Have you ever wondered how other communities seem to be born into financial stability? They have no problem coming up with the money for a down payment for a home, investment properties, post-secondary education and trust funds for their children once they become of age that then set them up on a stress-free path into adulthood.
And the cycle continues in that family tree because the roots have been planted. Generational wealth – it’s a financial tactic that is practiced in many communities. If you don’t know what that is, continue reading this article to find out how you can set your family up long after you have gone to a higher place.
Generational wealth is a financial legacy that is passed on throughout your family. It’s when you are not just thinking about your personal wealth, but you look at money management as a family affair. When most of us think about this, the natural and most common thought that comes to mind is inheritance – where money or life insurance is left to beneficiaries in a will. However, it’s important that it’s not just about handing over cash to the next generation. What you also want to do is pass on financial literacy or education along with goals and values. Generational wealth is not just money, it should include real estate, business ownership, and collectibles that can be passed down from one family generation to the next. This is how high-powered political families (think The Kennedy’s, The Johnson Family, publishers of Ebony and Jet) tech and business moguls, professional athletes and celebrities ensure that their families become a dynasty.
The key is to start acquiring and building as many assets as possible - I know, easier said than done. What you need to do is first build a financial framework:
- Ensure you have an emergency fund (6-9 month’s pay)
- Always take advantage of employer-matched investments
- Pay off your debt – especially high-interest ones
- Max out your retirement contributions
- Start acquiring assets as early as possible (real estate, art, etc.)
One of the smartest moves you can make is using life insurance as an investment tool. By allocating a portion of long-term investments to a Universal Life or Participating Whole Life policy, the results can be significant when compared to tax-exposed or tax-advantaged investments. In terms of using life insurance for estate planning, what many wealthy families have figured out is that one of the easiest ways to maximize the amount we leave to our families or favourite charities is to reduce the portion of the estate which is lost to the government to pay taxes at death. It underscores the advantages of life insurance to anyone who will have taxes or other liquidity needs at death. Giving has its benefits and using life insurance as part of a charitable giving strategy can provide major benefits to both you and your charity.
It’s never too late to begin investing, look at the numbers for a person who is 51 years of age:
Bank Investment $500 per month @ 8% over 20yrs = $286,330.00
Life Insurance $100 per month over 20yrs = $500,000.00 (death payout)
Add investing $100 per month @ 8% over 20yrs = an additional $57,266.00
You could access that while living, not waiting for the payout after you have died and unable to personally benefit. This is one way to use life insurance as a vehicle for generational wealth while you are alive and kicking. Invest it and make it work for you by acquiring properties and renting them out.
It is so important to educate yourself on the basics of financial management and set long-term financial goals that will help you in the present and your future family. You can build your own dynasty with careful planning and forward thinking that includes the next generation for years to come.
Ian Webster's nearly two decades of recognized experience at several well-known financial organizations has given him the inside track on the upsell of products such as mortgages and mutual funds and allowed him to help clients with everything from lowering their taxes to developing profitable investment portfolios.
His expertise has been featured in The Globe and Mail, Toronto Star, Toronto Sun, and Time. He has also been a featured financial speaker at many high-profile networking functions.
Find Ian online at www.financialfighter.com and on Twitter, Facebook, Linkedin, and Instagram.