Your Two Legacies for Future Generations

FP--LEGACIES

Are you thinking about what kind of legacy you want to leave future generations? The sooner you start building your legacy the better.

Have you considered the question, how long you want your legacy to endure?

  • One generation?
  • Two generations?
  • In perpetuity?

As we age, our legacy becomes more significant to many of us. If your goal is to leave a legacy which will last centuries, consider building two types:

1) Financial Legacy
2) Knowledge Legacy

One without the other will handicap the chances of your legacy lasting into the next generation.

Building a financial legacy and knowledge legacy should go hand in hand. Leaving financial wealth without teaching your descendants how to make and preserve money as you did will ensure the evaporation of your fortune.

How quickly can a fortune disappear?

In 60% of cases where a family’s fortune is blown, it’s usually exhausted in one generation by the children of the person who created the wealth, according to Roy Williams, president of wealth consultancy The Williams Group. In 90% of the cases where a fortune is blown, it’s gone by the second generation, by the time the grandchildren die.

Think about that. 90% of blown fortunes are gone by the second generation. Don’t let this be you. Williams cited two factors contributing to the loss of wealth in these cases – uninhibited spending and lack of ambition.

The most famous and extreme example of squandered wealth in the U.S. is the Vanderbilts. Cornelius “Commodore” Vanderbilt, the patriarch, built his fortune from railroads and shipping during the mid-1800s. At the time of his death, In today’s dollars, he was the second richest American ever, worth over $200 billion, well above Jeff Bezos and Bill Gates.

“Any fool can make a fortune;
it takes a man of brains to hold onto it.”
 
-Cornelius Vanderbilt

Yet his children – and especially, his grandchildren – lived lavishly and did little to preserve the fortune. By the 1970s, the family held a reunion with 120 members attending, and there was not one millionaire among them, wrote Michael Klepper and Robert Gunther in their book The Wealthy 100.

Amazingly, Commodore Vanderbilt foresaw this happening as he often lamented publicly that he didn’t think his children had what it took to build upon the family wealth. He was right. If only he had instilled in his kids the “brains” to grow or at least to preserve his wealth.

To avoid the Vanderbilt mistakes, as you’re building your wealth, teach your children and grandchildren how to replicate your efforts so they can build their own wealth. But first, you have to build your wealth before you can teach your children how to do it and it will take more than hard work. A doctor can earn $700,000 a year but if he’s spending it all and not leaving anything to invest in wealth-producing assets, he will fail at not only creating generational wealth but at creating wealth in his own lifetime.

Across the various stages of wealth building, there is perhaps no more important crossroads than when your income starts to exceed your expenses leaving you with a surplus.

What you do with this surplus will determine your chances of building generational wealth.

What type of investment will give you the best chance of building true wealth? The stock market? Too volatile. 401k’s? Mutual funds? They are correlated with Wall Street.

What we can learn from the old money families like the Rockefellers and Hiltons whose wealth has endured is that to build generational wealth, the key is to invest in income-producing assets to grow that wealth exponentially.

The Rockefellers and Hiltons invested their wealth in income-producing real estate and businesses and reinvested profits back into similar assets thereby building exponential wealth that continued to pay out long after their deaths.

One of the surest ways to ensure the longevity of your wealth is to pass on passive income-producing real estate. With the twin benefits of cash flow and appreciation, real estate is one of the few assets besides a successful business capable of creating generational wealth that can grow over time.

Although real estate values can fluctuate from time to time, over the long-term, real estate appreciation has proven stable and in many cases substantial. Also, over time, cash flow will increase as rents rise.

In that way, by investing in solid real estate funds or partnering with private real estate groups, you can generate wealth through passive income for generations to come.

Despite leaving your heirs in good hands with an appreciating, income-producing asset like real estate, the number of your heirs could reach a point where their rate of growth exceeds the rate of growth of your wealth as the number of heirs grows with each passing generation. This is where the second element of leaving a legacy comes in. While building your financial legacy, it is vital to pass your wealth building strategies, processes, and actions onto your heirs along with dedication to hard work and ambition.

Building wealth upon wealth will improve its longevity. Teaching your heirs to build on your wealth will ensure its longevity and will ensure future generations be provided for. Otherwise, you could potentially face a situation where a finite number of assets is spread thinly over a large number of descendants.

With a view of taking care of future generations, don’t forget to pass on your knowledge. Otherwise, the only legacy you will be leaving is one of privilege, sloth, and unbridled spending. Besides instilling in your heirs the basic traits of good character like hard work, honesty, diligence, and charity, it is also vital that you pass on practical investment skills and habits.

In other words, go out and make your fortune and while you’re making it, involve your children. Teach them what you’ve learned so they can build on what you leave behind and avoid the fate of the Vanderbilts of the world.

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