10 Ways to Turn Your Six-Figure Salary Into Generational Wealth
You make good money. Earning six figures is impressive, but you want to do more than just buy nice things — you want to leave a legacy behind for your family.
More: How Big Is the Average Social Security Check of a Middle-Class Retiree?
Find Out: 3 Ways To Recession-Proof Your Retirement
This is a very thoughtful way to set your loved ones up for success for generations to come. Of course, building wealth that lasts for decades requires careful planning, hard work and sacrifice, but if you’re willing to commit, you can do it.
Ready to start turning your current salary into a better tomorrow for your loved ones? Here’s some advice to use your paycheck to create wealth that stays in your family for the foreseeable future.
1. Make Retirement Savings a Priority
It can be hard to put money from your paycheck aside for retirement, especially if it’s still decades away. However, if you want to build lasting wealth, it’s crucial to consistently contribute to retirement accounts like a 401(k) or an IRA.
“Over time, the power of compound interest and potential employer matching can significantly increase your retirement funds,” said Taylor Kovar, CFP and CEO at TheMoneyCouple.com and Kovar Wealth Management. “It’s important to start early and take advantage of tax-deferred growth.”
2. Diversity Your Assets
Where you put your money matters.
“A diversified portfolio spreads risk across various asset classes,” said Kovar. “This approach can help mitigate losses during market downturns.”
This doesn’t mean you should keep the same asset allocation forever.
“Regularly reviewing and rebalancing your portfolio ensures alignment with your risk tolerance and financial goals.”
3. Create a Comprehensive, Long-Term Financial Plan
If you don’t have a plan for your wealth, it probably won’t last too long. A financial services company called Empower offers a suite of free tools designed to help you take control of your finances.
For example, you can create a personalized dashboard that allows you to see your estimated monthly retirement income, track your net worth, perform a checkup on your investments and analyze your overall risk. This is crucial if you want to build generational wealth.
Your personalized dashboard also tracks all your accounts in one place, so you can easily manage your savings, spending and investing. Having a full picture of your finances on one screen can also make it easier to optimize your situation, ensuring you’re on track to meet your financial goals.
It also offers professional wealth management and various investment products.
If you’re serious about creating a long-term, comprehensive plan to build generational wealth, it takes just a few minutes to create a free dashboard and see how well you’re tracking toward your goals.
4. Invest in Real Estate
If you’re interested in passive income that can help build wealth for your family, Kovar said it’s worth considering the world of real estate.
“Real estate can be a lucrative investment, offering both rental income and potential appreciation,” he said. “It’s important to research and understand the market, location and type of property you’re investing in.”
Beyond collecting monthly rent, he said you can also reap other potential financial benefits.
“Real estate can also provide tax benefits through deductions like mortgage interest and property taxes.”
Next: What a Comfortable Retirement Will Cost You in Each State
5. Save For Family Members’ Education
In the 2021-22 academic year, the average cost of attendance for first-time, full-time undergraduate students living on campus at a four-year institution was $26,000 at public institutions, $32,900 at private for-profit institutions and $55,800 at private nonprofit institutions, according to the National Center for Education Statistics.
Not exactly pocket change.
Therefore, Kovar recommends putting money aside now to help assist with future educational expenses for your loved ones.
“Setting up education savings accounts like 529 plans can significantly ease the future financial burden of education for your children or grandchildren,” he said. “These plans offer tax advantages and can be a great way to invest in your family’s future.”
6. Make an Estate Plan
It’s not pleasant to think about, but you won’t be around forever. Therefore, you need to make arrangements for your estate.
“Proper estate planning ensures that your wealth is distributed according to your wishes and can help minimize taxes and legal complications for your heirs,” he said. “This includes creating wills, trusts and other legal documents to manage your assets after your passing.”
You may need to consult a variety of professionals for this process. This may include a lawyer, accountant, financial planner, life insurance advisor, banker and broker, according to the American Bar Association.
7. Focus on Tax Efficiency
Taxes can take a big chunk of your earnings. However, there are ways to reduce this burden.
“Implementing tax-efficient strategies can significantly impact the growth of your investments,” said Kovar. “This includes understanding the tax implications of various investment types and making decisions that minimize tax liabilities, such as investing in tax-advantaged accounts.”
If you’re not sure how to do this on your own, reach out to a professional. A financial advisor or a CPA can help you create a tax-efficient strategy that allows you to keep as much of your hard-earned money as possible.
8. Get Life Insurance
If you don’t already have life insurance, consider buying a policy.
“Life insurance is not just about providing for your dependents after your death — it can also be a strategic part of your wealth-building plan,” Kovar said. “Certain types of life insurance policies can accumulate cash value over time, which can be used as a financial resource.”
Of course, all policies are not created equal. Shop around to find the right one for your needs.
9. Avoid High-Interest Debt
Even with a comfortable salary, it can be easy to accumulate high-interest debt. However, it’s imperative to avoid this at all costs.
“High-interest debt can erode your ability to save and invest,” Kovar said. “Prioritizing debt repayment, especially on high-interest loans and credit cards, frees up more of your income for investing and wealth accumulation.”
10. Focus on Philanthropy
It’s important to give back when you have more than enough. Kovar said this can offer several benefits.
“Integrating charitable giving into your financial strategy can be fulfilling and tax-efficient,” he said. “Donating to charity can reduce your taxable income, and setting up charitable trusts or foundations can be a way to leave a lasting legacy.”
This can also set a great example for your children and grandchildren, teaching them about the importance of charitable giving.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: 10 Ways to Turn Your Six-Figure Salary Into Generational Wealth
