By making small, consistent efforts, you can create a substantial financial foundation for yourself and your family.
Investing Early and Wisely
Investing early is one of the most powerful strategies for building generational wealth. Starting early allows you to benefit from growth, including compound interest, over an extended period. The earlier you start, the more time your investments have to grow, which can lead to substantial financial success.
Starting investments early offers several benefits, including:
- Mitigating the risks associated with market volatility
- Smoothing out short-term fluctuations
- Making it easier to weather market downturns
- Having a better chance of coming out ahead in the long run
Investing wisely involves diversifying your investments to spread risk and maximize returns. This includes putting money into various financial assets such as stocks, bonds, real estate, and retirement accounts. Diversification not only helps protect your investments from market volatility but also increases the potential for growth.
By leveraging the power of compound interest and making smart investment choices, you can create a wealth snowball effect that grows larger over time. This approach not only helps you build wealth but also sets the stage for creating generational wealth that can be passed down to your descendants.
Insurance
Insurance plays a crucial role in preserving generational wealth. Life insurance provides a safety net for your family, ensuring that they have financial security in the event of your death. That financial security allows your dependents to focus on grieving without the added stress of financial burdens.
Term life insurance is often a first consideration in terms of preserving wealth, especially during prime earning years. It provides coverage for a specified period, ensuring that your family is protected during the years when your income is most critical. Disability insurance is equally important. It can replace a percentage of your income if you become disabled and are unable to work, helping to preserve your wealth and maintain your financial stability during difficult times.
In addition to providing financial security, insurance policies can also offer tax benefits and other advantages that contribute to long-term wealth preservation. By incorporating life and disability insurance into your financial plans, you can ensure that your family is protected and your wealth is preserved for future generations.
Overcoming Challenges in Generational Wealth Building
Building generational wealth comes with its own set of challenges, but with the right strategies, these obstacles can be overcome. One of the most important steps is to balance your debt and savings, that is, pay down debt while increasing your savings.
Be intentional with your financial decisions. Whether you receive a financial windfall, like a bonus or inheritance, having a plan in place can help you make the most of it. For example, consider assigning a percentage of a windfall to each of the following:
- Pay down debt
- Save
- Invest for the long term
- Cover current needs or wants
Living within your means and maintaining a healthy emergency fund can help you avoid unnecessary high-interest debt. This practice not only protects your financial stability but also sets a positive example for future generations.
Finally, maintaining a long-term investing mindset is essential. Avoid making permanent mistakes such as jumping out of the market during a period of correction or event-driven decline. Staying focused on long-term goals will help you navigate market volatility and build lasting wealth.
Generational wealth is not just about accumulating financial assets; it’s about creating opportunities and security for your descendants. With dedication and proper planning, you can ensure that your financial success benefits not just you but many future generations.
Remember that the journey to building generational wealth is a long-term process. Regularly reviewing and adjusting your financial goals, staying disciplined with your savings and investments, and being prepared for unexpected events are all crucial steps in this journey.
We’re here to help. For more information on the strategies outlined above and help to start your journey to building generational wealth, contact an HBKS wealth advisor at 814-459-1116, or email me at btaylor@hbkswealth.com.
IMPORTANT DISCLOSURES
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.
The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.
