What is generational wealth?
Generational wealth is any source of money or something that has a monetary value that descendants of a family have access to. It is wealth handed down from one generation to another.
It is important to understand what an asset is and what a liability is. This is because generational wealth are assets that can benefit the descendants of the person who builds the asset even though the builder is no more.
But it is very common for people to confuse a liability for an asset. Understanding the difference between asset and liability will help you know the worth of your inheritance and what to invest in for the next generation.
So what is an asset?
An asset is something of value that can generate money. It is anything that puts money into your pocket. While liability is anything that takes money out of your pocket. Liabilities are expenses.
But what makes something an asset or a liability is defined by how it is been used. A house can be a liability or an asset at the same time.
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For example, a residential house is a liability. What makes it a liability is the expenses that it generates for you to take care of as you live in it. Residential houses raise issues of repair; repairing of applicants, equipment, facilities, etc. And to make these repairs you have to take money out of your pocket.
But a rental house is an asset because it puts money into your pocket. You give out the house to get money in exchange on a daily, weekly, monthly, or annual basis. The expenses that will arise in the house are the residents responsible.
Benefits of Generational Wealth
The following are some benefits of generational wealth.
- Generational wealth enhances a better life. Generational wealth makes it easier for the inheritor to easily adapt to life. With an inheritance accessible unto them, your children and grandchildren can easily raise their standard of living and live more comfortably in life.
- Generational wealth increases one’s opportunities in life. For instance, a descendant of a famous personality can get special privileges and preferences if they are recognized. Your connection will help them get the upper hand in society. Children whose family has one or two companies can work there as well after graduation instead of looking for a job.
- Generational wealth automatically creates wealth for the inheritors. This saves them the time to work out their wealth. Rather, they will be looking for a way to multiply the available wealth instead of building an entirely different one.
- Generational wealth saves the time of the inheritors. This is because instead of starting from scratch, they already have something tangible to build on.
- It raises funds for investment in the placement of alternatives like loans.
Types of Family Wealth
As earlier stated, generational wealth are assets. But an inherited property could be an asset or liability depending on how it is been used.
A car used for transportation and delivery services is an asset as it will generate money. Quickly check different ways to make extra money with your car.
But the same car will become a liability if it’s used for personal convenience because of the expenses it will arise. e.g. buying of fuel/gas, repairing of the engine, changing of tires, etc.
Nevertheless, the following are some generational wealth;
- Real estate
- Stocks and bonds
- Properties
- Intellectual property, e.g. trademarks, copyright, patents, and trade secrets
- Life insurance
- Antiques like arts and collections
- Precious metals, e.g. gold, pieces of jewelry
- Companies
- Home Ownership
- Cash and equivalent
- Machinery
- Education; investing in your children’s education is an asset as the education they acquire will enable them to strive well in life’s journey.
- Transportation equipment
- Investment funds
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How to build Generational Wealth that last
Building wealth is easier than you can imagine. The most essential part is to know the difference between an asset and a liability so that you will invest in the right thing. As earlier stated, assets put money into your pocket while liabilities take money out of your pocket.
An asset is a tangible or intangible resource that has economic value. So, to generate money focus on building assets that can last long and generate continuous revenue.
You can invest in any or all of the following and beyond to establish a generational wealth;
- Real estate
- Stocks and bonds
- Properties
- Intellectual property, e.g. trademarks, copyright, patents, and trade secrets
- Life insurance
- Antiques like arts and collections
- Precious metals, e.g. gold, pieces of jewelry
- Companies
- Home Ownership
- Cash and equivalent
- Machinery
- Education; investing in your children’s education is an asset as the education they acquire will enable them to strive well in life’s journey.
- Transportation equipment
- Investment funds
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Why some Family Wealth Don’t Last
It is recorded that most families lose 70% worth of their inheritance in the first generation, and all that’s left in subsequent generations. There are so many factors responsible for this and below are some of them:
- Lack of knowledge and experience: Generational Wealth is benefited by the descendants of the inventor. Mostly, those who inherited these assets lack knowledge of how they get into being, the price paid on them, etc. Thus, there is mismanagement and incautiousness once they take over. Thus, there’s a need to carry your descendants along while building up wealth for them. Plus, it is a good idea to hand over temporary while you are still alive to see how your successors manage your resources.
- Time factor: An asset of today may lose its value tomorrow. For instance, the latest car today will worth millions but in subsequent years the price will not only drop, but the taste will drop as well. So, while building assets there’s a need to ensure that they embrace and meet the needs of the next generation. And continuous innovation will go a long way in restoring the value of the asset.
- Lack of communication: When the next generation is not instructed on how to go about the management of a company or an asset, they will lack the technique to so do so once it’s handed over to them.
Thus, it is necessary to include those available when building generational wealth. Involve them in decision-making and execution.
