How to Build Generational Wealth

What my parents taught me about being cheap to help build wealth

I love peanut butter and jelly sandwiches. Like, I have an obsession with them. They have are many benefits: easy to make, taste great, and universally enjoyed (sorry peanut-allergic readers.) Another great benefit: they’re cheap.

As a kid, I used to bring PB&Js to school every day for lunch. I’m the youngest of four so for my parents it was simple, cheap, and kept us fed. And when I say every day, I truly mean it. I wouldn’t bring anything else to school. It wasn’t until some point in high school I changed things up…and started bringing two PB&Js to school every day. To this day, I still make PB&Js for myself all the time.

There’s a message behind my obsession. The sandwiches got the job done and did so cost-efficiently.

Building Wealth

It’s no secret that the easiest way to have a lot of money is to get a job with a high-paying salary. But just having a high-paying salary is not enough.

Don’t get me wrong, a high salary helps in reaching financial freedom and is a great goal to have. Without money coming in, you will never get ahead. But once you have the money, what you do with it is extremely important.

Wage growth has not kept up with inflation. Many people now work multiple jobs to make ends meet or to try and get ahead. This can mean taking a second job on the weekends at your local grocery store, driving after you get off work for DoorDash, or trying to make money through content creating. There are a lot of options.

A second job, or a hobby that makes money, is worth considering. Not only does it increase your income, but it also decreases your spending. Some of the time you would have free and likely spend money to entertain yourself will be spent making more money. The more money you have coming in and the less going out, the better off you will be.

Living Simple

Living a simple life is not for everyone. I’m not saying to live out of a van eating only ramen. That’s not the way life should be lived (unless you like that lifestyle.) I’m referring to saving as much as possible while living your current lifestyle.

For example, due to the pandemic, I have severely cut back on how much money I spend on alcohol, whether that be at home or out at a bar. There is no need for me to spend as much as I used to. This doesn’t mean I celebrate not spending on alcohol by eating out more; the contrary actually. I noticed if I could cut spending in one facet of my life, why not apply it everywhere. So I’ve cut back on how many times I eat out too.

Spending less is the ultimate goal so that money can be used to invest and grow even more. There's no benefit to spending less on one area of your life just to spend it elsewhere.

Financial Literacy

So now you have all this money coming in and you’ve reduced your spending, what’s next?

Financial literacy is, to me, the most important element of building wealth. You need to know what to do with your money to have it work for you. You work hard, so should your money. There are countless ways to invest.

The one important piece of information I tell people: your savings account loses you money. To clarify, you do not lose money by putting it in your savings. It just grows so slow — slower than the rate of inflation. If inflation is 2% a year, and your savings account gives you 0.5% interest, your money can purchase less at the end of the year because the inflation rate was greater than the interest rate you received.

If you want to build generational wealth, you will need to take some risk with your money and invest it, however you see fit.

One step beyond investing is knowing the rules related to taxation. If people knew the benefits of a Roth IRA or 401K, for example, they would be more common. These are vehicles that can save you tens of thousands of dollars. And there are so many more tax rules or financial knowledge that can help people build wealth.

Final Takeaway

It doesn’t matter how much you make. It matters how much you spend.

Read that again.

I know it seems that all of our problems would be solved if our salary was doubled. But the biggest way to increase your wealth is to reduce your spending. Eliminate things you don’t need. And keep your spending consistent every month. It doesn’t matter if your portfolio is up 30% this month or your grandma gave you $100 for your birthday. Don’t spend more just because you now have more.

I still continue this bringing lunch trend. Somewhat (not so) recently, I visited two separate friends upstate. Know I would be away from home most of the day, I packed myself a PB&J to eat. I even watched two of my friends order and eat food. I could have bought my own food, and they both insisted I take some of theirs, but it’s about more than just the $10 the food would have cost me. It’s about the lifestyle I’m trying to live to build for my future.

Just for fun, here are some other “cheap” habits from my parents:

• Using those old paper bags you use to get from grocery stores as textbook covers. They were free and allowed you to be creative and draw/write on them compared to spending money on fancy book covers schools.
• Bringing food to the beach. This could apply anywhere really. Instead of buying overpaid ice-cream, some home-packed snacks worked just as well.
• Walking to the local grocery store in the summer. This saved money on gas, gave us something to do, and gave us exercise. An all-around win-win if only a few things were needed.
• Unplug most electronics that weren’t being used, especially large ones. This meant unplugging the Xbox 360, or even phone chargers, when not being used. I don’t know how much electricity and money this saved, but it’s the idea and lifestyle approach that matters to me.

For more on why investing is necessary to reach financial freedom, check out some of these articles