What is generational wealth and how can you create it? It’s a question financial experts are hearing a lot lately as the term “generational wealth” becomes more and more buzzy. Generational wealth simply means assets (bank accounts, real estate, stocks or absolutely anything else of monetary value) that are passed down to your assigned heirs (typically your kids or grandkids) when you die. And the term is buzzy partly because we’re in the midst of the Great Wealth Transfer (trillions of dollars are being passed down from baby boomers to younger generations). Societally, we’re perhaps more aware of the influence and impact of generational wealth than ever before.
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In the interest of creating not only our own financial legacy but of helping our kids secure a financially solid foundation, many of us are trying to build generational wealth. We get that “you can’t take it with you” and may be a bit worried that even if we could take it with us, there’d be very little, if anything, to bring along. In a blog post on his website, financial expert and self-made millionaire Ramit Sethi discussed generational wealth and the three biggest mistakes people make when managing it.
Spoiling Your Kids Rotten
We all grew up knowing that one kid whose parents gave them absolutely everything they ever wanted, never asked them to get a job — even when they were in college — and, quite possibly, still shields them from financial responsibilities now that they’re adults. Sethi advised to not treat your kids like “trust fund babies,” but to teach them financial literacy and to make it so they have to, once old enough, earn and manage their own money.
“Shielding your children from financial struggles might seem like a kindness, but it often backfires,” Sethi wrote. “Kids need to experience earning and managing money early to avoid entitlement or irresponsibility later.”
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Being Secretive About the Wealth You’re Building — And It’s Ultimate Purpose
There is some money stuff that kids don’t need to know — like your exact salary as compared to another kid’s mom or whether you’re stressing about job security. You have to be mindful to steer your kids toward being calm, collected and, frankly, not obnoxious. That said, you want to be as open as you can be about the stuff kids should know about, including your financial plans to build generational wealth.
“Hiding your wealth and financial plans from your family creates chaos when you’re gone,” Sethi wrote. “Surprise inheritances may sound dramatically exciting in movies, but in real life, they often lead to confusion and poor decision-making.”
Failing To Update Your Will
If you created a will decades ago, chances are good that it’s outdated. Perhaps you now have a grandkid or maybe you have a nonhuman family member to think about like a dog or cat. Maybe you’ve sold some assets, opened a new retirement plan or gotten divorced. The list goes on and even small updates need to be put in legal writing. Don’t make the mistake of failing to update your will lest your generational wealth gets passed on with complications or oversights.
“Over time, your family’s needs will change, the economy will change and so will your wealth,” Sethi said. “Your plans need to keep up. Schedule an annual review of your estate plan to keep everything current.”
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This article originally appeared on GOBankingRates.com: Ramit Sethi: 3 Mistakes To Avoid If You’re Building Generational Wealth
