Generational wealth is one of the hottest topics in our communities as of late.  And understandably so, there’s nothing better than a pandemic to make people start to think about their mortality and current living situation.  The threat of sickness and fear of death will make people evaluate how they and their families are living today and in the future.

Anytime there is a need or desire for something to be learned, there will always be opportunists to come to the rescue.  There’s no lack of information, strategies, or programs on social media platforms such as Tik Tok, Instagram, or YouTube that profess to give us the “secret” to obtaining generational wealth.  Many of these social media gurus have acquired most of their wealth by convincing consumers to purchase into their programs, products, or advertising other products and services because they have obtained influencer status.  Most of their wealth has been created from these activities more so than it has been from following the advice they are peddling to the masses. So, what are the best practices?

First, to achieve generational wealth, we must first define it. Here is a definition that I don’t think anyone can dispute, “Generational wealth is achieved when you’ve accumulated enough assets to pay for your family’s living expenses forever without depleting the principal.”  This is wealth!  However, this type of wealth or any wealth for that matter is very hard to sustain for multiple generations.  As a matter of fact, Yahoo Finance reports that a staggering 70 percent of wealthy families lose their wealth by the next generation, with 90 percent losing it by the generation after that. Sustaining substantial wealth takes financial savvy – something that not all parents are passing along to their heirs.  Now that we understand what it is and why it’s hard to sustain, we can make an educated declaration on what most of us really want.  Our goal is to leave our next generation with more resources than what we started off with and create a strategy where they can’t mess it up!  From my experience in the financial services industry, there are only four ways to build enough assets to get this done.  Let’s review each one.

Number 1 – Work hard for your wealth

You have all heard of this way to generate wealth and it has merit.  I once had a boss that said, “The only place where success comes before work is in the dictionary.”  I believe this to be a factual statement to this day.  It is very possible to work hard either at a job or creating a business that can generate you enough revenue to save and invest to create wealth.  You may even be able to sell the business you create in the future to create a windfall of money that starts your wealth journey.

You will need to have a serious understanding of your cash flow and preferably have the positive cash flow to make this happen.  Spending less than you earn is always a great way to build assets.  This is where most people’s wealth escapes them.  They spend all their money on items that make other people wealthy instead of on things that make them wealthy.  I believe this is because most people have no idea what they are truly worth.  If they did have an idea of their worth, they wouldn’t look for outside resources to validate that worth at the expense of creating true wealth for themselves.

So, if the work hard route to wealth is the route for you or one of the routes you must take, please know your worth and allocate your money accordingly.  By getting your money to work as hard for you as you are working for it, you will see your wealth profile increase over time!  And you will also teach good behavior to your future generations so that they can continue to increase the wealth you leave them.

Number 2 – Inherit your wealth

If you grew up like me, this concept may seem foreign to you.  My father left my sibling and I hustle, self-esteem, his last name; however, no money or tangible assets.   And we were still considered to be a very fortunate family in our area.  Now, my mother who is still living is hell-bent on leaving us the home we grew up in; therefore, setting us up so we may experience what an inheritance feels like prayerfully in the distant future.

There are people who inherit assets that help them build wealth.  To do this effectively, you will need to be related to or in the good graces of someone who has assets and have their estate planning in order. Estate planning is not reserved for rich people.  Everyone who has anything and cares about someone or something should have an estate plan.  This will allow the assets to be passed to whomever the person leaving the assets wants them to go to in the manner they want those assets to be distributed.  It also cuts out a lot of the confusion associated with a person passing away.

If inheriting your wealth is one of your methods, make sure the person you are expecting to receive said assets from has their estate planning in order.  This way there will be a seamless transfer of the assets to where they are supposed to go, and hopefully, that is to you!

Number 3 – Have your wealth gifted to you

I know what you’re thinking, if number two was foreign, this is darn right extraterrestrial.  But this does happen.  There are people who have the good fortune to have money gifted to them on a regular basis and this allows them to build their wealth.  Many of them are also benefactors of inheritances.  But in many cases, wealthy people take advantage of their lifetime gift exclusions to give their family members money to do all types of things.  This can include buying real estate, starting businesses, and investing.  All of which have the potential to build more wealth.

Number 4 – Buy your wealth     

Now this concept is one that many people aren’t familiar with at all.  You can essentially buy your wealth until you are able to amass your wealth.  This way, if you happen to die before you have accumulated your total human economic value, your family will receive that total value.  This goes back to my earlier statement of knowing what you are worth.

We all have an economic value.  Some values are higher than others, but we all have one. One of the easiest ways to calculate your economic value is by taking the amount of income you earn annually and multiplying that number by the number of years you have until your full social security retirement age. For example, if you are 45 years old and earn $100,000 per year, your base economic value will be $2,200,000.  Since your full social security retirement age is 67, you have 22 more years of earning $100,000 which equals $2,200,000.  That’s right, if this is your situation at 45, you are worth $2,200,000.

Now ask yourself this, if you had a machine in your living room that was going to print you $2,200,000 dollars over the next 22 years, how much would you insure that machine for today?  Not one logical person reading this would answer less than $2,200,000.  If you can recognize the value of a machine, can you recognize your value?  You see if you want to make sure your family gets your wealth, you will insure the wealth-building apparatus for its proper value.  How many of you reading this are insured for your proper value?  Depending on health, this same 45-year-old could purchase 20 years of temporary insurance for his value for between $200 and $300 dollars per month.  For less than what some people pay for their cable bills to entertain their families, he could insure his family’s wealth.

This is one way you can buy your generational wealth.  You pay $200 to $300 per month and the insurance company provides $2.2 million to your family for 20 years.  If you want the wealth for a longer period, you will have to pay more money.  You can even purchase your wealth forever, again, that will cost more than temporarily renting your wealth.  But whatever time frame you decide, make sure you have the right amount for your family.  Understanding that you are not relegated to having only one type of insurance solution.  I personally own four policies.  Two are temporary because I care about my family.  And two are permanent because I want to outlive the temporary ones and really care about making sure that regardless of my age or how my investments or business interest work out when I die my family will have wealth!

So hopefully you are blessed with a situation where options two and three are prevalent in your life. But if you are not option one is always available. And option four can help complement option one if you don’t have the time for it to come to fruition or if it just doesn’t work out the way you intended it to.

Broderick L. Young, CFP, ChFC, CLU, CASL, CLF

Co-Founder| Financial Advisor 

Reveal Wealth
7101 Riverwood Drive | Columbia, MD 21046
P: (410) 928-8081 | C: (305) 761-8118

E: [email protected] | W: www.werevealwealth.com

*Financial Advisor offering investment advisory securities through Eagle Strategies LLC, a Registered Investment Advisor. Registered Representative offering securities through NYLIFE Securities LLC (member FINRA/SIPC), A Licensed Insurance Agency. 6901 Rockledge Dr Suite 500 Bethesda, MD 20817 (301-214-6600

Neither Reveal Wealth, [NYLIFE Securities LLC and its affiliates], nor its representatives, provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.