How Millennials Can Prepare For The Wealth Transfer of a Lifetime
The biggest wealth transfer in history is coming.
What does that mean for you?
Let’s take a look.
What is the wealth transfer?
For decades, a majority of the wealth in America has belonged to the older generations. Currently, baby boomers are the wealthiest age group in America with an average net worth of $1.2 million. However over the next 25 years, baby boomers will pass to their children an unbelievable $68,000,000,000,000 — the largest generational wealth transfer ever.
This $68 trillion will consist of assets such as property, stocks, bonds, and more. The millennial generation is expected to receive a majority of the benefits from this historical event. Compared to the average 7-figure net worth of baby boomers, the average net worth of a millennial is $100,800.
Here’s what you can do to prepare for this upcoming transfer of wealth.
Understand your monthly cash flow
If you don’t have an understanding of how your money works now, having more of it won’t solve anything.
If you can’t manage $1,000 you can’t manage $10,000.
You don’t suddenly learn how to handle money by amassing more of it. This is why a lot of lottery winners lose it all.
Your monthly cash flow is simply the money coming in (income) and the money going out (expenses).
Looking at your monthly cash flow may be a pleasant surprise, or a much needed wake up call.
The reason that having an understanding for your cash flow is important is so you can be as efficient as possible with your potential newfound wealth.
If you know exactly how much money is being spent in certain areas and how much money you currently bring in every month, it will be much easier to receive an inheritance and know what to do with it.
Know your values
If receive a large amount of money from the Wealth Transfer, it can be easy to spend it on a new home, a new car, or unlimited vacations.
But why do you think 70% of lottery winners end up broke?
Without taking the time to think about how that money can be used efficiently and purposefully, it can disappear quick.
Take some time to think about the life you truly want to live.
What would need to change in your life to bring the most happiness possible?
For me, a goal I have is to live a partial digital nomad life. I would like to have the option to work from wherever I want in the world because traveling is something I enjoy.
By knowing this, if I were to receive an inheritance from the wealth transfer I wouldn’t blow $800,000 on a new home because ideally I’m not spending too much time in it.
I would prioritize travel expenses and maybe buying certain tech tools or gadgets to make my digital nomad life as convenient and efficient as possible.
When you take the time to think about what you value and the life you want to live, saying no to things becomes easier and saying yes to things also becomes easier because you know exactly where you want to go. You have the clarity to make decisions that’ll bring you happiness.
Increase your financial literacy
When you inherit a lot of money, there’s a whole new language to be learned.
The language of money.
You don’t need to be an expert, but you need to be aware of what’s happening and what’s going on with your money to avoid being taken advantage of.
Just a fair warning — there will be many companies and individuals that will try and take advantage of the millennial generation by selling us financial products we don’t need and services that aren’t helpful because they know a majority of us don’t know the ins and outs of handling wealth.
What can you do to increase your financial literacy?
There’s no one size fits all answer, but there are many free classes on the internet where you can begin to learn the basics of the language of money.
Another way is to read books from well-known personal finance experts.
A couple that I would recommend are:
- I Will Teach You To Be Rich by Ramit Sethi
- Rich Dad, Poor Dad by Robert Kiyosaki
- The Millionaire Next Door by Thomas Stanley
Consider working with a tax professional
With inheritances come a lot of potential tax liabilities.
If you aren’t careful with how the inheritance is received and used, taxes can begin to eat up a lot of the money you thought you had.
I won’t dive too deep into taxes, but here are a few different assets that all have different tax consequences:
- Cash and Securities
- Retirement Accounts
- Real Estate
- Art and Collectibles
- Life Insurance and Annuities
The reason that working with a tax professional is important is because the small cost you pay for their service will pay for itself many times over through the money they’ll help you save on taxes.
Granted, not all tax professionals are equal so be sure to do due diligence before trusting someone with your inheritance.
Update beneficiaries
This is something that’s important for millennials to do on their own retirement accounts however regarding the wealth transfer, the baby boomers also need to have the correct beneficiaries listed on their accounts.
For example, if someone got divorced and remarried but never updated the beneficiaries on their retirement accounts - all of those assets will go to the ex-spouse, regardless of what their will says.
Definition: “A beneficiary is the person you name to receive your assets after you pass away. Your beneficiary doesn’t have any rights to your brokerage account during your lifetime. That means that you don’t have to clear any transactions you make with your beneficiary, and you can also typically change who your beneficiary is any time you want.”
Unfortunately, this is something that happens all the time and something you may not think about until you’re already in the situation and it’s too late to do anything.
The Bottom Line
Millennials will soon be one of the richest generations in America.
After drowning in student loans, working with stagnant wages, and trying to buy a home in the inflating housing market, there’s a small light at the end of the tunnel coming.
Now, not every millennial is going to become rich with this wealth transfer but there’s a good chance that you’ll receive some sort of financial benefit.
I also would recommend to not rely on an inheritance from the wealth transfer because this can create bad money habits if you’re expecting a large amount of money and it never comes.
With proper planning and awareness of your situation, you can make the most of any increase in income whether it’s from the wealth transfer, a new career, or a promotion.
What’s the first thing you would do with an inheritance?
Get my FREE 5-day Financial Foundations email course delivered straight to your inbox
This post is for educational purposes only and should not be considered financial advice.
