10 ways to create generational wealth

GENERATIONAL wealth is passing down wealth (money and assets) from one generation to the next. Unfortunately, many of us don’t know what it is like, having watched our parents struggle to make ends meet and living from paycheque to paycheque.

And so many of us have found ourselves thinking up ways to ensure financial security for our loved ones and theirs, so they can escape the financial hardships we fought to overcome. But where do you start? Financial advisor Granville Knight shares a 10-point plan below on how to build generational wealth.

Teach money discipline

One of the foundational principles of teaching generational wealth is to teach your children the fundamentals of money management and wealth creation. You want to model good money management behaviour in your home and your business.

“Teach them the value of working for their own money and we see it daily in the way that the Chinese operate. You would realise how economical they are; they have their children and other relatives in there, they teach them the language, how to run the business, etc,” Knight recommends.

You also want to teach other values such as creating and sticking to a budget or understanding that they can’t just spend just because they might have a surplus.

Invest in a life insurance plan

“The first principle of generational wealth is having life insurance. It’s strange but true that a lot of people become wealthy through having life insurance coverage and so basically whether it is that the relative with coverage passes away now or later, it provides room for the family to have something they are sure of,” Knight said.

He explains that life insurance is the only thing that guarantees a large fortune for a small monthly payment. So you know you can be investing in other things while paying into this.

Create businesses and investment — diversify your income

Generational wealth is created first through the parents or grandparents. The truth is it is difficult to build wealth on a nine-to-five and so you should consider supplementing your paycheque by diversifying your income which you can do by venturing into entrepreneurship, for example. When you make investments and build strong businesses that you continue to reinvest in, your children inherit wealth and not debt.

Invest in yourself — this includes your education

Invest in your education; this is a huge part of building yourself. If you have a business it would be good to get certification in the field. As part of your educational growth it is important, especially if you don’t know much about wealth and managing wealth, to consider getting into a class on the money management basics. You also want to network with other people who are serious about building wealth. Go to the business coaching workshops, join the entrepreneur groups, and do all that you can do to secure valuable associates and market your brand.

Learn to distinguish wants from needs

Making sacrifices is an integral part of generating wealth and you want to make sure that even your children understand that. So not because there is a little extra money means that you should spend it to buy every next thing that you rest your eyes on. Eliminate unnecessary expenses, for example, by travelling with your spouse to work instead of driving two cars, and buying a few all-purpose bags and shoes instead of one in every colour and every shade of that colour, etc.

Put savings first

It is common practice to say, let me pay the bills and get all that I want, then I promise to save whatever is left. Wrong attitude, says Knight. He recommends the reverse which is to set apart your savings first — this should be at least 10 per cent of your income. After this, you can pay your bills and then of course from what is left you can cater, if necessary, to some of the things that you may want to do for yourself and/or others. He said that if you don’t use up this money be sure to add it to your savings or emergency fund.

Invest in health insurance

Health care can run you dry. It will deplete all of your savings in an instant. This is because especially in the absence of health cards, the bills for specialist care, tests and treatment can cost you a fortune, even if it is just a small one. With health insurance you would have secured a financial cushion that will help to keep you afloat without depleting all your savings and/or readily available money.

Asset accumulation –— look beyond money

Most people in Jamaica talk about having a car, but more people need to look into owning a home because it is one of the biggest investments that can be made. Learn that generational wealth is not only about physical cash. So invest in other real estate (properties that can be used as Airbnbs, fixer uppers that can be refurbished and rented or sold) and other things that will accumulate in value such as stocks, bonds and even artwork.

Take risks — as scary as it sounds

No, don’t just jump off a whim, but taking calculated risks is also a secret ingredient in the formula to creating generational wealth. So the longer you take to start that business because someone else does something similar or because you don’t know if you have it in you, the longer you delay capitalising on whatever venture you want to start. The truth is there are no guarantees that any business venture will be successful, but if you have planned well and put systems in place to ensure that you have the right support, then you should be OK.

Consider getting a financial advisor

This might be number 10 on the list, but it is in no way less important than the other pointers. It is crucial to building generational wealth. The fact is that good management of wealth is more important than the acquisition of wealth and as such having a good financial advisor in your pocket is crucial. Working with a professional who has the expertise to manage your investments and other areas of your finances is a plus, especially when you are busy out there trying to make that money.