Steal My Blueprint to Build Generational Wealth

Generational wealth AKA the family endowment

Ben Le Fort

Feb 04, 2022

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My kid just turned two, and he already has more money to his name than I did when I was 26.

My wife and I have been plowing money into his college fund since we brought him home from the hospital. The moment I found out I was going to be a dad, my goals with money became much more ambitious.

Becoming a parent means your wants and desires are now secondary. That includes financial goals. Rather than focusing exclusively on my own financial freedom, I began planning for how I would pass down financial freedom to my son.

In a word, the new big-ambitious lifelong goal was to build “generational wealth.”

The family endowment

Generational wealth is not a number.

Having $1 million or $10 million does not guarantee generational wealth.

I think of generational wealth as building an endowment for my family. The purpose of many endowments is to help fund the operational costs of that organization in perpetuity.

One of the most famous endowments is Harvard University's $41 billion endowment fund.

Here is how Harvard describes their endowment;

Each year, a portion of the endowment is paid out as an annual distribution to support the University’s budget, while any appreciation in excess of this annual distribution is retained in the endowment so it can grow and support future generations. As a result, the endowment can provide the financial foundation for the University for generations to come.

If you replace the word “University” with “family,” you have a perfect definition of generational wealth.

Unlike Harvard, I don’t have wealthy donors and alumni to help build my family endowment; I need to do it myself.

Here’s how I plan on doing that.

The three-step process to build a family endowment

Build a massive portfolio of human capital.
Reinvest the proceeds of my human capital into financial capital.
Transfer both human and financial capital to my kids.

In simple terms, invest, build wealth and pass it down. The key distinction is that “wealth” comes in both financial capital (assets) and human capital (Skills and knowledge.)

If I don’t pass down skills and knowledge to my kids, the financial wealth won’t last long.

It all starts with human capital

I don’t have any financial inheritance coming my way, which means I need to go out and acquire financial capital from scratch. Building financial capital boils down to two simple equations.

Money Invested= Income ─ Expenses (1)

Wealth= Money Invested X Time (2)

Building wealth is simple; you simply need to continue increasing your income, maintaining your living expenses, and investing the difference.

If you can do that for a number of years, you can reach Financial Independence.
If you can do that for a number of decades, you can increase build generational wealth.

Over the past 10-years, my wife and I have been expanding our portfolio of human capital.

It currently has three components;

My wife’s day job.
My day job.
Our side business.

The day job is for me. The business is for my kid

The income my wife and I earn from our day jobs have put us on track for Financial Independence, a point where we could pay for a modest lifestyle from our investments.

The income from the side business is what will provide the potential for accumulating enough financial capital to create our own family endowment.

Why?

Becuase every penny from the side business is either reinvested in the business or in the stock market.

We don’t touch it. We don’t plan on ever touching it.

I’m 33. I hope to live to 100. That means every penny I earn from the business today has up to 67 years to compound and grow.

The income we earn from our day jobs is enough to help us save for our kids’’ education and even help them with a down payment or start a business one day.

This illustrates the power of a diversified portfolio of human capital.

The day jobs cover more than pays for our basic needs and provide predictable income streams.
The side business is all about growth. Both in the income, the business generates and the investments that income fuels. However, the amount of money the business makes month-to-month is unpredictable. Not a problem since our day jobs fill in the gaps and provide that income predictability.

This diversified portfolio of human capital allows us to invest more each year into financial capital like stocks, bonds, and real estate.

Each year we invest more while at the same time the compound returns from our existing portfolio continue to grow. If we continue this process for a few decades, we will have our family endowment.

We need to pass down the skills and knowledge that made this possible

Building wealth is simple. I am not saying it’s easy, but it is simple. As we covered, it’s a matter of keeping living expenses flat, increasing income, and investing the difference.

The hard part about building wealth is sticking with that formula for a lifetime.

As a first-generational wealth builder, that lack of a “safety net” has put a fire under my butt and forced me to develop the knowledge and skills necessary to see this plan, though.

But as I started at the start of this article, my son already has more money to his name at 2 years old than I did 8 years ago. He may not have the same fire under his butt because he won’t be in the same “sink or swim” situation when it comes to money.

So, the real hard work my wife and I have is to instill the financial discipline required to handle an inheritance so that he not only maintains it but adds to it himself and keeps the cycle going with his kids.

That passing down of skills, knowledge, and discipline is the real challenge for first-generational wealth-builders, and I look forward to figuring it out.

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