4 Phases to Maximizing Your Generational Wealth Opportunities

4 Phases to Maximizing Your Generational Wealth Opportunities

  • Nick Emerson
  • 07/11/23

While money doesn’t truly grow on trees or actually impact the spinning of the world on its axis, there is no doubt that financial security- or the lack of it- weighs heavily on the minds of Americans. The American Psychological Association found that in the United States, money matters are the greatest source of stress we face.

Finances don’t have to create fear or anxiety for your or your loved ones, and the work you do today toward your financial security can provide resources and peace of mind for your family for generations to come. Worry can be mitigated with goals and a plan to reach them. Nick Emerson offers his pro tips to create and manage generational wealth.

1. Create a plan

Would you plan a trip without knowing where you’re going? Every time we travel, we have a point of departure and a point of arrival. Depending on the scope of that trip, the distance between the two points may be a short, straight line or a long, meandering scenic route.

In like fashion, when we talk about creating a financial road map, we must evaluate three components: where are we now, where do we want to go, and how do we want to get there? This evaluative process is best done with a well-qualified financial advisor. If you have one, schedule a financial “checkup” and evaluate the state of your finances with him. If you don’t, do some research and find one whose investment strategy, proven track record, and communication style align with your priorities.

The first part of the plan involves evaluating your current financial health, including assets and liabilities and your debt-to-income ratio. How are your savings? Retirement? Insurance provisions? What investments do you currently have, and how much wealth are they generating for you? Are you satisfied with where you are? What tweaks can be made to improve your wealth generation process?

Next, determine where you want to be financially at the end of your life. What would you like to bequeath to your family and favorite charities? Be specific and detailed. Measurable goals are much more attainable than vague ones. Consider these very important factors that will impact your success in reaching your goals.

  • Time- It’s not unusual for people to live into their eighties or nineties. Depending on when you retire, you may have twenty or thirty years of post-retirement living to fund. Plan optimistically and make sure that your needs are provided for. Anything that is left over will be a generous provision to the next generation.

  • Medical provisions- Prepare for your healthcare needs with long-term care insurance so that your family will not be burdened with those astronomical costs.
Most of your energy will focus on the journey- how will you grow from where you are financially now to reach the destination you have in mind? Your financial advisor will be a tremendous asset in helping you determine a path. Prepare to make the most of your time with him by devising answers to these questions before you meet.

  • What is your comfort level with risk? Are you cautious, moderate, or fearless?
  • What life changes can you anticipate that may change your financial obligations? Paying off a mortgage, sending a child to college, or entering retirement are only a few examples of the myriad of ways your financial circumstances can shift.
  • Do you have an estate plan in place with a will, instructions for the dispersion of your assets, and advance medical directives for your care?
  • What are your current savings, and what is your plan to effectively save?
  • What are your milestone goals, such as where you’d like to be at forty, fifty, or sixty?

2. Diversify your investments

We’ve been cautioned for a lifetime not to put “all of our eggs in one basket.” If we invest all that we have in an ingenious new technology…and it flops…we are doomed. Diversifying our investments is a practical strategy to not only earn more but to safeguard your investments against market shifts and economic downturns. Wine or art markets typically move independently of the stock market. Real estate investments outpace the effects of inflation. Spreading your wealth makes it possible to capitalize on the strengths of a range of investments.

3. Create generational wealth

Mission Hills real estate offers incredible potential for developing generational wealth. Consider how one of the following might complement your financial goals.

Real estate in greater San Diego has appreciated remarkably. Since 2018, residential properties have increased by 33%, with 21% of that growth taking place since 2021. Inventory remains far below the demand, continuing to accelerate the pace of sales and drive prices upward. If you had purchased a Hillcrest house in 2018 at $750,000, you would be able to sell it in 2023 for a price of $997,500. A profit of $247,500 far exceeds even the record-setting inflation rates we’ve experienced recently.

On the whole, real estate appreciation far outpaces the impact of inflation, which is only 2% in a healthy economy. If you do your research carefully and choose a home in an up-and-coming area, popular urban center, or travel destination, your earnings could be substantial over time.

Mission Hills real estate can be utilized in a number of ways to create generational wealth. The first and simplest method is to live in the home as your primary or even a vacation residence. As the owner, you’ll care for and protect your investment, and with the help of a skillful real estate professional, you’ll fare well in your home’s sale.

Your investment property can also become a source of income. Whether you rent the property out as a short-term vacation rental or permanent residence, every day your home is occupied, it is generating income for you, income that can both cover the expenses of the property and allow you to make more shrewd investments.

If you choose to add more properties to your portfolio, you’re growing a business that can involve the whole family and can be passed down to the next generation as a viable source of income. Get your children involved in the process of managing and caring for your rental properties right alongside you as they grow up. This will exponentially increase their willingness to pick up the family business, grow it, and keep it generating income for those who will follow.

Additionally, the 1031 investment strategy can prove lucrative if you have good working relationships or contacts with other renters. By “trading up” one property for one slightly better and then another slightly better than that, you’ve essentially taken half a million dollars and turned it into three-quarters of a million and then taken that three-quarters of a million and turned it into a million. By exchanging numerous properties over the course of a lifetime, you have virtually limitless opportunities to create generational wealth.

4. Making the most of the law

Paying taxes is an unavoidable part of life, but measures are in place within the framework of tax laws to provide concessions for investors. How you’ll be taxed for your investment property depends on a number of factors. Understanding and applying the full scope of tax laws to your situation will provide you with more money to pass on generational wealth.

  • Property taxes in California are estimated at 1.25% of the home’s value. Everyone pays these taxes.

  • Taxes for rental properties are levied against all income generated beyond fourteen days of rental per annum. However, you can reclaim some of that money by including maintenance costs and property management expenses as deductions.

  • Estate taxes come out of any estates valued at more than $12.92 million for individuals and $25.84 million for couples. They are paid after the owner has died at graduated tax rates for each dollar over these caps. Charitable donations and gifts to loved ones in amounts of up to $17,000 can help your hard-earned wealth go where you want it to go.

Every generation has a role to play

Developing generational wealth is a means by which our care and provision can outlive our lifetimes. Tragically, the statistics for this wealth handoff are not encouraging. An estimated 70% doesn’t make it past the second generation, and only 10% typically remains by the third. The key to defying these statistics is EDUCATION. Countless resources are available to teach children, teens, and adults about the principles of investment and stewardship, and by making financial literacy an integral part of your family’s culture, you’ll be setting them up for success.

If you would like to learn more about how to use Mission Hill real estate to create wealth for your family, get in touch with Emerson Group. They are experienced in a wide variety of property investment options and can help you reach your investment goals through real estate.
Recommended reading: How 1031 Exchanges Build Generational Wealth

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