Baby boomers are undoubtedly the wealthiest generation of the last 100 years. After the deadliest war in human history, the next generation decided to stop fighting and start building. The generation that built the infrastructure upon which we are building everything became to be known as the baby boomers. This generation amassed significant financial wealth and controls roughly 70% of all disposable income, according to a 2015 report. And now, they are expected to transfer their 30 trillion dollars worth of wealth to the next generation. It might seem like they will just blindly pass their fortunes to their kids, but that’s not how it works. Ideally, they would, but the reality is that a staggering 70 percent of wealthy families lose their wealth by the second generation, and the third generation often ends up with just 10% of that wealth. Over 90 percent of wealth gets lost by the third generation. Take the example of Rockefellers.
John Rockefeller was the wealthiest American ever lived who amassed a fortune of 400 billion dollars as of 2017 when his company standard oil was broken down into multiple small companies that ended up worth much more individually. But as of 2020, Forbes estimated the Rockefeller family’s wealth at just 8.4 billion dollars which is just 2.1% of the original 400 billion dollars. If you are wondering where did that wealth go? Well, the source of that wealth is the family’s stake in oil and gas companies such as Chevron, ExxonMobile, or pb. A 100 years ago, refining oil was as revolutionary as building smartphones today. However, fast forward to the 21st century, oil is viewed as a commodity that’s slowly destroying our only planet. So, governments across the world are setting deadlines on when they will forever ban gasoline cars which made these companies less valuable and drastically lowered the wealth of their shareholders. This brings us to rule number: Never let your wealth sleep. The world constantly changes. Yesterday we had wired phones. Today we have little gadgets that we call smartphones. If you make the wrong bet, your entire wealth will go down the drain. History is filled with such examples. I mean, just take an example of Nokia shareholders.
Once upon a time, every other phone in people’s hands was Nokia, but one mistake brought the company to brink of bankruptcy. The company today is worth less than 10 percent of its peak. That’s how you lose 90 percent of your wealth in less than two decades. Rothschilds once created the largest financial system in the world, moving fortunes from one continent to another, helping kings and queens across Europe and beyond to manage their fortunes and raise money for future conquests. But as a result of geopolitical changes in the world and an emergence of new rivals, the family’s net worth today is a tiny fraction of the enormous wealth they have been known for. And in 10 years from now, the technologies that will run the world will be different. If you want to build generational wealth, then you should always keep an eye on how the world is changing and invest in companies that are driving that change. 2. never touch the principle Here is the biggest problem with wealth. It might be difficult to build a fortune, but it’s far more difficult to keep that wealth since the urge to spend is always there. Especially if you are used to a certain quality of life. In fact, that’s one of the main reasons why most people end up broke since their standard of life grows together with their income, but your income isn’t guaranteed. There are millions of things that could happen and cut you from your income. That’s why it is always important to live below your means. Ideally, never spend more than 50 percent of your income and if you have inherited that wealth, then the vast majority of it should be reinvested back and the principle should never be touched. Let’s say you have inherited a million dollars, that million should be invested, and whatever income that million earns by the end of the year can only be touched. Ideally, half of it should be reinvested back to let the principle grow faster than inflation. 3. Invest in Cashflow businesses With the rise of tech companies, investors began to care less about cash flow and more about capital appreciation. People don’t care about how much Tesla will make at the end of the year but how high the stock will spike. Earning on the rise of the stock is also great, but when it comes to generational wealth, you want to create stable sources of cash because, at the end of the day, you want cash to keep coming in to finance your lavish lifestyle. If your wealth is only on paper, then you are rich only on paper. People might respect you for that, but there is little use to that wealth. That’s why tech entrepreneurs often start massively selling their shares after building a successful tech company. Bill gates, before the dot com bubble, got rid of most of his Microsoft shares and diversified his investments into other stable businesses such as Berkshire Hathaway. Microsoft makes only around 1 percent of his entire portfolio. Jeff Bezos has been selling billions of dollars worth of his amazon shares to buy properties across the country and invest elsewhere. Uber’s founder long ago left the company and sold his entire stake since uber is still unprofitable. What you want are businesses that put cash on the table at the end of the day. They shouldn’t necessarily be huge companies. It could be even a local grocery store. Real estate is also a great example. Rental properties are a great source of cash. In fact, it’s one of the best ways to create generational wealth. Especially in the last 2 years, the industry wasn’t just cash flow positive, but prices appreciated by over 20 percent, which is quite unusual for the industry. Most important, the industry is stable. Even if you have purchased a property at the height of the housing bubble in 2007, in less than 6 years, your property would have earned back its entire value by 2013. 4. Set up a trust Trust is basically a separate entity to which you can transfer your assets and then point yourself as a trustee who is going to manage that money and leave instructions on how that money must be managed should something happens to you, like in the case if you pass away. Because if you do not do that, your assets will be distributed by the court to your siblings. So, that vast wealth you have built over your life will mean nothing since it could easily end up in the hands of people whom you don’t even like. That’s why all rich people create a trust fund to make sure that their wealth ends up in the right hands who will keep growing it.
If you want to pass that wealth to your children but are afraid that they might receive it while they are too young, you can easily put a term that your kids can only lay their hands on it once they reach a certain age. If you pass away, the management of your trust fund will shift to the person whom you have mentioned when establishing the trust, which can be a professional who will manage that trust and will get 1 or percent of the total wealth. A trust isn’t just to pass your wealth to the next generation but to protect it against taxes or divorces. Remember, once you have established that trust and moved your assets, these assets are no longer yours. 5. Education & Mentality No matter how much you build over your life. It can be destroyed in a glimpse of an eye. The world is filled with such examples, especially spoiled kids who have no idea how to manage money. They haven’t earned that cash, so they don’t appreciate it and respect it as much as the person who built it with his blood and sweat. So never hesitate to invest in your children’s education if you want your wealth to keep growing. It’s not just about knowledge but also discipline. Discipline is taught during childhood. Teach your kids to understand the value of postponing gratification, and make yourself an example of how money should be treated. These are just a few suggestions on how to build generational wealth. There are far more aspects to consider, such as marrying the right person because if you end up in a divorce with the wrong person. Your wealth can easily be lost.