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- Author Ramit Sethi says most people work towards generational wealth without knowing what it means.
- The first step is to clearly identify what you want to pass down — a house, investments, etc.
- Make sure your own finances are taken care of before trying to build wealth for your children.
Many American families have added “generational wealth” to their list of financial goals in recent years, yet plenty don’t actually know how to define what that means to them on a personal level.
“Most people haven’t really thought beyond the phrase ‘generational wealth,’ but if you’re going to spend your whole life thinking about it, you better know what it is,” says bestselling author Ramit Sethi, who just released a journal to accompany his book “I Will Teach You To Be Rich.” He adds, “I want people to really probe themselves and ask, ‘What is generational wealth? And why do I want it?'”
Here are three steps Sethi recommends taking if you want to pass down generational wealth to your children.
1. Set concrete goals
Sethi says, “You’ll notice that, in our culture, we conflate generational wealth with passing down a house. It does not have to be a house.” He tells Insider that he recently asked his followers if they would rather inherit a house or a large investment portfolio: “90% of people would take the portfolio over a house.”
Sethi encourages people who want to build generational wealth to make concrete goals around what that wealth will look like. It can be anything: a six- or seven-figure investment portfolio; a home located in your hometown; or passing on healthy financial habits.
2. Take care of your own finances first
Sethi regularly gets comments from parents who say, “I want to start saving for my son, but I only have $15,000 saved.” To that, Sethi replies, “What they are really saying is, ‘I have failed at the game of personal finance. I don’t want my son to fail.’ And that is totally the wrong way to think about it.”
Sethi says parents should take care of their own financial wellness first — this could be building an ample retirement account or a healthy emergency fund — so that they can lead by example. “The best way to create generational wealth is to make sure that you are taken care of before you worry about your children.”
3. Start investing
Sethi’s advice to anyone looking to build generational wealth is to start investing, even in small amounts.
“Build the habit of automatically investing, even $50 a month. The amount is less relevant than the habit, because as your income grows, you can turn that number from $50 to $100 to $500, even $5,000 a month — but the habit is the hardest thing to build.”