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How to Build Generational Wealth and Keep it!

Phil Town
Phil Town

You have likely thought about generational wealth, whether you know it or not. It means wealth for you, your children, your grandkids, their grandkids, and so on, all the way down generations of family members.

Worrying about our kids is second nature. If you have considered how your own parents provided for you or have thought about how you will make sure you have enough in the bank to sustain your family after you're gone, you have mulled over this concept of generational wealth.

With the proper planning, you can set up your family business or investment portfolios to bring financial success for hundreds of years.

What is Generational Wealth?

Generational wealth is not a new concept. Maybe you have heard it more commonly referred to as "Old money" or "Family wealth."

Examples of Generational Wealth

Think of popular families you hear about in the news or see on TV, like the Rockefellers, the Kennedys, or the Walton family. These families are just a few examples of generational wealth, and I'm sure you can think of many more.

But you don't have to make billions to create wealth that will last.

You too can leave a legacy as they have for your own children…and their children…and their children's children. Sounds nice, doesn't it? Today, we're talking specifically about the financial legacy you pass on to your family.

We'll also review effective ways to invest money that will have a generational impact rather than short-term financial success.

But this is so much more than an inheritance. This is more than just a nest egg big enough for them to live off of. It is also the mindset surrounding money and the financial skills you share with them that can last longer than your dollars will.

I'll show you how you can build wealth, but also how to hang onto it, and most importantly, how to equip your kids with the tools and know-how to sustain and build upon the wealth you have created. Are you ready?

6 Methods to Create Generational Wealth

First things first, you need to understand that building generational wealth is attainable for everyone. It's not hard. You have the tools to help you and your family maintain and grow wealth for generations to come, and I'll show you how to use them.

1. Spend Your Money Wisely

No amount of money will keep a fool rich. So spend your money wisely.

There are a few common money traps people fall into when it comes to spending money.

You want to avoid landing in one of them.

  1. You don't have enough emergency funds saved to rely on when things go wrong

  2. Your expenses are not in your control because you don't keep close track of them.

  3. You buy things you don't really need—a flashy new car, a bigger house, a grand vacation.

Here is how to avoid these traps:

  1. Pay yourself first! Save the first 10% of your take-home income.

  2. Get control! Cash your paycheck and divvy up your take-home pay into designated expense envelopes, one for each expense category. When you run out of cash in the 'eat out' envelope, you're done going out for meals.

  3. Think long-term! Most people spend everything they make and then some. Never mind that a recent study indicated that the middle-class today lives a lifestyle better than most of the upper class lived in 1970. Do your best to avoid buying things that are here today and passé tomorrow. Buying the flashy new car this year is going to cost you way more than buying the same model a year later. Buy when you need to and invest the rest.

Whether you have fallen into one or all of these traps, you are never too far gone to make a change.

The sooner you shift your mindset and learn to save and spend wisely, the better off you'll be.

2. Focus on Your Cash Flow

For most of us, saving 10% from our full-time job isn't enough to create long-term, lasting, generational wealth simply because the rate of return we can expect on our savings is too low to get there. To gain financial independence that can be passed on, you have to find more cash flow somehow.  

This is not hard. Just ask an expert. Experts Say, "Consider a Side-hustle." The Experts (defined as smart people who are not rich) have the answer to getting more cash flow.

The head of New Zealand's Social Security system was asked by a caller how she was supposed to retire given that Social Security was not providing enough income. She replied, "Get a better job that pays more so you can save more."

Genius. I wonder why the caller didn't think of that.

Another favorite with self-help gurus is the 'side hustle.'

Try driving for Uber, they say, or opening an Etsy shop to sell goods online. One of my wife's friends does monthly night raids around her upper-middle neighborhood on Goodwill trash day and sells her finds on eBay. She calls it 'white trashing.' 

Go for it if you want but do you really need to work harder and longer to make more? I think there is a better way.

How to Pick Rule #1 Stocks

5 simple steps to find, evaluate, and invest in wonderful companies.

3. Fifteen Minutes a Week

With some knowledge and the right tools, you can create cash flow in 15 minutes a week. It sure beats working because you can do it when you have a spare moment, you can do it sitting in a comfy chair in front of the fireplace, and you can do it with almost no cash to start with.  

Doing what? Become a kind of casino for gamblers to play in.

Well, the casino is already there – a market where gamblers love to roll the dice.  

You'll be taking the 'house' side of the gamble just like a casino does – with the odds massively in your favor.  

You have to be thinking, what's the catch?  

Fair enough. The catch is that most people who gamble don't want to be the casino because you get rich too slowly. The casino side of a gamble has great certainty, but the profits do come more slowly. 

The gamblers want to get rich quickly. 

They want to roll the dice and scream when they hit it big. But that's not where the money is. That's not what builds generational wealth. The house gets to rake in a few cents on each bet. Generational wealth comes from cash flow that comes from taking the smart side of the gamble. That's why the casinos own all those big buildings on the Strip, not the gamblers. 

One of the people who discovered how to become a casino-type investor was a university professor who pioneered making cash flow in the stock market so consistently that in his twenty-year career, during which he accumulated over $200 million, he never had a losing month.

Yes, he's sort of a rocket scientist, a math genius. No surprise that it takes a genius to discover something this great, but it doesn't take one to copy what works.  

And that's what we do. We clone the best casino-type investors in the world, do what they do, and not surprisingly, we get great results.

That's why we get letters from students like this: A dad who creates cash flow while sitting in an RV near Yosemite while his kids are exploring outside, a soldier who creates cash flow in a bunker between missions, a nurse who creates cash flow once a week after a shift, and many more.

This is trading with a brain.

When most people think of trading, they think of day trading. A practice where people make risky choices in the stock market that often don't work out. That's not what we are talking about here.

Remember the founding investing principle of Rule #1: Don't lose money!

Rule #1 investors focus on long-term investments that won't lose money. This smart type of investing also sets up wonderful, low-risk, high-return trades that create cash flow now and a big return on your money in the long term.

We cloned this investing/trading strategy from investors like Warren Buffett. You can clone it from us with our free smart investing Cheat Sheet. Once you learn the basics, you will be able to properly trade the right kind of companies and provide cash flow for you and your family with very little effort.

4. Create Passive Income

Passive income is crucial in building generational wealth. Passive income is money you don't have to work for in the traditional sense. You don't have to go into an office or complete certain tasks to earn it. This is the stream of income that some of the wealthiest individuals like Warren Buffett and Bill Gates rely on.

While being the casino is the best generator of cash flow, it still requires taking action. But the long-term investments that flow out of the casino trading strategy generate passive income.

With a bit of knowledge and some good tools, you can sit back and watch your money generate more money on its own. It's like planting a seed in the ground. You do the work to plant the seed and then watch it grow, and it can grow exponentially.

We ensure exponential growth by investing in companies at a price that can produce a high compounding rate of return with a high degree of certainty. The seed you plant is your initial trade in a wonderful company that the market has mispriced.

Once the business reaches your 'buy' price, you shift from creating short-term cash flow to long-term investing and passive income.

By investing in wonderful businesses that are on sale and that will continue to grow your initial investment year after year, you are creating passive income for yourself.

5. Continue to Learn New Things

Like most things in life, when learning how to trade and invest, the more you put into it, the better you will be, but creating wealth that will last from generation to generation is not about hard work. It's about working smart. To quote Buffett, we think of this strategy as 'laziness bordering on sloth.'

If you like the idea of being lazy as a sloth while creating generational wealth, you'll need to know a few things most people don't know.  

When you get comfortable, you stop paying attention to how your decisions affect your well-being and your family's well-being. So pay attention and keep learning. Staying up to date will impact your success as an investor and your happiness in other areas of your life.

6. Start Your Journey to Financial Freedom Now

Why start now? Let's look at The Rule of 72. This famous rule of investing tells you how long it will take to double your money, given a fixed interest rate.

For example, if you want your money to double in three years, you can figure out the average annual rate of return you will need on your money each year by dividing 72 by 3.

The answer? 24.

So you are looking for an investment that can give you a 24% annual return on your investment.

Let's look at it another way.

Say you can expect an annual interest rate of 12%. How long will it take you to double your money?

Divide 72 by 12, and you'll get 6.

So, it will take you 6 years to double your money with a 12% annual rate of return on your investment.

The sooner you invest in a company with a high annual rate of return, the sooner you can double your money.

In the words of Warren Buffett, "Time is the friend of a wonderful business investment and the enemy of a lousy business investment." So don't wait!

Investing now is the quickest and easiest way to build wealth over time. If you choose to invest in businesses with high compounding annual rates of return, your money grows without having to do anything!

This brings us back to passive income.

How to Pick Rule #1 Stocks

5 simple steps to find, evaluate, and invest in wonderful companies.

Types of Passive income

There are several types of investments to choose from. But not all investments can help you generate passive income.

Investing in Stocks

Investing in stocks is the best way to consistently create passive income.

If you own a wonderful business, you own a compounding machine that can continue to grow wealth for generations. If you look at the richest people in the world, take Warren Buffet or Bill Gates, for example, you can attribute a great deal of their wealth to the businesses they own that are compounding machines. And you too can be an owner of compounding machines by simply making an investment in the right stocks.

Let's take Apple, for example. Warren Buffet bought over 2 million shares back in 2019.

Apple is a compounding machine, compounding money at a rate of 30% per year.

If you had invested in Apple twenty years ago, your equity would have doubled every 2.4 years for the past 20 years. $10,000 has become $2,215,000. That one investment gave financial independence and, for some, generational wealth.

Jeremy Siegal, professor Emeritus at Wharton, analyzed four assets for their long-term returns adjusted for inflation over the last 200 years. He evaluated the real return of the US Dollar, Gold, US Treasury Bonds, and Stocks (using a broad market index). 

The US Dollar LOST 95% of its buying power. $1 invested in a US Dollar in 1800 became worth less than a nickel by 2011. And it's worth even less today.

A dollar's worth of Gold bought in 1800 is now worth $3.

A dollar's worth of US Treasury Bonds grew to become $1,600.

A dollar's worth of the US stock market grew to become $1,000,000.

A dollar in each asset became worth a nickel, $3, $1600, or $1 million. Which one would you pick for the next 100 years?

Nothing else on the planet compounds money as quickly or greatly as that. This is the most perfect way to generate passive income. 

How to Pick Rule #1 Stocks

5 simple steps to find, evaluate, and invest in wonderful companies.

Why it is Difficult to Keep Multi-Generational Wealth

Getting to financial independence is awesome. But there is more to do once you've achieved that super important milestone. Once there, you must know how to keep it and pass that knowledge to the next generation.  

Let's discuss why it is difficult to keep multi-generational wealth in the first place.

There's a saying that hard times create strong people. Strong people create good times. Good times create weak people. And weak people create hard times.

Building wealth requires strong people. The first generation of a family that gained financial independence started with next to nothing and had to build wealth while providing for their family. They understand the value of money that comes from not having any.

So a cycle begins. Without passing the knowledge of financial independence down to the next generation, the second generation spends all the parents' money, likely because they don't have to work as hard to earn it and don't have to learn the value of it. So, this leaves the third generation to make it back again. So the cycle continues.

As parents, it's often our goal that our children don't have to work quite as hard as we did to get by. But that doesn't mean our children have to be uneducated about money. We can teach them the value of money and give them the education and the tools they need to carry on in our wake.

How to Keep Wealth for Generations to Come

So, how do you avoid losing the money you or your parents worked so hard to create?

Staying rich requires the right strategies and the right mindset. Those who remain wealthy for generations, growing their money and passing even more down to their children than they were given, know how to invest for the long run and how to teach the next generation the secrets of great investing.  

Invest in Your Child's Education

If you want your children to be able to provide for themselves and their children even better than you did for them, invest in your children's financial education.

Everyone wants to provide their kids with the education and resources they need to be successful on their own, but most parents have no idea how to create generational wealth. They can't teach their kids. The educational system we have, all the way from K-PhD, has not the first clue about how to teach the creation of generational wealth. In fact, our universities are more likely to teach children to be mediocre investors who never can achieve financial independence.

So when it comes to money, what should your children learn? Charlie Munger has the answer:

"I believe in the discipline of mastering the best that other people have ever figured out. I don't believe in just sitting down and trying to dream it all up yourself. Nobody's that smart…."

Teach Your Children Well

As parents, it's our job to make sure our children know how to function as adults and can take care of themselves. And while that means investing in their education and providing for them financially, it's so much more than that. We want to be able to train them up in the way they should go so that they won't stray from it when they grow up.

This couldn't be truer than when it comes to teaching them about money. You can leave your kids with a nest egg, sure, but the education you provide them with is crucial to ensure they will be able to sustain and grow that wealth for their children.

As Charlie says, don't try to dream up this critical education by yourself. It's a lot easier and wiser to learn from the best investors who ever walked the earth, the people who figured it out, put it into practice, and made fortunes. 

They aren't hard to find. Just look at a list of the richest people in America, and remove the names of those who inherited the money and those who got rich from owning a share of a really successful business. Those who are left are your teachers. Principal among them is Warren Buffett.

If you truly want to create generational wealth, it is essential that you pass down more than just money to your heirs. You must also teach them all the lessons that we learned from Buffett, the education that gave you the knowledge to become wealthy in the first place.

How to Pick Rule #1 Stocks

5 simple steps to find, evaluate, and invest in wonderful companies.

Ready to Build Generational Wealth?

I would love to help you build a solid foundation of investing knowledge, backed by principles used by the best investors in the world, investors like Warren Buffett and Charlie Munger.

Sure, you can figure this out on your own, maybe.

I wasn't that smart. I learned from a great investor who learned from Buffett.

That's the shortcut to generational wealth – to learn what the greatest investors in the world figured out.

The best education in the world comes from the experiences of 90 years of successful investing, and it's been distilled for you down to just 3-days. In just 3-days my team of coaches will teach you the basics of great investing from the best investors in the world.

That's why I'd like to invite you to my 3-Day Virtual Investing Workshop to get interactive help from my team and me. Hope to see you there!

How to Pick Rule #1 Stocks

5 simple steps to find, evaluate, and invest in wonderful companies.

This article was originally written on April 8th, 2020, then updated on January 5th, 2023.