It is said that a family’s generational wealth doesn’t last for more than three generations. The first generation earns it, the second generation spends it, and the third doesn’t get to see the wealth much. However, there are people who have a deep desire to leave a legacy for their families. The idea of leaving a thumbprint on the generations to come appears to give meaning to what individuals spend their whole life gathering.
But the question is if people have the inherent desire to leave their legacy for future generations, why does generational wealth have such a high failure rate?
The concept of generational wealth isn’t new. But people should know to use it to their advantage. When you think of growing wealth, you might assume that investment is the key. Nevertheless, when it comes to a generational plan, a life insurance policy is the main catalyst to protect your assets. But this isn’t the only way to grow your cash. To get sky-high returns and use the wealth to your advantage, you need to look for other investment opportunities.
So, what can you do? Well, that is what we are going to talk to you about. We are going to tell you how to use generational wealth to your advantage. However, before that let’s find out what it really means.
What is Generation Wealth?
Whether you have been on the receiving end or giving end, generational wealth is more than simple birthday money. It is the wealth gathered through decades of hard work and financial education. Inherited wealth tells a story about your family.
But that doesn’t mean that the transfer is limited to children and parents. It can come from anyone. It can be grandparents contributing to their grandchild. At times, successful aunts and uncles leave their legacy to their nephew and niece.
So, the idea of distributing generational wealth does not have to apply to direct families. Some famous philanthropists choose to distribute their fortunes to foundations, charities, and causes that are valuable to them.
Now you’ve got some understanding of what generational wealth is – let’s get to the juicy bit… how to use it.
Ways to Use Your Generational Wealth
Pay Off the Debts
Do you have debts? Then it is a good idea to use your inherited wealth to pay them off. This will not only free your mind but will also reduce your expenses. By paying off your debt, you will no longer have to pay interest every month.
Think about paying off debt as an investment. For every £1 you ‘invest’ in paying the debt, you’re essentially earning back interest that you would have otherwise spent!
Before you go off to enjoy your inheritance, it is better to ensure that you do not owe money to anyone. Once you pay off the debts, you are in better shape to save.
Get Life Insurance
Life insurance gives you the opportunity to protect your family in case of untimely death – sounds a little morbid but stay with me here.
Without an income, your future generations might be forced into a less than ideal financial situation. So, if you invest in life insurance now, it can prevent tragedy for your future generations. It will also help to generate wealth for these generations too. Again, it’s kind of big picture stuff as you’re only going to be paying the insurance, you wouldn’t be benefiting from any of the proceeds.
But before you invest in life insurance, you should get to know how it safeguards your family’s financial future.
Invest and Save Generational Wealth Strategically
You should think of something to invest your money in. If you are not sure where to invest your generational wealth, talk to your financial advisor. If you don’t have an advisor, my personal suggestion is
One place to invest money is property. It is something tangible and can produce income. When you have a property, you can put it on the rental market. Thereby, you can receive ongoing cash flows. What’s great about rental income is, it comes with many tax advantages.
Sure, prices do fluctuate but home values have increased consistently over the years. Thus, if you don’t want to continue owning the home after some years, you can sell it for more money than you spent, initially.
Splurge But Thoughtfully
So, now that you have covered your debts and made a little investment, it is time to have some fun with your generational wealth. In case your investment is generating a steady flow of income and you are debt-free, you can splurge on something that you have wanted for a long time. For instance, you can get a car that you had been wanting.
But, hold on. Splurging doesn’t mean you should spend everything you’ve got. Do not overdo it. Simply because you can afford a dozen sports cars does not mean that you should.
If you are still studying or in a salaried job, inheriting money will give you the freedom to do something else that you have dreamt of. For instance, you can pay for the education needed to become a pilot or pay for a uni degree.
Leave Something for Charity
Your generational wealth is a blessing if you are able to manage it well. It can have a lasting impact on your life. If you can, keep up with the legacy by making plans to leave a good inheritance to your favourite charities. To ensure that you do justice to what you have received, keep in mind in relation to negativity, inherited wealth doesn’t have a good track record.
About 70% of the wealth is lost by the 2nd generation and 90% is gone by the 3rd generation. In case you are lucky enough to inherit something that someone else has worked hard to build, you should honor your benefactor by being a good steward of what you have inherited. So, you manage your wealth and pay it forward.
Bottom Line
When you inherit generational wealth, make sure you don’t act rashly. Yes, inheriting a large amount of money might make you feel like making big purchases that you always only dreamt of. It is okay to get a car or a bigger house if your inheritance allows it. However, try to avoid hasty decisions and spend wisely!