How To Build Generational Wealth

We all want to be wealthy and also leave behind some funds for our future generations. Generational wealth focuses on improving the lives of multiple generations and providing them with financial stability. It has benefits that go beyond an individual's lifetime. Generational wealth and inheritance allow young people to start with zero or low debt.

But what exactly is generational wealth, and how can you build it? Before we dive into the process of creating generational wealth, let's understand some basics.

What Is Generational Wealth?

Generational wealth is a term that is often thrown around in financial circles but what exactly does it mean? Simply put, "generational wealth" is wealth that is passed down from one generation to the next. It can include assets like property, stocks, other investments, cash, and other forms of wealth. 

Generational wealth allows families to maintain their financial stability and independence over time. It can contribute significantly to increasing one’s net worth. 

The Importance Of Building Generational Wealth

Understanding the significance of generational wealth would help individuals start saving and investing early in life. By passing down assets and wealth to future generations, families can ensure that their children and grandchildren have the resources they need to succeed and thrive. Some of the crucial reasons for building generational wealth are as follows:

• Ensuring financial security for future generations: Building generational wealth can provide financial security to upcoming generations. In case of an emergency or death, generational wealth would provide a cushion to the family members.
• Leaving a legacy: Accumulating generational wealth allows you to leave a financial legacy for your family. This will ensure that your family is cared for long after you are gone. Having financial security would even help your kids follow their dreams without any burden of family expenses.
• Dealing with unexpected expenses: Building generational wealth can also help your family deal with unexpected expenses, such as medical emergencies or job losses.

Also Read: The Importance Of Starting Investing Early

The Challenges Of Building Generational Wealth

Building generational wealth is a crucial and time-consuming task. Individuals invest their whole lives in this process. However, one can face several hurdles in the process of creating generational wealth.

• Lack Of Financial Literacy: Financial literacy refers to knowledge of money-management techniques, terms and other details regarding finances. There are different investment products for building generational wealth. However, people do not have adequate information about them. Moreover, lack of financial literacy leads to inadequate planning and missed investment opportunities.
• Lack Of Regular Income: Lack of a regular income stream can negatively impact one’s financial planning. Planning ways to create generational wealth with small investments would help individuals decide its flow in advance.
• Family Conflicts And Transparency: Sometimes family conflicts lead to ambiguity regarding the heir or beneficiary of the generational wealth. Decisions regarding its management are delayed. Moreover, generational wealth may also aggravate the conflict. Handing over family generational wealth is an important decision and can affect the overall planning for a particular wealth. Another crucial aspect deals with the lack of transparency among the individual, his/her planning and family members.

Generational Wealth In India

India is known for its culture of saving. The idea of generational wealth has been ingrained in our culture for centuries. Families have traditionally passed down their wealth to their children and grandchildren, ensuring that their family's financial legacy lives on for generations. 

Indians mainly focus on two ways of accumulating wealth:

• Gold: Indians are known for their love of gold. The rise in demand for gold is evident in its price rise. As per the World Gold Council, the gold price has appreciated by nearly 16% in July 2024¹.
• Real Estate: The basic needs of Indians revolve around 'Roti, Kapda aur Makaan'. Indians have an emotional connection with their house or land, for which they save money all their life. Real estate is a huge investment, and inheriting real estate may help an individual with better financial management.

In fact, Forbes reports that 66% of Indian household savings are invested in real estate and gold².

However, with growing financial literacy and awareness of stock markets and alternative investment options, investors in India are also showing an increasing interest in such investments. 

How To Build Generational Wealth?

The process of building generational wealth follows the snowball effect. Wealth is accumulated over several years of life. Like any other investment, the earlier the start of this accumulation, the better its compounding. 

Factors such as securities, liquidity, tax implication, debt, etc., should be thoroughly examined before beginning the process of building generational wealth. Here are some of the best ways to build your generational wealth:

1. Build A Strong Financial Foundation

A strong foundation makes generational wealth-building stronger. Similar is the case with your finances. Building good habits for financial management and establishing its goals would help you build your wealth without any extra burden. 

Developing a wealthy mindset is not about earning lots of money, it is about spending and investing wisely. You must focus on creating multiple streams of income and investing in the right instruments to multiply your wealth without taking excessive risks.

An individual should determine one’s financial goals first. Create a roadmap to achieve these goals and set some milestones. These milestones would help you ascertain your portfolio and stick to your financial plans. But remember to keep some buffer while planning these milestones. 

2. Prioritise Savings

Usually, saving is referred to the income left after payment of all the expenses. However, changing this point of view can help individuals start building their generational wealth early in life. 

Start budgeting for your monthly or annual expenses and determine your savings goals. It will help one prioritise savings and save for his/her present and future. Moreover, one should also focus on building multiple income sources, which can help them increase their savings.

3. Build An Emergency Fund

Emergency funds are a very neglected but crucial topic. Generational wealth building should never ignore it and account for unforeseen emergencies in the future. Individuals can regularly put a small sum in the emergency fund.  It will help them safeguard their family members in their absence. An individual can also invest in life insurance plans for this purpose.

4. Invest In Diverse Assets

Diversifying investments in varied asset options would help spread the risk and returns in the portfolio. Today, there are various investment opportunities. You can look to invest in financial markets, real estate, gold, etc. Only investing would not suffice. Investors must find ways to create and preserve these assets over a long time. It will help the upcoming generation have the desired fund flow.

5. Build An Estate Plan

An estate plan refers to proper documentation and collection of documents with valid authorisation and investment proof. It includes wills, policy papers, guardianship details, power of attorney documents, etc. It specifies the intent and wish of an individual for any procedure regarding his/her assets after the death. Create transparency with your heirs, communicate with them and let them know the proper usage of this estate plan.

6. Maximise Tax Benefits

Management of tax implications is crucial, as your heirs would have to pay the tax liability on it. A large amount of such liability would discourage them from preserving it. Tax liability minimisation should be one of the goals while planning for generational wealth. 

It can be done by investing in tax-efficient assets that attract deductions or exemptions. Some tax-efficient assets that attract tax deductions are agricultural land, life insurance policies, public provident funds, etc. Availing tax exemptions and deductions would help maximise tax benefits.

7. Avoid Debt And Financial Pitfalls

Debt mismanagement is one of the biggest traps for both - the present and future. Procuring debt for investments is unreasonable and can create a trap for the future generation in repayment. It will not only deplete their resources but will destroy your financial goals. One may pass on less wealth but should avoid any debt burden for future generations.

How To Pass Down Generational Wealth

After an individual has planned and created a generational wealth for his or her heirs, its handover is also crucial. Passing down wealth adds durability to the lifestyle of the next generation, allowing them to reap its benefits over time.

Inheritance is not limited to wealth only and includes educating future generations to optimally utilise their wealth. You can plan for a brighter future for your kids by managing their educational expenses or handing over their first home. An individual can pass it down during one’s lifetime or make arrangements for post-death transfer.

1. Generational Wealth During Lifetime

One can change real estate ownership, securities, policies or other investments with proper documentation. It will help the heir to acquire it as per the requirement. This transfer can also be in gifts, medical expenses arrangements, etc.

2. Generational Wealth After Death

An individual should make proper arrangements such as will, power or attorney, legal heir declaration documents, etc., in his/her presence. It will help in the easy transfer of assets.

Final Words

Generational wealth building is a crucial process, which can be done along with regular investments. Generational wealth can be built with these easy guides. Moreover, an individual must recognise its importance and take assistance from their investment advisors, for their planning.

Start your investment journey towards building generational wealth today! Sign up with Grip Invest to explore diverse investment options.

References

1. World Gold Council <https://tinyurl.com/goldjuly24>

2. Forbes <https://tinyurl.com/indiansforbes>

Want to stay at the top of your finances? 

Join the community of 4 lakh+ investors and learn more about Grip Invest, the latest financial knick-knacks, and shenanigans in the world of investing.

Happy Investing!

Disclaimer - Investments in debt securities/municipal debt securities/securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading.
This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip does not guarantee or assure any return on investments and accepts no liability for consequences of any actions taken based on the information provided. For more details, please visit www.gripinvest.in

Registered Address - 106, II F, New Asiatic Building, H Block, Connaught Place, New Delhi 110001