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Building Family Wealth in 10 Proven Steps

Building family wealth is a common financial goal among parents, especially with rising education and housing costs burdening many grads with hefty student loan and mortgage debts. Unfortunately, most individuals are unsure where to start when it comes to creating a lasting financial legacy.

Building family wealth isn’t an option only reserved for the ultra-rich. There are several simple steps you can take now to set yourself and your family up for future success with wealth to pass down for generations, regardless of your current financial situation.

10 Proven Ways to Build Family Wealth

1. Teach your children to be financially responsible

It’s imperative that future generations know what to do with their wealth and how to employ perpetual wealth strategies to keep your legacy in motion. In fact, family wealth is often depleted within three generations due to lack of financial education. Include your children in family financial decisions, encourage them to invest early, and ensure they know how to pass down their financial knowledge to their own children. 

Listen: How to Teach Your Family About the Perpetual Wealth Strategy™

2. Create an emergency savings fund

Regardless of the amount of debt you have, setting aside money each month toward an emergency savings fund is an essential step in building family wealth. It’s recommended that you have anywhere from 6 to 24 months of living costs saved in your emergency fund. 

Unexpected costs like medical bills, home repairs or even income replacement if you were to lose your job can all be paid for with your emergency savings fund. Most importantly, you won’t have to rely on credit cards or loans when emergencies happen, which can become even more costly when factoring for interest, further perpetuating existing debt.

Listen: The Hierarchy of Wealth: How to Build a Financial Foundation

3. Set family financial goals

While many parents have a goal of building family wealth, what that actually looks like differs from family to family. Setting financial goals is key to staying on track and achieving success. Some families find it helpful to create a family mission statement that outlines their values and wealth goals. Here are a couple of examples:

The mission of the Edwards family is to prioritize education and community service; we know life’s greatest rewards come through experiences rather than things.

The mission of the Walcott family is self-sufficiency and resourcefulness; we’re not afraid of hard work and know that future rewards will reflect the effort we put in.

Whether your goal is to help your kids pay for college or put a down payment on a home, creating funds that allow your family to continually contribute to charity, or ensuring that your beneficiaries aren’t hit with hefty estate taxes after you’re gone, discuss your plans with your family and set up annual consultations with your financial team (CPA, tax advisor, Wealth Strategist, financial planner, etc.) to make sure you’re optimizing your wealth building strategy. 

Quiz: Find Your Financial Stage: Growth, Income, or Legacy

4. Reduce your tax liability

One of the easiest ways to build wealth is to keep more of your hard earned money. There are several tax strategies that can help reduce your tax liability, including contributing to a qualified retirement plan, optimizing a Health Savings Account, or utilizing tax-free policy loans from a whole life insurance policy. If your estate is liable for taxes when you pass away, you can utilize an irrevocable life insurance trust to help avoid estate taxes, as well as gift taxes or generation-skipping taxes, all of which equate to greater wealth for future generations. 

Watch: Preparing for Tax Risks in Retirement Webinar

5. Reduce debt

Like reducing your tax liability, reducing debt means you’ll pay less interest to lenders and keep more of your wealth. Aside from paying down student loans and credit cards or refinancing a home, you can utilize policy loans from whole life insurance to consolidate debt, receive a more favorable interest rate, and earn interest on the cash value of your policy, allowing you to capture your opportunity cost by growing wealth even as you borrow it. 

Read: Tools and Strategies on How to Eliminate Debt Quickly

6. Invest in real estate

Real estate is one of the least risky ways to generate passive income that can be passed down for generations. Whether you choose a single-family home, multi-family home, commercial real estate or a smaller rental unit like an apartment or condo, owning rental property allows you to increase your monthly cash flow and earn equity while tenants pay the cost of the property mortgage. Policy loans from whole life insurance may be used to purchase real estate in full or used for a down payment.

Watch: The New Real Estate Rules Webinar

7. Start a business

Everyone possesses unique talents and abilities that can be capitalized on for extra income. Whether you choose to open a brick-and-mortar business, run an online ecommerce store, start a blog, or become a freelancer or consultant, find a way to use your assets to your advantage. Some small businesses may even turn into family businesses, providing an additional way to build family wealth and pass down a financial legacy to your children.

Read: 6 Things to Know Before Starting Your Own Business

8. Invest in stocks

This tip may not be appealing to the risk-averse investor, but investing in stocks is a strategy that has been used for generations to build wealth. Before you utilize this option, make sure you have a solid financial foundation with emergency savings, that you’re optimizing your tax liability and that you’ve consolidated debt. While highly liquid, stocks are subject to market forces beyond any investor’s control but long-term gains historically make up for market downturns.

Listen: The Volatility Buffer: How to Reduce the Risk in Investing

9. Make an estate plan for your family wealth

It seems fairly obvious that family wealth often gets distributed as part of a will or estate plan, but too often people wait to create a plan or fail to update their plan as their financial goals change. Regardless of how much or how little family wealth you’ve accumulated, it won’t be impactful for future generations without a clear outline of how the money is to be used and shared.

Read: Estate Planning 101

10. Purchase cash value whole life insurance

As mentioned in several other family wealth building tips, whole life insurance structured for rapid growth of cash value is a proven way to grow and protect wealth. After paying for the policy’s death benefit and administration costs, the rest of your policy premiums are put into a cash value account that earns a guaranteed rate of return, plus potential dividends. Read on to find out more about the unique benefits of whole life insurance.

Listen: Key Benefits of Mutual Insurance Companies

Building Family Wealth With Whole Life Insurance

A properly structured whole life insurance policy can be an invaluable tool when it comes to building family wealth. In fact, it’s been used by wealthy families like the Rockefellers and relied on for hundreds of years as a safe and guaranteed perpetual wealth strategy.

There are 6 key tenets to whole life insurance that make it an ideal financial tool:

  1. Certainty

Whole life insurance comes with a guaranteed rate of return. This means that regardless of what happens in the market, you’re guaranteed growth on your cash value. This can accumulate to tens or hundreds of thousands of dollars in compounding interest over the lifetime of a policy. 

On top of your guaranteed rate of return, whole life insurance policies purchased through mutual insurance companies are also eligible to earn dividends. Although not guaranteed, the top-rated mutual insurance companies we work with at Paradigm Life have paid out dividends for over 100 years. Dividends can be used to pay insurance premiums, purchase additional insurance, or distributed to you tax-free in cash.

2. Control

Unlike market-based investments, you are in control of your whole life insurance policy. As a private contract between you and your insurance company, it provides increased asset protection not subject to probate or judgements in most states and comes with several tax advantages, including tax-free policy loans, not found with most other financial tools.

3. Liquidity

The cash value of a whole life insurance policy provides liquidity not found with other comparable, safe investments like real estate and more security than other comparable liquid investments like stocks. Unlike most qualified retirement plans, there are no penalties for accessing your money before a certain age. Cash value is yours to use when you need it, for whatever you need.

4. Protection

A whole life insurance policy can act as your financial foundation. When you utilize your cash value as your emergency savings, you’re accessing funds for unexpected costs while still earning a rate of return on your policy. Further, your policy isn’t affected by market volatility, and even functions as a volatility buffer in retirement, helping funds in qualified retirement plans go further and last longer. 

5. Cash flow

Whether you use the cash value of whole life insurance to capitalize on investment opportunities like real estate, for peer-to-peer lending, as a source of capital for your business, or to support you in retirement, whole life insurance offers a unique source of cash flow and passive income from returns and potential dividends.

6. Legacy

With a guaranteed tax-free death benefit, whole life insurance is designed specifically to help you build family wealth and leave a financial legacy for your beneficiaries. Further, it can be purchased and held inside an irrevocable life insurance trust (ILIT), allowing even greater tax benefits and protections for future generations. 

Get Started Building Family Wealth

Our team is here to help you get started building family wealth with whole life insurance.

At Paradigm Life we can customize a policy to fit your financial situation. Our expert Wealth Strategists are available to answer your questions and show you customized illustrations, outlining an individual plan of action to help you achieve your goals. Request a free virtual consultation, no strings attached.