The financial decisions you make today can significantly impact your children, your children’s children, and multiple generations down the line. Misguided choices may increase the difficulty of achieving financial stability, while wise ones can reduce or eliminate financial struggles and create more significant chances of success. It all depends on the steps you take to build generational wealth.

As the name suggests, generational wealth refers to wealth that transfers from one generation to the next. It includes money, property, investments, and other assets. According to the Federal Reserve, around 2 million U.S. households receive an inheritance or another substantial gift each year. People around the country have emphasized using their wealth to benefit generations of their families after they’ve passed.

Building generational wealth can be challenging, however. It would help if you were intentional about making money, using it to increase your wealth and pass on that wealth efficiently. Now and in the coming years, you’ll have numerous opportunities to build a brighter future for your family, and using these three essential tips will help you maximize those opportunities.

1: Create Multiple Income Streams

Though building generational wealth requires you to make decisions about the future, it starts with ensuring financial security in the present. You can allocate additional funds towards wealth-building assets once you can cover all your necessary expenses. Using various sources of money to invest and produce passive income is an excellent way to increase generational wealth over time.

Consider a side gig that yields additional income each month or passive income, such as businesses, limited partnerships, or even real estate, that diversify your income, spread out your risk, and help insulate you from the effects of an economic cycle. Having diverse income streams and generating more money allows you to invest more—whether in your primary company or new income sources. You’ll begin to attract more money and yield higher ROI.

2: Invest Early

Investing early allows for growth opportunities that can outpace inflation. Investing is often the not-so-secret formula that helps counteract the decline in your money’s purchasing power over the years.

You don’t need much to start investing. Even smaller investments in a diversified portfolio can grow significantly over time. The longer you’re invested, the more opportunity for the power of compounding to take hold. The power of compounding in investing is remarkable and is often considered one of the most influential factors in wealth accumulation.

At its core, compounding involves reinvesting earnings and generating additional earnings. This compounding effect can lead to exponential growth over time. One important concept related to compounding is the “72 rule.” According to this rule, you can estimate the years it will take for an investment to double by dividing 72 by the annual rate of return. For example, if you have an investment that earns a consistent annual return of 8%, it will take approximately nine years for your investment to double (72 divided by 8 equals 9). This rule highlights the incredible potential of compounding and the importance of starting early. By making regular investments and allowing them to compound over a long period, you can harness the power of compounding to build significant wealth. Whether starting with a small or a more considerable sum, the key is to remain consistent and patient, allowing time and the compounding effect to work their magic.

3: Develop an Estate and Trust Plan

Preparing for the unexpected through estate planning can be as important as building wealth. Life can be cruel and uncertain, and death or disability may unfortunately occur at any time. That’s why it’s so important to put the right estate plan in place before it’s needed.

If you own any property, then you have an estate. Your estate may include:

  • Real estate
  • Car or other vehicles
  • Checking, savings, or other financial accounts
  • Investments
  • Businesses
  • Furniture, jewelry, and other valuables

With an estate and trust plan, you can determine who receives your money and assets after you pass. You can also provide specific instructions for how your family can use the money, increasing the chances of it lasting for future generations.

If you don’t develop an estate plan, state laws will dictate who receives your possessions and how they can use them. Further, disputes between family members and third parties, such as the IRS, can cost time and money.

Putting together a complete estate and trust plan is complex. It involves numerous aspects and important decisions—such as a living trust or will, power of attorney, and plans to minimize estate taxes—that may not be easy to navigate. A Certified Financial Planner™ professional can assist you throughout the estate and trust planning process so that you feel confident in your choices for your family’s future.

Begin Planning for the Future Today

By putting plans in place to build lasting wealth and pass it on to your family, you can directly impact the lives of future generations. Though it may seem challenging, working with a trusted financial advisor will make the process simpler and more effective.

Our team at ProVise implements proven strategies based on your financial situation and goals to help you build and manage wealth. Contact us today and begin planning for the future.