How to build a lasting financial legacy

Published on 4th September, 2024 at 02:52 pm

Everyone wants to leave behind wealth for their children and loved ones, but it can feel overwhelming when you don’t know where to start. We explore building and maintaining generational wealth with insights from Jaco van Schalkwyk, CFP® Professional at Plan-B BlueStar.

Reading time: 5 minutes

In this article, you’ll learn:

• How generational wealth is created.
• The foundational steps to begin your financial legacy.
• Why starting early is critical.

Understanding generational wealth

Generational wealth refers to financial assets passed down through generations, including money, property and investments. It provides future opportunities for education, homeownership and business endeavours. Yet, barriers like economic inequality and lack of financial literacy can make achieving it challenging.

Understanding these obstacles is crucial for ensuring your family’s financial security. Estimates suggest that up to 70% of wealthy families risk losing wealth by the second generation due to poor asset management. Thus, maintaining generational wealth requires knowledge, values and skills.

Lay the foundation for a legacy that lasts in 3 steps

1. Financial literacy: Educating yourself and your family about financial principles is essential. This leads to informed decisions and goal setting. Read books, attend workshops or take online courses to enhance your understanding. Share insights with your family to foster a culture of financial responsibility.

2. Smart saving strategies: Understand your financial outlook. Start by assessing if you can free up money to save. “You first need to determine if you are earning more than you spend or the opposite,” Van Schalkwyk explains. “A good financial adviser can assist you with this step.” Adjust your spending to improve cash flow, then build an emergency fund to protect against unexpected expenses. Aim to save three to six months’ worth of living expenses. Automate savings to ensure consistency. Once your emergency fund is established, consider your investment goals.

3. Effective debt management: Recognise the difference between good debt, like home loans, and bad debt, like high-interest credit cards. “It is of little use investing if you have debt at high interest rates,” says Van Schalkwyk, emphasising the importance of taking action. “A simple plan well executed is better than a complicated plan not acted upon. Actions bring results.” Smart debt management also involves living within your means. “Buying a property well within your budget allows cash flow so that you can continue investing,” he says. “You will be better able to handle increases in home loan instalments, should interest rates rise.”

Small amounts make a big difference over time

Van Schalkwyk urges starting early with investments: “You will be rewarded for starting early. Most people never build wealth because they expect quick results.”

Reaching your investment goals depends on three factors:

1. Investment amount: How much of your income can you invest?
2. Investment return: Work with a financial adviser to optimise your investments.
3. Investment duration: Consistent saving builds wealth over time.

Van Schalkwyk illustrates: “If you save R1 000 monthly and earn 10% annually, you’ll have R12 641 in one year. After five years, R77 172. After 15 years, R401 621. After 25 years, R1 243 160. Initial results seem small, but they become significant over time.”

Creating generational wealth requires dedication, informed decisions and proactive strategies. By focusing on financial education, smart saving, debt management and strategic investments, you can build a robust financial foundation for your family. Have a will written up so that all your investments and wealth is left to your loved ones and nothing can go legally awry. Start sooner rather than later, and consult a financial adviser to optimise your efforts. In doing so, you’ll ensure a secure and prosperous future for your family for generations to come.