Building generational wealth with good credit management
Everyone grows up with different ideas about how money works. Your upbringing may have been about saving every penny, or maybe you were brought up to believe that you must start working right away to earn money. Maybe your family was unable to save much because they were doing their best to pay the bills and survive.
The way we view money can change over time, over generations. The same goes for building generational wealth, which is the idea that your/your family’s financial assets can be shared and distributed to future children and family members.
Generational wealth can be both about the assets passed on to future generations but also reducing any burden on future generations by being financially sound yourself.
In this article, we’ll discuss:
- Personal financial planning and budgeting wisely
- How to leverage your credit
- Paying off your debt
- Finding ways to save money
Personal financial planning and budgeting wisely
Unless you have a personal financial advisor or study finance, it’s rare to receive an education in financial planning. It wasn’t always a required class to take in school or a common topic to talk about, and many people have no idea where to start when it comes to understanding their finances. Many have to learn as they go.
Each person starts out differently. Whether you grew up with money being a surplus in your family or not, understanding how to plan for your specific needs takes time, patience, and strategy.
Take it from NFL wide receiver DeAndre Hopkins, who first learned about generational wealth through his mom. In a podcast episode of Credit Talk with Victor Cruz, Hopkins reflects on why his mom worked so hard while growing up: “As I got older, she explained to me the reason that she's working so much and why she's doing it is for us. It's for her kids not to have to worry about the things that she had to worry about. She was buying cars and things like that. You know, she would always tell us this car is going to be yours one day...”
As he got older and acquired more wealth, Hopkins learned about the value of putting your trust in the right people to assist you with finances. Having more funds doesn’t necessarily mean you can build generational wealth — it's what you do with that money that can set you up for a successful future.
Whether you’re working with investors, advisors or colleagues, remember to trust yourself and weigh your options carefully. You might make mistakes along the way, and that’s okay! For example, Hopkins learned from some of the mistakes he made when making bad investments — these are learning opportunities to better prepare, budget and plan accordingly. By empowering himself with knowledge and trusted colleagues, he was able to course-correct and have a better sense of his wealth management.
As you can see, wealth isn’t just about money — it comes down to assets like cars and mortgages too. Having your name next to an asset like that can help build wealth, whether a car was passed down to you or you saved up enough money to purchase it yourself. Whatever purchases you make, your credit can have a major impact on your buying power. Let’s dive into this into more detail below.
How to leverage your credit
Credit can help or hurt you depending on how you use it. If you’re an authorized user on a card, you can start to build credit before you begin using one in your own name. For example, if your mom, dad or loved one adds you as an authorized user to their credit card, you can start to build a credit history by using that card and making your payments on time. By adding you as an authorized user, the history of that account will now report on your credit report until you are removed.
Building your credit score can mean starting small — with a loan or a card, you can start to make payments to build your payment history and improve your credit score, which in turn can help grant you opportunities for accessing higher credit limits. A better credit score can give you access to larger loans like mortgages, faster approvals if you have an emergency, better rates on loans and more.
There are resources to help you, too. With free online tools like Chase Credit Journey®, you can access your free credit score and credit report powered by Experian™. You’ll also get free educational resources about what your credit score means and ways to improve it.
With good credit, you can leverage your credit score to build your wealth over time. For example, you could take out a mortgage to buy a house once you’re in good financial standing. Paying off your mortgage consistently and on time is a way to leverage credit wisely. Over time, you pay off your principal and you own more equity in those assets.
Paying off your debt
Whether you grew up knowing how to balance checkbooks or came across obstacles due to debt later in life, you probably know just how important it is to pay off debts. Having outstanding balances that accrue interest can hurt your credit and make it even harder to pay off your debts.
It may feel daunting at first, but start by making monthly payments — at least the minimum amount — to begin paying your debt over time. This shows lenders you have the ability to pay back your debts, and may prove beneficial if you need additional loans or credit cards in the future.
You may also use the following strategies:
- Pay off the highest interest debt first (like credit cards)
- Pay off the smallest balances first to gain momentum
Be patient — if you have a lot of debt, it will take time, but it’s not impossible. You will see the fruits of your labor if you do your best to stay consistent. By paying off your debt, you can unlock opportunities to build wealth by increasing your credit score. An improved credit score may lead to a higher credit limit, and therefore, more purchasing power.
Other ways to build generational wealth
Some might view wealth as how much money you make — but it’s not just about your income. What you do with your money helps build generational wealth. It can be tempting to splurge and spend money you’ve recently earned, but if you want to build generational wealth, it’s wise to put it to work for you. You might save a percentage of your earnings to put towards a savings account or invest it towards long term goals, like a 401(k) or an individual retirement account (IRA) for retirement. Using your Chase Mobile® app, you can access resources to help you with your investments with tools like J.P. Morgan Wealth Plan™.
Saving money helps put you set up your loved ones for a healthier financial outlook in the future. In the event you face an emergency or job loss, you'll be much more prepared. A common rule of thumb is to have 3–6 months of expenses in emergency savings.
The amount you put away either in savings or in investments doesn't have to stay the same over time. You could start small and slowly increase the amount you save or put a chunk of funds away to put towards a purchase later on. It may not feel like much at first, but staying consistent may pay off greatly in the years to come.
In summary
The actions you take today to build good credit can have a major impact for future generations. Whether you’re starting out small or recently received a salary boost, taking smart, strategic steps towards securing your finances can make a difference for you and your future family members. To learn more about how you can build generational wealth, check out this Credit Talk podcast episode.
