Proverbs 13:22 says,
A good man leaves an inheritance to his children’s children
Generational wealth is rather easily obtained and maintained with a little financial education. Getting a financial education and becoming financially literate takes some time and effort but is easier than you may think. Much easier in fact.
- Read a financial book. Here is a list to choose from.
- Highlight what stands out to you.
- Write down the highlighted passages and discuss what you are learning with someone.
- Then teach someone else what you are learning and discuss it with them.
Follow this formula a couple of times, and you will be on your way to being one of the most financial educated people in the room. Repeat a dozen times, and you will be more financially astute than 90% of the people of the world!
Just by being an American and having an OK job you are in the top 10% of world wealth earners. So by reading to get additional finances education and learning how to better manage your money, you will soon be more knowledgeable than most people you ever meet. Don’t believe me? Read on.
When each of my children were born the thought came into my mind that I needed to start a retirement fund for them. The only problem was, I knew nothing about money let alone how to start, maintain and grow such a retirement fund.
Fast forward 14 years. When I was finally sick and tired of feeling financially ignorant that instinctual thought remained with me. Four things happened that started me on the journey of becoming financially literate.
One was reading, Rich Dan Poor Dad. In it, I read 47 times the importance of being financially literate or building a financial IQ. It seems to have taken 94 times to get through to me – I read it twice before I began to understand how financially ignorant I was.
The second was learning the habits of the wealthy from The Millionaire Next Door, Everyday Millionaires, and logging enough Dave Ramsey hours to finally understand that everything was in my power to make the changes I wanted.
The third was accepting that I could do what Dave Ramsey teaches. I listened for a couple of years and lived “Davish” saying, “that is good advice but I can tweak it as needed.” This doesn’t work! It takes commitment and this is where most people drop off. By following the baby steps, and believing that I too can one day do a debt-free scream, provided the confidence to give up my old, bad financial habits and work to become financially responsible. This was a big step in the development of my financial intelligence.
The fourth thing was preparing questions for my financial advisor. Wanting to be prepared I did a ton of research on all of the funds available in my 401K, growth, growth and income, aggressive growth and international funds. By the time I explained my objectives all he could say was “You’ve got this.” And we discussed what to look for and how to proceed until our next quarterly visit. That was a confidence boost.
Now, three years later, I’ve learned how to start, maintain and grow a retirement fund for each of my kids. Here is what I’ve learned and how I plan to create generational wealth for my three children.
To begin the process, spend some time learning how to use Chris Hogan’s Retirement IQ tool. Adjust all of the settings and calculate the results over and over again until you begin to see what is possible for you and for your kids. Play with the years to retirement. The monthly income desired. This determines the monthly contribution amount. The interest rate. And even the withdrawal percentage. Until you are confident in what is possible.
Then make calculations for you, your spouse, each of your children and your grandkids too. Doing this will give you a feel for what is possible and how much generational wealth you can build over time.
I played with Chris Hogan’s R:IQ tool a couple of hundred times before I dialed in what was feasible for me to commit to. Here is what I came up with…
$100 to open the account, $41/month deposited in my youngest child’s custodial Roth 401k account, with the selected mutual funds from above-mentioned categories and the years until retirement, 48, 50, & 52 respectively they will each have right in the neighborhood of $2 million at retirement. If they never increase their contributions above the amount that I’ve committed to they will have a great start. Now that’s awesome.
If they contribute 15% of their earnings until they retire it would be worth nearly $10 million. Now that is generational wealth.
In only three generations my grandchildren could be managing estates worth nearly $20 million each. Imagine the good they could do with that kind of legacy.
Why Aren’t We All Millionaires Then?
We don’t seem to trust our ability to self-educate. Yet, this is truly the only way to learn. To customize what we want to learn to fit our life’s needs and desires. So, to give yourself a real financial education and build your financial IQ adopt the following learning techniques.
1. Choose and read a financial book. Here is a good list to chose from.
2. Highlight everything that interests you.
3. Write down those things that you highlighted. Formulate them into cogent topics. Think about what you have learned then…
4. Discuss what you are learning with someone you know. Then think about what you discussed.
5. Find another person and teach him or her what you’ve learned.
6. Record your final thoughts.
7. Repeat this process 5 to 10 times. You will then be quit knowledgeable about financial matters and have a very strong financial IQ.
P.S. A note on starting a custodial fund for your children when they are born or for your grandchildren. The above graphic show how with as little as $45/month for 65 years, invested in a Roth 401k funds that perform at 12% on the S&P 500 $10+ million would be their retirement fund.
If you teach them to add 10% – 15% of their earning into their retirement fund for their lifetime this amount would more that double! This is how to teach our families about managing their money and it is our responsibility to do so. We are the helping hands of the world or we’re a drain on those hands. What legacy will you build?