Last week Sam graduated from Kindergarten. It was a very nostalgic, full circle moment for me as he walked the same stage that I did 30+ years ago. In the days leading up to this milestone event, I couldn’t help but compare and contrast Sam to my 6 year old self. At his age, my family and I had just moved to the United States. Being the first born, I had to navigate many firsts without much guidance from my parents, who had not grown up in this country. Through hard work and a modest life style, I watched my parents build a beautiful life for themselves and their three children. What they have accomplished in the past 31 years since moving to this country some have not been able to do during their whole lifetime. By example, they set a high bar.
These thoughts led me to think about generational wealth. I am sure you have heard this term or some variation of it, such as “old money” or “family wealth.” By definition, generational wealth represents assets passed down from one generation to the next. These assets can include real estate, stock market investments, a business, or anything else which contains monetary value.
You might be thinking, “Oh, ya, sure Sarin! Do I look like a Rockefeller or a Vanderbilt?” I am here to tell you that you don’t have to make a fortune to create wealth that will last.
In my 16 years of assisting families with financial planning, I have found that the majority have a deep desire to leave a legacy for their family. The idea of leaving a thumbprint on future generations seems to give meaning to what people spend a lifetime accumulating. Here are some ways my clients have accomplished this goal over the years:
- Grandparents take advantage of the annual gift exclusion to help pay for their grandchild(ren)’s college tuition
- Parents take advantage of the annual gift exclusion to make sure their adult children fund their Roth IRA’s
- Grandparents set up 529 plans for their grandchildren (the record holder is Barry with 5!)
- Setting up a custodial investment account that you manage on behalf of your child until they reach the age or majority (typically 18 or 21). The money can be used for college, a starter home, a business, or any other major financial goals you want to help your children meet.
Building generational wealth is attainable for everyone. With the proper tools, your family can maintain and grow wealth for generations to come. Here are my seven best suggestions:
- Create a supplementary source of income in addition to your full time job, i.e., consulting business, freelance work, Etsy shop, etc. This income should be utilized to invest in your goals.
- Create passive income: Passive income is money you don’t have to work for in the traditional sense, i.e., you don’t have to go into an office or complete certain tasks to earn it. Investing is the best generator of passive income.
- Invest in real estate to create an income stream. This option requires more effort and resources than traditional investing.
- Invest in your child (ren): it is essential to pass down more than just money to your heirs. Provide them with the education and resources they need to be successful on their own. Teach them about personal finance. All these lessons and tools are crucial to ensuring they will be able to sustain and grow that wealth for generations to come.
- Spend time with your kids: the best way to pass on life lessons is to spend quality time with your children and/or grandchildren. Show them what type of life a good financial plan can provide. Take the time to talk with them about how you got here. The simple act of sitting down with your family to discuss these topics in and of itself can provide a priceless connection.
- Communicate your intentions: it is the giver’s responsibility to offer guidance and leadership to the family so they know what to do when you pass away. It is an opportunity for you to bring your family together to cast a vision for the wealth you have and outline your vision of a family legacy. This can spark meaningful discussions about what your family stands for, what values you share, what wealth strategies are in place, and outline what to expect as one generation dies and a new one is born.
- Create an estate plan: It is critical for your heirs to not only know and understand your intentions, but that that your vision is put in writing. Written, legal documents in the form of an estate plan that outline your vision and equip future generations to carry the plan forward is extremely important.
My boys are still very young - 4 and 6 years old – but, as a parent, it is very important to me to lay a strong foundation for their future and create a legacy that extends beyond my lifetime. While there is certainly a monetary component to generational wealth, for Al and I, part of the wealth we want to transfer to the next generation is deeply rooted in our core values that were installed in us from our parents, traditions of our Armenian culture and the importance of higher and financial education.
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If you are looking for someone to help you manage your wealth or if want to get started building generational wealth for your family, I am here to help. You can schedule a phone call or meeting by clicking here.