5 Steps to build generational wealth for your kids

Published on 21st May, 2020 at 05:10 pm

Find out how you can effectively create generational wealth that lasts, even when your wallet is feeling the squeeze of tough economic times.

Build generational wealth step #1: Have a life map (and adjust it accordingly)

One of the greatest stumbling blocks people make is not seeing the importance of emergency funds, or, if they do, not regularly contributing to them. “As a result, I often find that clients have to dip into their retirement and/or the provisions they’ve made for their children’s education,” shares Pinnacle BlueStar financial planner Jyoti Gopee-Mothie.

To avoid this in your own finances, look at your current situation and plot out a map of your financial goals. Ensure you provide adequately for as many of life’s what-ifs as you can, suggests Gopee-Mothie.

Read this to get an idea of what you should be considering, no matter what decade of life you’re in. “Clients tend to underestimate required provisions for unforeseen circumstances,” she shares. Review your financial planning solutions regularly to match your life map journey, she suggests.

Build generational wealth step #2: Open and top-up your retirement annuity

You may think a retirement annuity (RA) is an unusual option for building generational wealth, but, as Gopee-Mothie notes, it’s a smart tool to help you reach this goal. “It’s extremely cost-effective and tax-efficient for longer-term savings,” she shares.

Besides this, it has a competitive Effective Annual Cost (EAC). This means it’s affordable to own, operate and maintain compared to some other savings vehicles. Plus, being able to pay your own way during your retirement frees your children to build wealth without needing to pay for your upkeep, too.

Want to learn more about the perks of investing in an RA? Read this.

Use this calculator to find out how much you need to put away monthly to secure a retirement you can enjoy.

Build generational wealth step #3: Think tax-efficiency

An RA is tax-efficient in that your contributions are tax-deductible up to 27.5% of your annual taxable income. To add to this, the income and dividends on your RA aren’t taxed. Learn more about the useful tax savings you can enjoy with an RA, here.

Other tax-free savings are ideal for saving for education, says Gopee-Mothie. “The EAC becomes very attractive if you remain invested for at least 15 years,” she adds.

Build generational wealth step #4: Start small

It can feel like a big ask to put away money to secure your family’s future 10+ years from now, but even small amounts are better than nothing. “Sanlam has offers which allow for a minimum contribution of just R200 per month,” shares Gopee-Mothie.

Also consider looking at more traditional savings vehicles like unit trusts, which can have a minimum contribution of R500. A qualified financial planner can help you choose a unit trust that suits your pocket while helping you reach your savings goals for your kids. Book a meeting with one now.

With the power of compound interest, even a small amount monthly builds into a significant pot of money over time. When you’re saving for your children’s future, time is generally on your side – so even a little a month goes a long way.

Build generational wealth step #5: Consider your risk appetite

If you’re interested in giving your savings some market exposure, Gopee-Mothie lists some savvy options to consider. Look at EasyEquities, Satrix and 10X Investments, and before you make any decisions, learn more about what it takes to micro-invest the smart way, here.

Not sure how to navigate the markets yourself? Speak to your financial planner, who’s well placed to assist.

Our handy savings calculator is just the tool you need to calculate how much you need to put away, starting today, to build wealth for your family’s future generations.

Are you considering starting a family? These are smart considerations for your budget.

A qualified financial planner is well-equipped to answer all your questions and guide you when it comes to making decisions to secure your family’s wealth for years to come. Get in touch with one today.