Guide to Building Generational Wealth as a Woman

*DISCLAIMER: As an accomplished entrepreneur and executive with extensive?PropTech, FinTech and Real Estate investing expertise, I’m frequently asked questions about how I grow my company, my thoughts on a particular market or industry, and a range of related topics. I’ve written these articles to help answer your questions in the simplest ways possible. The opinions expressed are my own. Please be aware that I am not your financial advisor. I am not offering you financial advice. Please consult with an accredited financial advisor before investing. These articles are for educational purposes only. If you have any questions you’d like me to answer, please use my contact form, and I will work to answer your questions in a timely manner.

Building generational wealth is a hot topic of discussion these days, particularly as millennials overtake baby boomers as the?largest adult generation?living. In a nutshell, generational wealth represents financial assets and resources that one generation leaves for another, creating a legacy of wealth that can be perpetuated in the process.

Various types of financial assets are fair game, whether it’s stocks,?real estate, or cryptocurrencies, to name a few. Of course, before one generation can pass wealth along to the next, they must be able to accumulate it, something that continues to be particularly challenging for one segment of the population — women.

In this article, we will explore the basics of generational wealth, challenges like the gender pay gap, and strategies for leaving behind a legacy for the next generation.

Understanding the Basics of Building Generational Wealth

Building generational wealth isn’t as simple as making one good investment. Just as important as having resources is knowing what to do with them when you get them. Many lives have been turned upside down by a sudden surge in net worth only to see that wealth is destroyed due to a lack of knowledge about preserving and growing one’s assets.

One of the key tenets of generational wealth is financial literacy. It’s not typically part of the curriculum in schools, yet its importance in managing one’s finances cannot be overstated.

In fact, there is a push in Washington, D.C. right now to raise the level of awareness around financial literacy,?spearheaded?by two female representatives — Congresswoman Joyce Beatty of Ohio and Congresswoman Young Kim of California.

The lawmakers are behind the relaunch of the Congressional Financial Literacy and Wealth Creation Caucus, which emphasizes the importance of not only avoiding predatory landmines but also harnessing financial products for retirement savings and building wealth.

It’s important to take advantage of the government resources available to you, such as grants to start your own business and/or educational materials, to help you meet your long-term wealth-building goals. These programs are there for a reason, and there’s no shame in capitalizing on them.

Meanwhile, compound interest is one of the strategies behind wealth building, and it’s a tactic that’s touted by the wealthiest of investors, including Warren Buffett and Suze Orman. It’s a powerful tool that lets you see the interest on your investments add up over time, something Orman?considers?“crucially important to understand.”

Compound interest is interest on top of interest, resulting in early interest on a principal amount earning your investments even more interest, thereby increasing the size of your earnings. Sit back and watch as your interest begins to generate more interest on your behalf. It’s an important part of wealth building as it accelerates the process of growing your money. Buffett?swears by it.

Overcoming Challenges and Barriers

Nobody is immune to challenges and barriers to entry around building generational wealth, especially women. While conditions have certainly improved in corporate America as diversity becomes embedded in the mission statements of businesses everywhere, there’s still a long way to go before everyone is playing on a level playing field.

Among the significant challenges on the home front includes finding the right childcare, which could cause a woman to leave the workforce or not even enter it, to begin with.

In addition, a company’s culture comes into play. While hybrid work situations were common during the health crisis, companies are increasingly moving away from this model, requiring that staff put in all their hours at the office.?Technological advancements?like email and mobile devices have made it so employees are reachable 24/7, which could interfere with a woman’s ability to turn her full attention to her family when she is home.

Besides macro issues, women also face some individual challenges in the home as they work their way up the corporate ladder and beyond the glass ceiling. To have it all, women must strike a balance between family life and the responsibilities that it entails and advancing their careers concurrently, an age-old dilemma for working women.

The Washington Post recently?published?an article about how the U.S. is behind other countries when it comes to gender equality, representing the gap between what men and women are paid for doing a similar task. As of 2022, women in the U.S. workforce earned $0.82 for every dollar a man made, according to Pew Research.

While it’s an improvement from before, progress has been slow. The difference is only pennies more than the gap was in the early 2000s. Women are also not as represented in leadership roles as men. How are women supposed to build the same type of generational wealth as their male counterparts when they are earning less?

Strategies for Building Generational Wealth

Considering that the workforce doesn’t make it easy for women to build wealth, it’s important to put strategies to work that will do the job for you. Just because it’s difficult doesn’t mean that women can’t build generational wealth to leave as a legacy when they are gone. It’s a matter of planning and strategizing because it will not just happen automatically, no matter what your salary might be.

Real estate investing?should also be at the top of your list. Real estate is one of the rare asset classes with a history of appreciating value. There are several different ways to look at it.

• Rental Properties: You could invest in a rental property that generates monthly income from tenants.?According to Arrived Homes, the average return on investment (ROI) on a single-family rental home over the past two decades was 11.7%.
• Home Prices: Property values have a history of increasing over time, unlike other major purchases like vehicles. Home values are currently appreciating at a rate of 2% on a month-over-month basis and 14.% on a year-over-year basis,?according to?the Motley Fool’s Millionacres.
• Real Estate Funds: If you are looking for a passive real estate investment, real estate funds could do the trick. These funds, which are often issued by lenders who back real estate projects, can provide a steady stream of income that is often secured by a piece of property. This creates a more attractive risk/reward situation for investors if the borrower defaults, as it gives the lender recourse.

Of course, portfolio diversification is a wise strategy. It increases the chances that one asset class will offset any weakness in another at any point in the investment cycle. In other words, you don’t want to put all your eggs in one basket.

If you have your mind set on the stock market, another fan favorite for wealth building is dividend stocks. Similar to compounding interest, dividends will give you the opportunity to grow your wealth as you reinvest it back into the company that’s paying them.

Dividend reinvesting will increase the shares you own in the company, thereby bolstering your dividend checks as long as the company continues to pay and/or increase them. It’s actually a form of compounding returns by increasing your holding while also?decreasing risk?via a strategy known as dollar-cost averaging.

Dollar-cost averaging is the practice of regularly earmarking a certain amount of funds that you direct toward an investment, such as every month or whatever frequency works for you. It’s a play on retirement investing, considering those funds are often invested on your behalf on a steady basis.

By spreading out your investments over time, you’re avoiding pouring all your money into the market at once, thereby decreasing the chances of buying when valuations are peaking. It’s a long-term strategy for wealth-building in the financial markets.

Building Generational Wealth for Future Generations

Ultimately your goal is to pass along generational wealth to future generations. However, this cannot be achieved without proper planning. This is an evolving process that unfolds over time as you continue to accumulate assets and decide how they want to be allocated after you’re gone.

It may require having some difficult conversations with loved ones, but it’s worth it. Communication could be the key to avoiding some of the problems that can erupt when a family is not prepared for the passing of a matriarch. Consider things like tax efficiency and account titles ahead of time so that you maximize your wealth for your children.

It’s equally important to prepare the up-and-coming generation for the wealth to which they will be entrusted. Those who will be receiving the inheritance should have a general idea of how to manage it so they can preserve your legacy and the wealth you created. You might consider trial runs in which you give them a financial gift during your lifetime to see how they handle it and teach them along the way.

Conclusion

Something to remember about building generational wealth is that it doesn’t come overnight. Instead, generational wealth requires a long-term mindset that recognizes the benefit of investing for your future and that of future generations. You must move beyond the instant gratification mindset, set long-term goals and strategize to meet them.

Some of the strategies we discussed, such as real estate investing, compounding returns, and dividend reinvesting, can help you achieve the generational wealth you are looking for as a woman. It’s up to you not to let the limitations that society might set, whether in the workplace or somewhere else, stop you.

As a result, you will be able to leave behind your assets to future generations so that they can follow your lead and perpetuate the legacy of wealth that you have begun in your family.