Today’s post focuses on the financial habits of people that actually have or are in the process of creating wealth and especially generational wealth. Before we discuss any further let’s actually define generational wealth.
Generational wealth is wealth passed down from one generation to another.
This is through the accumulation of assets for the future to provide financial security.
Key word is accumulation of assets for the future! Wait! Does that mean I can’t buy what I want?
If you don’t have a trust fund making consistent deposits to your account in your name you are in the building process. And even if you did you still need to build for the next generations. Building takes sacrifice and delayed gratification (which we will discuss later). So let’s get right to it.
1. Their Money Makes Them Money
Wealthy people are strategic about the placement of their money and typically it's not just sitting in a bank account. Wealthy people understand that their money grows based on the movement of it. If it’s just sitting in a traditional bank account it’s not moving and may barely be making 2-3% in bank interest.
Instead, they lend their money to other people or investments with a 25-1,000% ROI. Essentially they make money in their sleep. Not having to physically work frees their time to do what they love most.
2. They Own Real Estate & Focus on Cash Flow
Remember generation of wealth is all about the accumulation of assets whether that is cash, stocks, real estate, etc. Over time real estate has been proven to consistently increase in value and the wealthy know it! But here is the key: the wealthy don’t solely bet on appreciation.
They focus on purchasing properties that generate more income than it costs to own. They don't care if the market dips as they are cash flowing positively. If the market does happen to rise they have the option to sell at a gain. It’s a win-win model and the wealthy do it well.
3. They Invest in Education and Experiences
The wealthy know that it’s not what you know but who you know. As such they tend to invest their money into education not solely for knowledge building but increasing their network circles and social connections.
Investments in education and the experiences associated with them are done so in hopes of setting themselves and children up for a successful, well-connected future.
4. They Know Their Personal Net Worth
Wealthy people know what they own and who they owe. They have a mental personal balance sheet in their head at all times and know how a potential purchase will impact their financial position. Due to this laser financial focus, they tend to make financial moves on their balance sheet (purchasing assets obtained from a mortgage loan which overtime create increased equity). Simply put: If it costs them something, it should make money!
Questions they ask themselves before a purchase:
1. Will this purchase generate income?
2. Is this purchase going to lower or increase my net worth?
3. How long will it take for me to recoup this purchase?
4. Does this purchase create non-monetary value?
People that look wealthy have more of a profit and loss focus using their income to buy stuff (expenses) that does not equate to more revenue.
5. They Give
Wealthy people know that giving is key to success. Wealthy people have generous spirits and understand that helping others is key to long term wealth accumulation.
You may be saying “I fit in the category of the people who have terrible financial habits and I certainly don’t have any money to make money from.” Even if you have purchased 4 cars in the last three years, spend all your disposable income on food & clothing and have an unused gym membership for the booked vacation you can’t afford, there is hope!
You can simply begin implementing a wealthy mindset that will transform the financial behavior of yourself, children and grandchildren. This is key to not only accumulate wealth but retain wealth for the next 200+ years. We will discuss these mindset shifts in the next post.