This article is sponsored by 1life
Quick recap: What is generational wealth?
Generational wealth is the wealth in your family, passed down through the generations. It can be in the form of one or more of these:
- Cash
- Savings
- Property
- Life insurance
- Investments
- A family-owned business
- Valuable possessions such as artworks, antiques and jewellery
For more insights, read our first article on generational wealth.
How to create generational wealth
Hint: It’s not the lotto!
Building generational wealth is simply a matter of creating and/or buying assets, taking care of them, and then growing them so they become more valuable. For example, you invest in a unit trust fund every month and reinvest the interest and dividends you earn so that your investment increases in value.
To create and build your wealth you might decide to do one or more of these, for example:
- Save money each month in a savings account or money market account that earns a high interest rate
- Buy your own home, which you can leave to your children when you pass
- Take out life insurance so that when you pass your family has a lump sum amount to use for their expenses or to grow their wealth
- Start a family business and build it into a profitable company
- Invest in unit trust funds every month, ETFs (exchange traded funds), shares on the stock exchange or other investments like structured products and offshore investments. A financial adviser is best placed to advise you on different investments and identify those that are suitable for you
- Buy an investment property such as a storage unit or a reasonably priced apartment or house that you can rent out, or invest in a property fund that owns malls, offices and factories
- Invest in quality artworks, jewellery or antiques (get these authenticated and valued before buying)
These are all investments in your generational wealth, and when they grow they benefit your family for many generations to come.
Tips to get you started on your wealth creation journey
Creating or buying assets will require some funds to invest. Like many South Africans, you probably find money scarce. However, if you are committed to building your family’s generational wealth you can free up some funds by building good money habits and diversifying your income.
Build good money habits
Follow the spend less than you earn rule and:
- Budget for savings, life insurance and investments as expenses – don’t wait for some spare money for these. Think of them as essential purchases like your home loan, car finance and clothes
- Use long-term debt to grow your wealth - for example, take a home loan to buy a house or investment property - and avoid short-term expensive debt, like using store cards and credit cards for clothes and household items
- Bottom line? Be frugal! Expensive items such as luxury cars and appliances, for example, add little value to your life and leave you much less to invest for your family. Buy reasonably priced items that deliver what you need, rather than the latest luxury model.
- Educate yourself about financial matters and how to manage your money to achieve your goals. If you are not sure where to start, do the Truth About Money financial education course, free for successful applicants and 1Life policyholders.
Rich people stay rich by living like they are broke. Broke people stay broke by living like they are rich.
Top tip: Teach your children about money and help them to develop good money habits early. Remember, they will be the ones looking after and growing your wealth for the next generation. Read more on 5 fun ways to teach your kids about money
Diversify your income
This is when you earn income from more than one source. For example, a salary from a job and a salary or profit from a small business. It is a great way to make more money that you can use to create wealth. Plus, diversifying your income gives you other income earning options if your full time job doesn’t work out or you are retrenched.
Two ways to diversify your income are to:
- Start a side hustle or small business on the side – read more on 10 golden rules for starting your successful side hustle and this blog on where to go to fund your start-up business
- Earn income from passive investments. These are investments that earn an income, such as rent from a garden cottage or AirBnB. You can use this passive income to fund living expenses or reinvest the amount to grow your wealth.
Start small and keep it simple
If you have lots to save, that’s great – save and invest it! If you don’t, just start small and slowly build your wealth. Initially it might be something as simple as saving money in a unit trust fund every month or taking out life insurance or buying your own home. As little as R100 a month is enough to get you started if you invest it regularly and wisely. And that R100 can be made up of five small R20 savings made over the month. Many successful wealth builders like the late Richard Maponya started small and went on to leave a legacy of generational wealth for their family. So can you.
