This article discusses how the salaried can build wealth across generations. I am passionate about this topic because I have witnessed wealth diminish within my family from generation to generation. I am determined to do everything I can to prevent this from happening in the future.
My great-grandfather lived an upper-middle-class lifestyle during the 1940s and ’50s. However, my family’s socio-economic status progressively declined, settling firmly into the middle class by the 1970s.
By the late 1980s, circumstances forced us to sell our expansive bungalow in Mylapore, Chennai, resulting in a move to an apartment. This event left a significant emotional impact on my father, who was born in that home, and to this day, I struggle to come to terms with that change.
I realised that, to maintain the inherited wealth, a generation should strive to earn more than the preceding generation.
I credit my parents’ sacrifices for allowing me to receive 12 years of education beyond high school, which enhanced my earning capacity. Our financial independence today is because of our parent’s sweat and toil.
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Following my father’s death, I was compelled to grasp the concept of money management and invest in equities. Thanks to these experiences, my family has managed to reclaim our social status.
Generational wealth often brings to mind a family business passed down through the generations. However, this notion does not apply to those who rely on a salary for income. So, how can the salaried class accumulate wealth over generations?
There are two minimum requirements. From one generation to another:
- The parents should be financially independent. This implies they will have to invest right from an early age.
- The children should be more qualified, skilled, and earn more than their parents.
Even if networth is not transferred from one generation to another, the social station will not be eroded.
If we, as parents, invest a good amount of our net worth in equity, we have a reasonable chance of financial independence in retirement. This will also encourage our children and their children to do the same.
With luck, we might be able to remain invested in equity all through our lives and hand it down to our children and them to theirs. All this would require patience, discipline and dedication.
We could also encourage entrepreneurship in our children, but that is a double-edged sword!
In summary, we must have a long-term view of our net worth – a 30-year or 40-year plan. Then we will not worry about consumerist trivialities like credit card reward points and cashback. Also, see: Want To Get Rich? Write Yourself A One Crore Cheque!