Everyone holds their own perception of ‘wealth’, but most people would find consensus when hoping to provide for their families in the coming years. Unfortunately, today, salaries for regular 9 a.m. – 5 p.m. roles can barely contend with the rising costs of living, let alone change the course of your family’s future.
The secret to building wealth lies in smart, early investment that has time to flourish. By diligently developing cashflow-producing assets and diverse income streams today, you lay down golden bricks that will not only shield future generations from the unrelenting tide of inflation but also arm them with the financial arsenal necessary for acquiring more assets, chasing after their dreams, and more.
In this piece, Tracy Wann from Aspire2 Wealth Advisers will explore some key points on how to build generational wealth.
What is Generational Wealth & Why Is It So Important For Your Family?
Generational wealth refers to passing on assets through familial lines, providing financial cushioning and a springboard for further prosperity. This could be cash in bank accounts, real estate, stocks and bonds, stakes in business, and even high-value collections such as art.
There might not be a singular reason for parents to work hard and care for their future generations, but building wealth and creating systems for inheritance can:
- Remove daily financial struggles faced by families
- Ensure a higher degree of education is available
- Guarantee any medical costs are met at a time of illness or disability
- Create freedom to pursue passions without the pressure of meeting financial burdens
- Allow future generations to explore more charitable endeavours
- And more
Tips to Building Wealth
Developing Your Own Personal Finance Management System
Before orchestrating any sweeping lifestyle changes, take the time to develop a sound financial literacy.
Begin with a staunch commitment to acquiring a well-rounded financial education and engraining beneficial financial habits into your (and your family’s) daily routine. You don’t need a university degree; today, there are many resources at your disposal with books, courses and online content available to teach you the foundations of budgeting, saving, credit scores and more. Beyond this, you can also explore building relationships with private wealth advisors to develop more focused, tailored strategies with ongoing wealth and investment management.
Invest in Appreciating & Cash-Flow Generating Assets
Your day job(s) may offer stability and a regular income stream, but rarely will it be enough to carve a pathway to true wealth spanning generations on their own, especially in times of high inflation and the rising cost of living. A savvy wealth architect understands the importance of putting their savings to work with high-performing assets to craft passive income streams.
Here are some popular choices:
Stock Market
The stock market, while tumultuous, is fertile ground for those seeking both dividend income and asset appreciation. Together with good portfolio diversification, these assets are great avenues to outpace inflation in ways money tucked away in a low-interest bank account simply can’t match. For example, the popular S&P 500 index has returned an average of 10% each year since 1926 (before inflation)1.
It should be noted that this domain is not without its risks – history is riddled with examples of entire sectors tumbling in value, leaving speculators and seasoned investors with only a fraction of their initial investment.
With some extensive research, however, paired with a strong understanding of a market and fair valuation, you can invest in promising companies from across the world to help in your journey to building wealth. Again, working with a private wealth advisor will help you curate a portfolio that balances your risk tolerance with expected returns.
Residential & Commercial Real Estate
Ever heard the expression, ‘As safe as houses?’ Well, Australia’s real estate has continued to show promising growth trajectories for decades, creating great opportunities for investors. Everyone needs a place to live, after all, and brick-and-mortar stores still need a place to base their operations. Our population is also set to grow exponentially in the coming years, driven strongly by migration as individuals and families from across the world dream of living on our sunny shores, furthering this demand for property.
Investors can put their money to work in residential and commercial properties, rearing a steady stream of rental income and substantial capital appreciation. This newfound capital can be strategically leveraged for further investments, painting a canvas of growing assets and wealth. If that isn’t enough, a range of tax advantages are available, including writing off annual depreciation, claiming operating expenses and interest on loans, and much more.
Business Formation & Investment
While not technically passive, businesses are highly potent vehicles for cash generation and easy to pass on to family members. Success requires a well-thought-out idea, a synergistic team, and a strategic roadmap woven with sound marketing, management, and more. Without it, you could become one of the 75% of new ventures that fail to meet the 15-year mark.
Maximise Your Superannuation
Superannuation is crucial for building generational wealth in Australia, acting as a long-term investment strategy with the dual benefits of tax reliefs and a fortified retirement reserve.
Navigate wisely through your options by considering fees, investment performance, and risk levels. Align these insights with your investment goals and timeframes, and if necessary, consult a seasoned private wealth advisor for expert navigation and support with wealth and investment management.
To amplify your superannuation benefits, consider making strategic additional contributions, either through salary sacrifice or personal allocations. These deliberate infusions accelerate the growth of your retirement fund and cement a stronger financial foundation for your twilight years.
Structure Your Finances to Capitalise on Australian Tax Laws
While many lament tax deductions, families with their gaze fixed on the horizon of generational wealth use tax laws as a wind in their sails. Maximising eligible deductions, tax credits, and estate tax rules can significantly lighten the tax load, making the journey smoother.
Consider Family Trusts
If you want to know how to build generational wealth in Australia, you need to consider family trusts as a collective management hub for family assets. Beyond offering tax perks and asset protection, trusts ensure assets are distributed per family wishes, mitigating tax liabilities.
Setting up a family trust requires consultation with an experienced accountant who will aid in crafting a trust deed and aligning the trust structure with your life’s objectives and needs.
Estate Planning and Asset Protection
Your wealth, painstakingly accumulated over the years, deserves proactive estate planning to ensure timely and accurate distribution to the intended beneficiaries. Estate planning allows you to minimise or entirely remove taxes related to the transition, as well as protect assets from being misused or destroyed before they can be enjoyed and utilised by other generations.
Discover How Aspire2 Wealth Advisers Can Assist with Building Generational Wealth in Australia
Engaging with experienced private wealth advisors like Aspire2 Wealth Advisers can provide investment advice and professional guidance through the intricate waters of building wealth. Our specialists offer the support and insight required for accumulating wealth and ensuring it stands the test of time, benefiting both you and the generations that follow. Through meticulous planning and a steadfast commitment to financial growth, generational wealth is not a distant dream but a tangible, achievable reality.
Click here to book a no-obligation appointment with us.
References
- Investopedia, S&P 500 Average Return, August 2022.
This content contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser (Aspire2 Wealth Advisers, 08 9322 7028), and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information.
