Building generational wealth is a long-term process that requires dedication, patience, and a well-planned strategy. While some billionaires have achieved financial success by starting dominant businesses, some of their success is due to luck and luck is a lousy investment strategy. For the rest of us, creating wealth is a tough job and building up enough wealth to leave some to your heirs is even more difficult. But lots of people have done this without becoming titans of business. Here are some of the steps they have taken.
Start Saving Early:
One of the most important steps to building wealth is to start saving as early as possible. The Rule of 72 is a helpful tool to calculate how long it will take to grow your money. If you expect your investments to grow by 10% per year, then divide 72 by 10 to determine how long your money will take to double. For instance, if you have R500,000 today, it will take approximately 7.2 years to double to R1m. In another 7.2 years, you will have R2m. The sooner you start, the sooner you will get to your first million.
For many people, the first million takes an incredibly long time to build. However, the key to accelerating this process is to save consistently and increase your saving as your income increases. If you save 5% of your net wealth every year, you can halve the time it takes to double your money. The Rule of 72 only applies to lump sums, but by adding a monthly saving, you can really accelerate your wealth creation. Don’t reduce or stop your savings when markets are falling, if anything, you should increase your savings rate in these times.
Invest Across Assets and Countries:
Diversification is key to reducing risk and maximizing returns. You need to own a range of assets, such as shares, property, bonds, and cash. It is also important to invest your money in different countries with different dynamics, such as emerging markets, developed markets, technology-heavy, resource-heavy, and others. Don’t be too concentrated in your investments, over-investing in one country, share, or sector can be devastating to your wealth if that investment halves or loses all value.
Plan Properly for Your Death:
Families with generational wealth often don’t plan for the transfer of this money to future generations. Children need to learn about money and develop good financial behaviours from a young age. They need to be taught to be custodians of the money, not the consumers of the money. Plan correctly for how this money moves to the next generation with proper estate planning. A well-designed Will can save fortunes and family relationships. Proper communication is key, and it must be continuous. Families with triple generation wealth should have a constitution to determine how they make big decisions and manage the family money over periods of decades.
Develop Multiple Streams of Income:
Creating multiple streams of income can help you increase your wealth and reduce your dependence on a single source of income. This can be done through investing in assets that provide passive income, such as rental properties, dividends, or interest on bonds. You can also create a side hustle or start a business that generates additional income.
Investing in your financial education is one of the best investments you can make. Read books, attend seminars, listen to good podcasts and talk to financial experts to learn about different investment strategies, financial planning, and tax-efficient structures. The more you know, the better decisions you can make for your financial future.
In conclusion, building generational wealth is a long-term process that requires discipline, patience, and a well-planned strategy. By starting early, saving consistently, diversifying your investments, planning for the transfer of wealth, creating multiple streams of income, and educating yourself, you can create a strong foundation for financial success that can benefit not only yourself but
Written by Warren Ingram
CFP®, Wealth Manager, public speaker and author. Host of the HonestMoney podcast. FPI South Africa Financial Planner of the Year 2011.