How to Build Generational Wealth

Building generational wealth is a powerful driver of long-term prosperity and security. Yet, this goal often remains frustratingly out of reach for too many Americans in underinvested communities because of financial challenges that persist from generation to generation. The good news is that anyone can build financial security for themselves, their children, their grandchildren, and so on.

Here’s what everyone should know about building generational wealth.

What Is Generational Wealth?

Generational wealth, in its essence, is the financial legacy passed down through generations in a family. It is the opposite of generational poverty, in which a family experiences severe financial struggles over the course of several generations due to a lack of resources and opportunities. Generational poverty traps families in a cycle where each generation starts from scratch, unable to accumulate or inherit assets that could provide a head start in life.

How to Build Wealth for Generations

You can use several strategies to build wealth for future generations of your family. Many have a domino or “snowball” effect, meaning executing some strategies well can unlock other opportunities to boost your wealth-accumulating process. Here are some of the most sound ways to do this.

Get Financial Education

Making sound financial decisions with your money is a stepping stone to wealth creation. It involves understanding personal finances, including budgeting, saving, investing, and recognizing the power of compound interest. Educational resources can be found through financial workshops, online courses, and books written by financial experts. This knowledge empowers individuals to make informed decisions about money and take steps to ensure effective wealth management and growth.

Pay Off Debt

Managing and eliminating debt is crucial. High-interest debts, like credit card balances, can erode wealth. Creating a strategy for paying off debts is essential, including consolidating your loans or prioritizing paying down the ones with the highest interest rates. Debt reduction improves financial stability and enhances your credit score, opening up better borrowing and wealth-creating opportunities in the future.

Build Credit

Good credit can open doors to lower interest rates on loans and mortgages, making purchasing assets like a vehicle or a home more accessible. And the benefits don’t end there: a strong credit score can lead to significant savings over a lifetime through lower loan and mortgage interest rates, health and property insurance premiums, and more.

To build credit, use practices like paying your bills on time, keeping your credit card balances low, and regularly checking your credit reports for errors. If doing these things will require additional cash flow, you can also take out a small dollar loan from a reputable lender. (Certain kinds of loans can function as wealth-building resources rather than liabilities).

Buy a Home

Homeownership is a traditional cornerstone of wealth accumulation, and it’s the primary source of wealth for millions of Americans. Real estate often appreciates in value, allowing you to upgrade to increasingly valuable homes and properties throughout your lifetime. The greater the value of your home, the greater the asset you can pass on to the next generation.

In addition, the equity you build up in a home can be substantial over time. This allows you to take out home equity loans, which provide funding for other wealth-building investments like completing a college education, making significant value-adding home improvements, and making other responsible investments.

Make Responsible Investments

Investing wisely is critical to building generational wealth. This includes investing in a diversified portfolio of stocks, bonds, and other assets. Long-term investments in retirement accounts like IRAs and 401(k)s can also be beneficial due to their tax advantages and compound interest. Speak to a financial educator or advisor before making investment decisions.

Start a Business

Entrepreneurship offers the potential for significant financial rewards. A successful business increases personal income and can become a valuable family asset. It requires careful planning, market research, and a willingness to take calculated risks. You can start a business regardless of your income level by taking out a business loan with good terms for small business owners.

Get Life Insurance

Taking out a life insurance policy can be a critical tool in preserving and transferring wealth, and it’s a vital component of any estate plan. It provides financial security to family members in the event of a breadwinner’s untimely death, ensuring that your wealth-building efforts are not derailed and that a financial legacy can still be passed on.

By focusing on these critical areas, anyone can lay the groundwork for creating and maintaining wealth that benefits their family for generations. Remember, the journey of building generational wealth is unique for each individual, and adapting these principles to personal circumstances is essential.

How You Can Get Help With Your Wealth-Building Journey

Building generational wealth is a complex journey that often requires guidance. Financial advisors, estate planning attorneys, and tax professionals can provide valuable advice tailored to your circumstances. Nonprofit organizations and community programs also offer free resources and education on financial literacy and wealth building. Seeking out these resources can start you on the right path to creating, building, and sustaining generational wealth.

Get Help Building Generational Wealth With the Economic Justice Fund

To get assistance with your wealth-building journey, contact the Economic Justice Fund, a mission-driven, nonprofit lender dedicated to helping people pursue the American Dream. We believe that all Americans, regardless of income, race, gender, or zip code, should have access to fair, affordable financing.

At EJF, we offer financial training and low-cost loans that help you pay off debt, build credit, and start a business to build wealth safely and responsibly. You can complete our application in less than five minutes, and one of our Loan Specialists will quickly review your application. Loans are funded as fast as one business day.

EJF is certified as a Community Development Financial Institution by the U.S. Department of the Treasury. In addition to ethical, equitable loans, we provide financial training and credit-building services to empower individuals in underserved communities. Read our success stories and choose the financing option that fits your needs!