Breaking the Cycle: A Guide to Building Generational Wealth
We all know that spending money is a sure-fire way for us to gain temporary happiness. When we get our paychecks from work, it can be very easy to spend them on things that please us in the moment rather than thinking about what we can do with our money in the long term.
Many of us 20-something year-olds may not be in a financial situation that allows us to think too far ahead of our next paycheck. And that’s completely okay, but it definitely doesn’t hurt to start learning about what you can do to build wealth for you and your family later on.
What is Generational Wealth?
Generational wealth can be defined as the process of creating wealth that can be passed onto future generations. Building generational wealth can provide your children and grandchildren with the head start in life.
However, there is a huge racial disparity when it comes to wealth and families of color. The average Black household only has 6% of the wealth of a white household, while the average Latinx household only has 8%. Due to a variety of factors, including pay inequalities and access to education, many people of color have a harder time building generational wealth to pass on to their loved ones in the future. But that doesn’t mean you can’t. Building your wealth as soon as you can may help you later on.
Here are four tips that you can use to start building up your wealth:
1. Make a budget for your money
It is very important for everyone to be aware of their finances, especially when they are trying to build up their wealth. When you receive your paycheck and after you’ve paid all your expenses, set a portion of the leftover money aside for your savings. You might even want to open up a separate savings account for yourself so that your savings and spending money are not in the same place. Saving a little bit every month over time will give you a nice nest egg for whatever you want to do later in life.
2. Start your own business
Starting your own business allows you to pass on a steady stream of wealth to your descendants. Statistics show that more than 30% of all family-owned businesses are viable enough to be passed on to the next generation. You can start by thinking of a skill or activity that you enjoy and can turn into a side hustle that may eventually grow into a business. Later on in life, you can share this business and passion with your future family and pass it on to them.
3. Invest in real estate
The real estate market is a useful resource that can really help to secure your finances in the future. By taking the time to invest, you will have access to tax breaks and cash flows, two factors that can really keep money in your wallet. Buying a house can be a wonderful investment because its property value tends to increase over time. If you don’t want to live there at first, you can always rent it out to make some extra cash. In the future, you can pass your home down to your family members too.
4. Start saving for your retirement fund
Although we are young, we should still plan for our eventual retirement. A 2019 study conducted by Northwestern Mutual shows that 15% of Americans do not have a single dollar saved up for their retirement. Not saving for retirement while you’re still working may result in not having enough money to live off of during your retirement years. It’s best to start saving for retirement as soon as your financial situation allows it because the earlier you start saving for retirement, the more time the money has to grow. Investing in yourself will never be a bad thing. In fact, starting your retirement fund as soon as you can allows you to designate what money will be used in your older years and what will be used by your future family.
Our youth is no excuse for us not to prioritize our financial futures. Taking steps to secure your finances as soon as you can will help you and your family later down the line.
Disclaimer: This information is not financial advice and is meant to provide general information for education and entertainment. All investments involve risk and you should conduct your own research to make the best decisions for your situation.
Written by Kalijah Rahming
Header photo by William Fortunato from Pexels
