Generational wealth: What is it and how to build wealth

Building generational wealth is about creating a financial legacy for your family for generations to come. If you are thinking about building wealth for your children, dependents, or grandchildren, this is the blog for you. We’re looking at starting your legacy today and how to build generational wealth.

What is generation wealth?

Generational wealth, for some, is the best kind of hand-me-down. It’s wealth that passes from you to your children or dependents, and even onto their children or dependents. By providing financial security for future generations of your family, generational wealth can provide a foundation for your family to build a richer life from.

Giving your children and grandchildren a leg up in life can give them more options and opportunities. This in turn has the potential to let them help their children and grandchildren, strengthening the family legacy. If you want the best for your family after you’ve gone, there’s planning you can do for it while you’re still here!

‍It could be money you leave to your family, but it could also be stocks or assets that they can use to grow further. Generational wealth isn’t just for those who are already born wealthy. With the right tools, anyone can build their wealth, even from scratch. And it may even be easier than you think. So, how do you build generational wealth? Here are some tips.

Ways to build wealth after 30

1. Invest Early

Building generational wealth takes time, so when you invest in assets that appreciate over time, such as stocks, property, and businesses, it’s best to start as early as possible. Fortunately, with the rise of fintech, modern investing is more accessible and easier to use than ever.

Like we said, investing is a long game. So if you start early you can take full advantage of things like compound interest (which is interest paid on your interest), and your stocks and shares have time to grow. You’ll find that, with a bit of patience, your money will grow and build faster than you think.

It’s really important to say that investing involves risk. There is always a chance that you’ll end up with less money than you started off with. So be sure to get financial help from trusted sources. Some bets are safer than others, but none are without risk. 

A great piece of advice when it comes to building your wealth is to diversify your investments. Don’t put all your eggs in one basket! By diversifying your investments, you can reduce risks and potentially increase returns.

2. Get on the property ladder

One of the most effective investments a person can make is in property. House prices may fluctuate but you can often bank on big returns over time. Of course, buying a house often requires a substantial deposit, so you’d need to be in a position to afford that first. But if you can, getting on the property ladder can be a great investment.

Leaving a property to your children gives them the opportunity to sell it and release its value. But they can also decide to live in it or rent it out, and keep growing the investment for their children. This lets your family continue to build its wealth for later generations.  

3. Invest in Education

Building up your finances means investing in yourself. There’s two ways you can do this: firstly, you can make sure that you get the training and education you need to boost your employment opportunities and increase your earning potential. Having a higher salary increases the likelihood of you being able to invest and save higher sums.

Another way of building generational wealth is by educating yourself on money matters and different financial products, so you can boost your financial literacy. It’s important to help you avoid  financial decisions that don’t reward you, or falling into problems like snowballing debt. Our blog is a great resource if you’d like to start increasing your financial literacy.‍

Understanding your finances is an important part of building your financial literacy. Make sure you check your bank statements regularly. Create a budget to manage your income and expenses (you can read about some simple budgeting rules here). It’s also important to check your credit score. 

‍Your credit score is a number that summarises how creditworthy you appear to lenders. It’s generated by the top three credit reference agencies (CRAs) in the UK: Experian, Equifax and TransUnion. Generally the higher your credit score, the more you will be able to borrow and the better interest rates you will be offered.

‍The quickest way to build your credit score is to start your membership and access Loqbox membership. Find out more about what you could achieve as a member and how to sign up. 

Improvements to your credit score are not guaranteed.

It’s also a great idea to invest in your children or dependent's general and financial education. Investing in your family’s education can help to boost their own earning potential and their ability to manage their money in the future. This can also be a way of improving and building your family’s wealth without necessarily making loads of money or owning multiple properties — education could give them the tools they need to build wealth for the generations to come. 

4. Start Saving

Investing has the potential to grow your generational wealth with great returns, but of course there is always an element of risk. Saving may be a slower way of building wealth, but it can be a safer route to take. Remember, slow and steady really can win the race!

As with investing, when it comes to saving, the earlier you start the better. It’s a long game, so putting even small amounts into your savings can have a big impact over many years. You can also set up savings accounts and ISAs for your children or dependents, locking away their money until they reach a certain age.

5. Use Debt Wisely

Wait, debt? Surely that’s the last thing you want to be getting into if you’re trying to grow your family’s wealth? Well yes, you have to be careful about generating too much debt as that could leave the  sort of legacy that your family probably don’t want. But it can actually help. 

How could you use debt to build wealth? The simplest way of explaining it is using borrowed money to grow your investment returns by more than your immediate affordability. However, this does have an even greater risk of losing your original capital.

One way that debt can build your wealth is by increasing your buying power when it comes to purchasing stocks and shares. Assuming the stock price goes up enough, you can pay back your loan and take the profit. But of course, the opposite is also true. You could lose money and still be in debt. 

But, as we said before, getting on the property ladder is a fantastic way of growing your generational wealth. Mortgages are debts (and often big ones) but the return on your investment over years usually works out in your favour. You could also use debt to invest in income-producing assets, such as rentals or business. Debt can build wealth, but it isn’t a guarantee and does come with risks.

6. Start a family business

Okay, this is something you really have to want to do. It takes a lot of time, money and effort — new businesses often take years to turn a profit. But a family business could be a great way to build generational wealth. It doesn’t have to be a multi-billion pound corporation: even small businesses and side hustles can help to generate additional family income.

Rules for building wealth after 40

In addition to these tips, here are  some strategies for building wealth after 40.

• Maximise your retirement contributions
• Focus on income-producing assets
• Invest in property
• Be mindful of your healthcare costs
• Pay off your debts
• Maintain good credit
• Protect your wealth with insurance
• Be patient
• Grow your, and your family’s, financial literacy.

Building generational wealth requires planning, patience, and persistence. By following these tips and strategies, you can start building your legacy today.