How Education Can Help Us Build Generational Wealth (Part I)
Most of us never took a class on “Managing Finances” in the process of getting our degree or diploma. Generally speaking, money wasn’t taught in our schools, communities, or places of worship, yet we somehow end up having to use it each and every day of our lives. In fact we are all, to some extent, heavily influenced by the financial habits we observed at home and the ways in which our family members historically interacted with money. The problem with this pattern however, is that it’s very unlikely to result in generational wealth without the power of some outside influence. And that is why financial education is extremely critical not only to our community development but to our individual financial future as well.
Learning about Cash Flow
Does the amount of cash you have coming in sufficiently cover the amount of cash that’s going out? Is your income enough to pay all of your expenses while still being able to save and invest for the future? And does your monthly budget reflect your most important financial goals? All of these questions are related to the principle of cash flow which is universally important to any household, business entity, or organization. The best way to illustrate this by thinking about our your money as a house and your ability to manage cash flow as the foundation to that house. Accordingly, the best way to find and fix any leaks in your financial foundation is to consistently review and maintain a solid budget. Start by identifying all of your monthly expenses and determining whether they are fixed or discretionary. Then from there you should be able to start grouping them into a major categories such as the ones listed in this budget worksheet from morningstar.com. Learning about these and other cash flow tools will ultimately provide you with the best possible information to make healthy decisions in your finances.
Understanding How Credit Works
Is your credit considered good, poor or excellent? Have you reviewed your credit report at least once in that last six months to ensure its accuracy? And is your credit-mix more heavily weighted by your installment debts or your revolving debts? The answers to all of these questions requires having a firm understanding of credit and how to build up a solid history of interacting with debt. Furthermore, learning how credit works can benefit us by providing numerous opportunities beyond just our personal finances, such as entrepreneurship and real estate. The best way to understand how credit works is by working on improving your own. Regardless of whether we’re considered to have good or bad credit, each of us should be reviewing our credit history regularly and carefully to understand exactly how it impacts our overall credit score. According to federal law you are each entitled to one free copy of our credit report per year from each of the major credit bureaus (Equifax, Experian, and Transunion). So start by going to annualcreditreport.com to find out exactly how to access your information without incurring any costs.
Learning The Benefits Of Insurance
In the event of unforeseen hardship (i.e. loss of health or life) how would your household finances be impacted? Would there still be enough income available to cover all your necessary costs of living? And would you still be able to invest for all of your family’s future financial goals such as retirement, higher education, or homeownership? Most people are at least somewhat familiar with the concept of having an insurance policy in place for these very reasons. However, few are actually aware that insurance is also a major tool used in passing on generational wealth to our beneficiaries. The primary reason for this advantage is because life insurance proceeds are generally received as a tax-free benefit on behalf of the recipient. This makes it extremely useful for those who’ve built up considerable amounts of wealth but do not want to hand any of it over to the IRS or local taxing authorities. Always start by identifying exactly how much life insurance your family actually needs vs. what you can afford. From there you should be able to determine if investing additional funds into a policy makes the most financial sense for you or not.
These are just a few of the ways that educating yourself financially can pay off. And although these areas may not be especially easy for everyone to understand, they are extremely important to building generational wealth. Without making a sound investment in our financial education our families, businesses and communities may never realize the full potential they are capable of experiencing.
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