One of the pillars of God’s Master Plan for our finances is for us to build a financial inheritance that will continue to work for His good long after we are gone. It’s an idea that sounds great in theory. But most people don’t spend much time thinking about how to build an inheritance or grow their estate. So what’s the best way to do it?
One brick at a time. A great inheritance takes a lifetime to build. But the secret is that it builds up while we’re not looking.
A great financial life (which leads to a great inheritance) rarely comes from one big windfall, a huge investment score or a job with an enormous salary. Instead, solid financial lives come from making wise decisions with small amounts of money, and then doing it over, over and over again. If we use financial wisdom throughout our lives, then we end up building a great inheritance at the same time that we are managing money for our own lives.
What this means is that building an inheritance isn’t all that complicated, and it shouldn’t be intimidating. It’s really just a culmination of things that we should already be doing. So here’s an overview of some of the building blocks of a good inheritance. Many of these things are just financial basics, but let’s look at them from the perspective of building wealth to pass on to the next generation.
You wouldn’t try to construct a tower without a blueprint, or try to build a road without a map. The same is true of finances — budgets are the plans that we build for our money that help us know what to do with it. Budgeting helps us to keep our finances in order for the present, but the discipline of budgeting also pays dividends for the future.
Budgeting helps us to maximize the funds that we have available for things like saving and investing. If you put wealth building into your budget and stick with it, the practice will become part of your monthly financial habits. Without the discipline of a budget, though, many people have trouble saving money on a regular basis.
You can’t build an inheritance without saving money, but that doesn’t mean that you need to be stashing away money with the sole purpose of giving it to your kids later. Rather, wise saving throughout life helps us to build a solid financial portfolio.
We save for a number of reasons, all of which will pay off in the long run. Emergency savings is crucial: Having a great emergency fund will protect you from the financial challenges that come up in life, and will help guard you against debt and other things that will suck the life out of your inheritance. Similarly, saving money for things like houses, cars and other big purchases keeps us away from debt and helps to maximize the amount of money that we’ll have for giving and wealth building later.
Wise investing is the most effective wealth-building tool in our financial toolbox. Most people invest their money with retirement in mind; if done right, though, wise investment will leave a great big chunk of wealth to pass on when we die.
There are lots of great ways to invest money (and we’ll deal with them in future articles). But the basic strategy to keep in mind is this: You want to invest enough money earlier in life that you can live off the earnings from those investments once you retire. That way, you never have to dip into the large principle that you have accumulated over the years, and that principle will pass on to your heirs once you’re gone.
4) Home equity
For most of us, our homes will be the most valuable things that we ever own. When we die, those homes pass on to our heirs, and the equity in those homes can provide a sizable amount of money. In order to make sure that this happens though, we need to guard the value of our homes (especially later in life). That means staying on top of maintenance and upkeep, as well as avoiding exploitative financial products (such as reverse mortgages or home equity loans) that can sap away the equity in our homes.
5) Great insurance
The best of financial plans can’t protect us from some of the scariest prospects of life — the natural disasters, medical emergencies or long-term care that could cost us hundreds of thousands of dollars. But insurance does protect our finances in those situations. Car insurance, health insurance and homeowners insurance protect us for the here and now. Good life insurance will protect our estates in the event that we die unexpectedly. And long-term care insurance is critical for older adults — it keeps the costs of end-of-life care from draining the wealth that someone has worked a lifetime to build.
Those are the key financial foundations upon which we build an inheritance. Next time, we’ll look at the spiritual elements that are just as important.
Photo by lobo235. Used under Creative Commons License.