How To Build Generational Wealth For Your Family : August 2020 Net Worth Update
The Gift Of Wealth Can Go On For Generations To Come
Creating generational wealth is an umbrella term because there’s more to it than meets the eye.
Once you’ve conquered your financial goals and are debt-free you can focus your goals on safeguarding generational wealth.
The Chinese have a saying that states that generational wealth will not survive three generations and for good reason.
Or you may have heard the adage of “Shirtsleeves to Shirtsleeves in three generations” which means the same thing.
This is how it all goes down.
The first generation typically suffers the most working to build generational wealth for their kids and going without.
In comes the second generation who saw what their parents went through and work just as hard if not harder to live a better life but also to pass that on to their children and grandchildren.
Then the third generation comes in and grows the generational wealth that is passed down or loses it all.
What this means is that the cycle of generational wealth must start over again and it will.
In our case, we were met with the Silent Generation beginning in 1923, Baby Boomers 1945, and Generation X 1961 (that’s us with current ages between 41-59). – Source: Generation Summaries
Our son will be of the fourth generation called Generation Alpha as he was born in 2014.
Luckily for both Mrs. CBB and I who are both of the third generations have managed to amass a net worth without any generational wealth.
There’s some honor to the Chinese but not all third generations will wipe out their generational wealth.
Meaning Of Generational Wealth
What Is Generational Wealth?
Generational wealth is simply assets or money that is passed down from generation to generation.
So, for example, if you save money in your child’s Registered Education Fund and pass it along to him and her that’s generational wealth.
You’ve given your child a running start at life by paying for all or part of their education whereas other students may have to get a bank or OSAP loan.
We started to save for our son’s education and by the time he starts college or university, he will have enough to cover 5 years of school including residence.
That total will run into the 100,000 dollar mark and for any child that’s a massive amount of money to be given or taken as a loan.
Family Wealth For Generations
How do you keep wealth in your family?
You teach your family the values of wealth and how to sustain the wealth that might be coming their way by creating a wealth strategy.
Notice how the word ‘wealth’ comes up often? That’s because generational wealth is about keeping the castle you’ve built in the family.
I can remember my nan who would sew anything that ripped, my mum would repair and sew us clothes, we buy used clothes and the millennial in our family will buy new.
There was always chatter about why buy new and we can mend this easily because there was little money to spend.
It seems that by the time the second or third child comes along depending on what generation they are in that some parents give up on them.
Not all third generations will mess up the family fortune especially if the family takes time to communicate and explain wealth.
Even today my parents save as much money as they can although they are happily retired without financial worry.
Why? Well, I’m sure in part to leave for their kids and grandkids.
Something is empowering about being successful and being able to pass on some form of wealth when you’re gone.
Children Have Their Dreams
Another consideration is that not all children want to take over a family business however there is generally one child or another family member who will.
When I was young my parents always owned a business in the hunting and fishing industry that I worked at for years.
Would I have liked to take it over if they left it to us kids?
Hell no, because I had zero interest in spending all of my time at the shop.
My wife’s father’s parents had a large farm and none of the kids wanted it so it was sold to the cousins who still own it today.
The farm was profitable and was their only source of income growing up in the silent generation but none of the kids stuck around.
He later came to regret that decision to move to a new country instead of staying home to take care of the farm.
Plus, you have to ponder the pros and cons of skill sets between generations as times change as do resources and education.
What you used to do as a farmer may be far different for your child or their children based on new technology, education, and government legislation.
There’s always going to be that fine line moving generation to generation when it comes to a family business, investments, or real estate assets.
Passing down what you’ve learned is critical but it’s also important for their successors to update their knowledge or everything can flop.
Leaving a million dollar a year business to your child with zero business sense is a disaster waiting to happen.
Creating Generational Wealth
Before you can build generational wealth for your future heirs you must get your financial health in order.
Let’s look at ways you can create generational wealth through taking care of some very important financial details.
Budgeting
If you want to know where your money is going and how much money is coming in then you have to budget.
By using a budgeting system this allows you to cut expenses where necessary and pay off debt faster.
When you can crush your financial goals this allows you to save even more money.
Always pay yourself first, pay off your debts, and save for the future.
Saving Money
Once you have your budget under control you should be paying yourself first by building an emergency savings fund and other savings.
After a while, you’ll get used to the life of a saver where you splurge on the necessities and hold off on the wants.
There’s also a point where you have to ensure that you are still enjoying life but putting money by for everything else.
That’s the balance of budgeting or financial wealth management that many people struggle with the most.
It’s far easier to do the opposite and then wonder where the money went.
Don’t be that person.
Passive Income
Passive income is a system where the money is rolling in while you’re sleeping.
For example, this blog earns a 5-figure income each year while, and although I work on it the money is still passive if I were to stop blogging today.
Owning a home that is fully paid off and you rent it brings in passive income that you can invest to earn even more money.
Investing and earning dividend income can also be classified as passive income because your money is earning you money.
Side Hustles
Find things to do that will earn you extra money such as blogging, dog-walking, babysitting, tutor, music teacher, etc.
When you can bring cash in on the side you can put that extra cash towards debt to help fuel your retirement savings or other investments.
Multiple Income Sources
I believe having multiple income sources is a great way to build wealth which is something we’ve been doing for years.
Having this blog is one income source and the other is buying items and selling for higher than we paid.
Financial Communication
Money talks are a big deal especially when it comes to your family who one day may inherit wealth from you.
Teaching children from a young age about money management is only the beginning of their journey to modern wealth savings.
Being prepared about how to handle large amounts of money they may get at some point in their lives is critical for generations to come.
Understanding the basics of budgeting, accounting, debt and the importance of a credit score is critical.
Wealth Preparation (Investing in and mentoring your heirs)
There’s nothing more powerful about generational wealth giving then to prepare your successors for when the time comes.
No matter what your situation entails go through the process of finance, business, and investing with your children.
Make sure everyone is on the same page and for those who have no interest that they understand where they stand in the process.
If there is no suitable family successor for an existing family business, to also plan the liquidation of the business so that you can pass cash on to the heir(s) to grow in a manner that suits them.
Sometimes it’s a simple as liquidating the assets inside the business, renaming and re-purposing that business so that your heir can build a business that they are interested in running and growing.- Mary C (CBB Facebooke)
Charitable Giving
Giving is a huge part of growing wealth but with the heart and although it’s not something that will increase your bank account it does help with any tax receipts.
At the same time, you are helping others in need of money or even your time by volunteering which also helps to educate.
Show your children the benefits of giving and how important it can be and encourage them to volunteer with you.
Often when children see what they don’t want it drives them to do something they do want.
I know that just because someone comes from a poor upbringing doesn’t mean they will be in one forever.
Marriage and Common-law Prenuptial Agreements
I’m not saying a prenuptial agreement is a must however if you have a successful business and want to protect it from a possible divorce, common-law relationship or step-children brought into the relationship then consider this option.
Generational Wealth Examples
Some examples of generational wealth that spring to mind are often the easiest to accumulate if you have the money to invest.
Teach Children Financial Literacy
When our son is 21 he will have access to an Informal In-Trust Account, Bank Savings Account with Tangerine, Life Insurance investment policy (if we are dead), and an RESP when he is ready for Uni or College.
He will also be the successor of this business that I started in 2012, “Canadian Budget Binder‘ if he wants to continue blogging.
There will also be many other assets and investments coming his way as the years go on and we’ll have to talk to him about all of this.
We’re still young too so who knows what the future holds for our family.
Teaching children financial literacy from a young age is SO important especially when they transition to high school and adulthood.
Build a family business
Starting a family-oriented business venture is a great way to keep wealth in the family.
The only con to this is perhaps your children may not want to continue with the business after you’re gone.
As mentioned this blog is our little family business however in the future I may open something new.
Have your children work in the family business if they are interested and teach them everything they need to know.
Find out if they do have an interest in the business once you have died and if the answer is yes the possibility of the business staying in the family is there.
Invest in the stock market or other investments
Investing is a great way to create wealth for yourselves and generational wealth for your successors or heirs who will be around when you’re gone.
If you invest wisely you may not even use all of the money which leaves money to those named in your Will.
Investing in the stock market, retirement funds, and real estate are some examples.
Related: What happens to your TFSA when you die?
Life Insurance Policies
Both Mrs. CBB and I have insurance policies that are term life insurance and whole life-Par which is invested.
Earlier this year we converted our life insurance into permanent solutions which are called partial conversion without medical evidence.
We did this because it guaranteed early cash values, meets flexibility, and long-term protection all with potential tax-saving advantages.
We’ve also bought our son an insurance policy that after 10 years will be fully paid by us and he won’t ever need to buy one.
Obtaining Life insurance such as from Policy Me is critical when you have dependents that rely on you for financial support.
By doing so you are leaving money behind if both you and your spouse pass away.
Beneficiaries
Without a doubt, you must name beneficiaries on any documents that include assets, businesses, savings, investments, and your estate plan.
Estate Planning With A Will
Do yourself a favor and make sure that you have a will prepared as soon as possible.
Talk to the Power of Attorney that you chose to take care of your affairs and their responsibilities.
Related: Estate Planning Guide For Canadians
If you die without a will there could be consequences especially if your bank accounts are not in both your names.
Related: Widow has bank account frozen when her husband dies
Choose to hire a lawyer to draw your Will and Estate plan or opt for a legally binding online Will option such as using Epilogue.
Related: The harsh consequences of dying without a Will
Informal In-Trust Account – Non-Registered investment account
As I mentioned we started a non-registered investment account for our son which will be great for him but we still pay at tax time.
Since we are maxing out his education plan and saving his birthday money, government cheques, and other income the next best thing was an informal in-trust account.
Any dividends/interest generated by the account are taxed to the contributor (ie. in my case, I would take the tax hit – not great).
However, capital gains are taxed in the hands of the beneficiary (ie. the children – bonus!). With capital gains taxed in the hands of minors, this would result in very little tax in most situations. – Frugal Trader (Investing on behalf of your children)
Final Thoughts
Whether you can stash cash, own a business, or have investments for your heirs all you can do is hope they make the right decisions.
You can pass on money but you can’t make the financial decisions once the money is gone.
Always be passionate about what you do but be open to the fact that your children may not be your successors.
Generational wealth will always be one step ahead for anyone and they can either build it, sit on it, or blow it.
Discussion: Will you be saving generational wealth to pass down to your family and were you gifted any? Share your comments below and I’ll be sure to respond.
Net Worth Losses and Gains
What happened to our money in August?
Not too much happened in August apart from our investments creeping up just a bit by 4359.02 dollars.
As you can see we didn’t do anything good with our cash and emergency savings for August due to renovations.
We’re currently working on a no-spend month for September so hopefully, we can get out of the red.
How was your month for money? Share your comments below.
Understanding Net Worth
What Does Individual Net Worth Mean?
Net Worth is a snapshot of your financial health sort of like a picture or debt to net assets.
In simple terms, it’s a total of the value of your assets minus your liabilities.
We credit the growth of our net worth due to patience, perseverance, using a monthly budget, and not giving up.
Your numbers may go up and down but don’t let the numbers scare you rather understand why and move on.
If you would like to use our budget I offer a FREE downloadable budget which I created and that you can use.
I don’t charge for it because I want you to save money not spend more!
There are tonnes of other free resources at Canadian Budget Binder to help you build your net worth.
Calculate Your Net Worth
Do you know how to calculate your own Net Worth?
We like to calculate our net worth every month so we know if we are still on track.
Some people calculate it yearly or quarterly but it’s up to you and how informed you want to stay.
Net Worth is only an estimate and not everyone uses the same type of figures to tally it up.
Some of you may not include vehicles like we do or leave out assets inside the home as we have.
You might be that person that believes that your house should be excluded.
It depends on what you want to calculate or what you can sell today and make money for tomorrow.
Figuring out net worth is fairly easy as long as you know your monthly financial numbers.
Net Worth is adding up all your assets (what you own) then taking away your liabilities (what you owe) which will give you a net worth number.
Understanding your net worth will help you determine if you are on track meeting or beating your personal financial goals.
It doesn’t get any easier than that.
Determining Net Worth
Net Worth = Assets – Liabilities
Why not go ahead and calculate your own using our Free Money saving Tool Net worth Calculator (Canadian Budget Binder 2012)
Financial Numbers
When budgeting anything is possible, we are proof of that although we still have a long way to go in our journey.
These are our numbers and our goals, not a means of comparison towards your own goals to others’ target goals.
We don’t care how much money others earn or if they have a high net worth or if it is lower than ours as it’s not a competition.
I hope our experiences will help guide you along your financial path working towards debt freedom.
Not everyone has the same path in life.
Some of you may have had to start over like I did or go to school a second time and now have OSAP loans to pay back.
Others may have divorced, lost money in the stock market or other investments, suffered job loss, fell ill or injured on the job and so on but you can’t let that stop you from achieving your financial goals.
You may have been given trust funds, paid-for homes, educations, or other perks that give you a financial kick-start and that’s OK too.
Earn It, Save It, Invest It, Build It
Remember what I said, “It’s not about how much money you make, it’s how you save it”.
The reason people accumulate wealth is that they know how to save or invest even if inherited or a lottery win.
The smallest improvements should mean big strides in working towards reaching your goals.
Sometimes we have to fail to learn and we’ve all been there.
Money can be evil for some people especially those who have a negative attitude towards their financial situation.
Be optimistic and little by little with determination you too should see improvements if you want that to happen.
Canadian Budget Binder Net Worth Updates 2020
Click the links below to read our net worth updates for the year.
- January 2020 Net Worth Update
- February 2020 Net Worth Update
- March 2020 Net Worth Update
- April- Oops I forgot
- May 2020 Net Worth Update
- June 2020 Net Worth Update
- July 2020 Net Worth Update
That’s all for this month’s net worth update but please check in the middle of October 2020 to see how we made out in September 2020 with our financial portfolio.
~Mr.CBB
Note: This page may contain affiliate links where this blog earns a little income if you choose to use a product or service.
