I guess I should start by explaining what exactly generational wealth is: it is wealth that is passed down within a family, from generation to generation. It could be savings and investments, property, a family business etc. But it doesn’t only have to physical assets, it can also be financial behaviours and a culture of saving, which I would argue is an even more important legacy!
Many South Africans find the concept of creating generational wealth extremely challenging. Especially when we consider the fact that in most cases up to ¾ of household income is used to service debt! You can’t even contemplate how to start saving in such circumstances, so let’s try and break it down.
According to Discovery there are six pillars of Wealth Creation:
Step 1 – Managing your cash flow
- Keeping track of your finances and actually knowing where your hard-earned money is going each month, is the crucial first step.
- If you are not in control of how your money is spent, you will never be able to start saving.
Step 2 – Build a financial safety net
- If COVID taught us one thing, it is definitely the importance of a proper emergency fund.
- Having a financial safety net will help you falling deeper into debt when a crisis hits.
- Industry advises an emergency fund equal to three times your gross monthly salary.
Step 3 – Pay off unsecured debt
- Buying now and paying later can actually be very expensive.
- Credit cards and personal loans usually carry higher interest rates, so the faster you can pay them off, the better.
Step 4 – Protect your assets
- Your family’s income earning ability is the greatest asset you will ever have.
- Make sure you are covered should you lose that ability due to sickness or injury.
- Adequate life, disability, income protection and severe illness cover is essential.
Step 5 – Invest for the long-term
- Start saving for retirement as soon as possible!
- Make sure you adjust your contributions as your salary increases. We all live according to our means, so never think you will save what is left after you have spent. I promise you there won’t be anything left!
- By having sufficient retirement savings, you won’t be a burden on your family or have to rely on government grants after retirement.
- You will also benefit from compound growth for a longer period.
Step 6 – Plan your estate
- Ensure your will is valid and up to date
- Make sure you appointed an executor and a guardian for your minor children
- Nominate beneficiaries on all your retirement funds, tax-free savings plans and life insurance policies.
If you need some help to take control of your financial situation and start the journey towards building generational wealth please feel free to contact me at email@example.com or 012 346 0084.