Insider experts pick the best products and services to help you make smarter decisions with your money (here). In some cases we receive a commission from our affiliates, however our opinions are our own. Terms and conditions apply to the offers listed on this page.
- According to author Ramit Sethi, most people work without knowing what generational wealth means.
- The first step is to define exactly what you want to transfer – house, investments, etc.
- Before you make a fortune for your children, make sure you take care of your finances.
Many American families have added “generational wealth” to their list of financial goals in recent years, but many don’t know how to define what that means on a personal level.
Bestselling author Ramit Sethi, who just launched the magazine, says, “Most people haven’t thought about anything other than the word ‘generational wealth,’ but if you’ve spent your whole life thinking about it, you know better what it is.” Accompanying the book I Will Teach You to Be Rich. He added, “I’m asking people to do a self-examination and ask, ‘What is generational wealth? And why do I want it?’ I want him to ask.”
If you want to leave generational wealth to your children, Sethi recommends following three steps.
1. Set specific goals
Says Sethi: “You’ll notice that in our culture we associate generational wealth with the passing down of a home. He told Insider that he recently asked his followers if they’d rather inherit a house or a large investment portfolio: “90% of people inherit a portfolio from a house.”
Sethi encourages people who want to build generational wealth to set clear goals for what that wealth will look like. It could be anything: a six- or seven-figure investment portfolio; a house located in your hometown; or imparting healthy financial habits.
2. Decide on your own finances first
Sethi regularly gets comments from parents who say, “I want to save money for my son, but I only have $15,000.” To which Sethi responds, “What they’re saying is, ‘I’ve failed at the personal finance game.’ I don’t want my son to fail.” And that’s a completely wrong way to think about it.”
Sethi says parents should take care of their own financial well-being first — whether that’s building a large retirement account or a healthy emergency fund — so they can lead by example. “The best way to build generational wealth is to take care of yourself before you worry about your children.
3. Start investing
Sethi’s advice to anyone looking to build generational wealth is to start investing small.
“Create a habit of investing automatically, even $50 a month. This amount is less important than the habit, because as your income grows, you can change this number from $50 to $100 to $500, even $5000 a month. It is the hardest thing to build.”