Why Money and Mindset are Inextricably Linked When it Comes to Building Generational Wealth.
Most of us hear the term “generational wealth” and think: “That’s for rich people. I’ll never be able to have that.”
I get it. After decades of critical information being gatekept, it’s easy to feel like the idea of building generational wealth is a pipe dream.
However, times have changed. There’s more ways to access critical and insightful financial planning information than ever before. Trust me, I would know.
In 2022, I believe anyone who is willing to think differently about money, take risks, and be scrappy can begin building generational wealth right now.
And, in this short blog below, I’m going to show you some ways to do just that. But, first, we have to talk about your mindset.
Are you positive about your pursuit of building generational wealth?
Let’s be real: most people dread looking at their bank account for fear they’ll see something they don’t like. So, they avoid it until they absolutely have to. This is a tell-tale sign of having a negative money mindset - something you must ditch if you want to build generational wealth.
When you have a negative money mindset, money always feels like it’s on its way out. As a result, it becomes your default to safeguard every penny you have for fear it will be your last. Of course, being a little cautious with your money is good.
However, always being worried about money vanishing is a surefire way to never take advantage of opportunities that require even nominal investment. And therein lies the problem: a negative money mindset disincentivizes taking any financial action - good or bad - because it suggests you’re doomed to fail from the start.
This is, of course, untrue. You can absolutely make changes that improve your financial conditions. It just requires you to start viewing money as something that always comes back, rather than always leaves.
By viewing money through a lens of abundance rather than one of scarcity, you can begin seeing money for what it really is: a powerful tool that anyone - including you - can use to enhance your life. This belief is the foundation of a positive money mindset - a prerequisite for achieving any of your financial goals.
However, adopting a positive money mindset will not, by itself, enable you to build generational wealth. To do that, you need to also shift your perspective about what money’s true value is.
Building generational wealth requires us to think bigger than our ability to buy
When I graduated college, I had a more “typical” view of money.
That is, money was valuable to me due to its ability to help me afford my lifestyle and buy material things I wanted. After all, spending my money on things I could see, touch, and experience was the best way to tangibly see my paycheck’s value.
Or so I thought. Looking back, it’s clear these habitual purchases weren’t delivering the value I thought they were. In reality, I was spending my money on things that, while pleasurable, carried little value or even depreciated.
Now, I don’t blame myself for behaving this way. When you grow up watching your grandad hiding money in shoe boxes while your grandmother puts money in safe deposit boxes, it’s easy to think that money is only meant to be spent or saved. In my case, I chose to spend it most of the time.
Over time, though, I realized this earn-spend-earn-spend cycle wasn’t going to help me leave behind the legacy I wanted for my family - no matter how happy the individual purchases made me in the moment. I needed to start thinking of money as a tool, rather than an item, if I wanted to build true generational wealth.
One of the things that helped me do that was my adoption of what Rachel Rodgers calls “million-dollar decisions”. A million-dollar decision is any decision that brings you more money, time, energy, peace, joy, or power. For my purposes, my first million-dollar decision was to buy a home so my money could start working for me, rather than the other way around.
Now, this wasn’t just a thing I woke up and decided to randomly do. Like any million-dollar decision, it was the product of a lot of careful research and planning. In my case, my decision to buy a home was informed by my understanding that home ownership is the most stable type of asset I could buy - a perspective shared by most other Americans.
Throughout the 20th century, federal tax policy helped transform residential property into the most accessible wealth-building vehicle for middle-income households. And it worked; at the time of writing this blog, home equity accounts for between 50 and 70 percent of households’ net worth.
To my mind, these facts helped solidify the choice to buy a home as a decision that would surely bring me more money, more peace, and more joy. I had to go for it.
Being scrappy with our money and our lifestyle is key to building generational wealth
My home was the first asset that I purchased for the sole purpose of building wealth I could pass down to my family. However, while making the decision in my head was easy, actualizing it was a whole other story.
Beyond the fact that housing in the Bay Area is frighteningly expensive, navigating the home buying process is also incredibly intimidating. Now, there are a variety of programs and resources available for people to afford housing if you know where to look. But not many people from under-resourced backgrounds know where to even begin to start looking for them.
This lack of access to information permeates generations within under-resourced communities. In fact, it is this lack of easy access to reliable financial planning information that keeps many people uneducated about how to take advantage of things like 401ks, Roth IRAs, and more. Luckily, my partner’s background in business, combined with my curiosity, enabled us to uncover the financial path we would need to take in order to achieve our goal. His assistance highlights an important but often-hidden fact about building generational wealth: nobody truly does it alone.
However, all of our digging revealed an unfortunate truth: I was going to have to sacrifice some of the same lifestyle comforts that I’d worked so hard to afford if I wanted to make progress towards my goal. That meant the trips to the salon, the vacations, the newer cars, all of it was going to have to wait if I wanted to buy a house and begin building generational wealth.
The choice was clear. I could either dig deep, sacrifice some, and accomplish my goal, or I could settle back into a groove. In the end, I scaled back my lifestyle and began working towards my goal. Though this process was uncomfortable, I kept choosing to invest in myself, my future, and my legacy. In the end, I was able to purchase my first home; an asset that continues to accrue value to this day.
However, this was by no means the end of my journey towards building generational wealth. It was just the beginning.
Homeownership is not an end-all be-all for building generational wealth
While I’m glad to be a homeowner, I know that homeownership by itself cannot ensure generational wealth. In fact, it is this undying belief that owning property immediately equates to generational wealth that lands many families underwater.
After all, homes are not a diversified asset; their value is contingent on macroeconomic conditions and the desirability of the geographic area they’re in. By sinking a large sum of money into this incredibly illiquid asset, homeowners are taking much more of a risk than common knowledge would lead you to believe.
That’s not even accounting for the racial disparities that are perpetuated through home ownership. Not only have black and brown first-time homebuyers been continuously de facto segregated via racial-based “steering” practices, but a lack of generational home ownership and knowledge within these communities produces substantial barriers to their ability to produce down payments. As a result, first-time black and brown homebuyers often end up buying in more affordable neighborhoods that see less price appreciation and lead to lower equity being built over time.
All that to say, I knew that I had to take a more balanced approach to building wealth if I wanted to evade the inherent limitations of home ownership. To do that, though, I had to start taking advantage of the numerous other mechanisms for building wealth that are available to me.
First, I increased my yearly contribution to my employer-offered 401(k) retirement plan. This provided my investments more time to grow and made it easier to reach my yearly goals. I then compounded this strategy with the decision to open both a Roth and Traditional IRA. However, I didn’t want all of my energy to be spent trying to maximize the value of illiquid assets or retirement accounts.
So, I began purchasing individual stocks on the market, making sure to invest in a wide variety of industries to minimize my risk. Additionally, I began purchasing stocks in the company I worked at through my employer’s stock purchase plan (ESPP). This plan allowed me to purchase stocks in my employer’s company at a slightly discounted rate.
Finally, I wanted to ensure that I began building a store of wealth that could set my family - especially my children - up for success. To that end, I opened a 529 plan to save for my child’s education. A 529 plan is an especially potent wealth building tool, as it allows you to make after-tax contributions that can be withdrawn for educational expenses without paying taxes on the gains.
All of these decisions serve as proof of the power of a positive money mindset: the moment I began viewing money as something that always comes back, I started making decisions that turned that belief into a reality.
“You never fail until you stop trying.”
– Albert Einstein
We must trust ourselves to try when it comes to building generational wealth. Of course, it’s easy enough to view my story and say “Yeah, well, that worked for her; there’s no way it can work for me. If I try all that, who's to say I won’t just fail?”. This is, and it cannot be stressed enough; a self-fulfilling prophecy.
You have to start your journey towards building generational wealth with the belief that you can succeed. Trust me; I doubted myself plenty along my journey but I kept betting on myself. Why? Because for me, as with most people who try to change their lives for the better, not trying would be in and of itself a failure
Why? Because, when it comes to building generational wealth and leaving a legacy, even if you don’t get to where you want to go, you will still find yourself better off and able to impact the people you care for most.
So, to help get you get the ball rolling, I want to provide a few foundational takeaways to help begin thinking about your own generational wealth journey:
Ensure you have a positive money mindset: This means having a money-mindset that’s anchored in abundance, rather than scarcity, to help start off on the right footing
Come up with clearly-defined financial goals: Establish a tangible definition of financial success to keep yourself on track and deter you from getting distracted
Break down your financial goals into small milestones: Dissect your goals into actionable steps to make the process less daunting
Take action: Whether that means researching the internet, meeting with a financial planner, starting a retirement account, or sitting down with your partner to define what kind of legacy you both want to leave behind, what I learned is the key to building generational wealth is to begin somewhere.
Based on the information here, I’d love for you all to tell me in the comments: how do you think about creating generational wealth and what steps have you taken or plan to take to start building generational wealth?
