It requires a long-term perspective and disciplined effort to build generational wealth.
For high-net-worth (HNW) individuals and families, this process involves taking specific actions that help them create and preserve wealth for future generations. In this article, we will discuss the 10 things that the ultra-wealthy do to build generational wealth. Put these to work for your family and you will leave a lasting legacy while building the life of your dreams!
“The most successful families we work with have a long-term perspective on wealth management. They focus on the next generation and invest for the long term, taking advantage of compounding interest and the benefits of tax-deferred accounts.” – Judith Ward, Senior Financial Planner at T. Rowe Price
- Goal setting and planning
The first thing that the ultra-wealthy do to build generational wealth is to set specific financial goals and create a comprehensive plan to achieve them. They focus on long-term objectives rather than short-term gains. They have a clear vision of what they want to achieve and how they plan to get there. They also recognize that their goals may change over time, so they regularly review and adjust their plan accordingly.
- Investing in assets
The ultra-wealthy invest in assets that appreciate over time, such as stocks, bonds, real estate, and businesses. They diversify their portfolio to minimize risk and maximize returns. They also take a long-term perspective on their investments and are patient in waiting for their investments to pay off.
- Tax planning
One of the key differences between the ultra-wealthy and other high-net-worth individuals is their focus on tax planning. They take advantage of legal tax loopholes and deductions to minimize their tax liability. They also work with tax professionals to develop a tax strategy that is tailored to their unique circumstances.
- Estate planning
Estate planning is another critical component of building generational wealth. The ultra-wealthy create trusts and other legal structures to protect their assets and transfer wealth to future generations. Trusts are particularly effective in shielding assets from creditors, reducing estate taxes, and providing for heirs with specific instructions. They also regularly review and update their estate plan to ensure that it aligns with their goals.
- Saving and budgeting
The ultra-wealthy are disciplined about saving a significant portion of their income and creating a budget that allows them to live within their means. They recognize that building wealth requires a long-term commitment and that saving and budgeting are critical components of this process.
- Networking
This is one of the most important on the list. Wealth is never built in a vacuum. Not the kind of riches we’re talking about here. Networking is essential for learning more about how to build generational wealth. And the ultra-wealthy recognize this. Your financial literacy will grow along with your trust’s bank accounts when you rub elbows with your financial betters. They build relationships with other successful and wealthy individuals to exchange ideas and opportunities. They attend conferences, join exclusive clubs, and participate in philanthropic events to expand their network.
If you do not incorporate networking into your strategy, you can forget about becoming the next Vanderbilt!
- Risk management
The ultra-wealthy have a comprehensive plan to manage and mitigate risk, including insurance coverage and contingency plans. They recognize that unexpected events can have a significant impact on their wealth, and they take steps to protect themselves against these risks.
- Entrepreneurship
Many ultra-wealthy individuals and families have created their wealth through entrepreneurship. They are not afraid to take calculated risks and are constantly seeking new opportunities. They also recognize that entrepreneurship requires a long-term commitment and are willing to invest the time and resources necessary to make their ventures successful.
- Philanthropy
The ultra-wealthy view philanthropy as a way to give back to society and make a positive impact on the world. They are strategic in their giving and often create their own charitable foundations. They also involve their family members in their philanthropic efforts, helping to instill a sense of social responsibility and community engagement.
- Financial education
The ultra-wealthy recognize the importance of financial education. They invest time and resources in educating themselves and their families about finance and wealth management. They seek out advice from experts and are always looking for ways to improve their financial literacy.
Building generational wealth requires a long-term perspective and disciplined effort. The richest families in America didn’t take a lot of short-term risks to get where they are. And you can’t catch up to their decades of wealth-building by taking risky positions. Patience and discipline are the only sure ways to being building a dynasty that lasts for generations.
“The key to building generational wealth is to make sure that your wealth grows faster than your family spends it.” – Charles Stanley, Chairman and Founder of Charles Stanley Group
One of the key differences between the ultra-wealthy and other high-net-worth individuals is their emphasis on trusts as a tool for protecting their assets and transferring wealth to future generations.
Trusts offer several advantages over other estate planning strategies, such as wills or joint ownership. First, trusts can help to reduce estate taxes by shifting ownership of assets out of an individual’s estate. This can be especially important for well-healed individuals and families who may be subject to high estate tax rates. Trusts can also provide greater flexibility in terms of how assets are distributed to heirs. For example, a trust can specify that assets be distributed over a period of time rather than all at once, which can help to protect against heirs mismanaging their inheritance.
Trusts can also provide greater privacy and protection for assets.
Unlike a will, which becomes a public record once it is probated, a trust can remain confidential. This can be especially important for individuals who value their privacy and wish to keep their financial affairs private. Trusts can also provide greater protection against creditors and lawsuits. By placing assets in a trust, they can be shielded from potential legal claims or judgments.
Trusts can provide a means of ensuring that assets are managed according to specific instructions.
For example, a trust can specify that funds be used for a specific purpose, such as funding education expenses for future generations. This can help to ensure that wealth is used in a way that aligns with an individual’s values and priorities.
If you have begun to amass assets and resources and want to keep them protected, take notes from the richest and most powerful families in the United States. They focus on long-term goals, invest in assets, and prioritize tax planning and estate planning. They also prioritize financial education, network strategically, manage risk, embrace entrepreneurship, and engage in philanthropy.
Trusts play a crucial role in their estate planning strategies, providing a means of protecting assets, transferring wealth to future generations, and ensuring that assets are managed according to specific instructions. By following these practices, the uber-rich are able to build generational wealth.