What is the value of a legacy?

Leaving a legacy for the next generation is perhaps the most important role the head of the family can play. Find out why it is so important to leave a financial legacy and how to achieve it.

For those who are parents, grandparents, creating a lasting legacy is both the greatest ambition and the greatest challenge. Yet it is also the most sustainable way to support the next generation and beyond and influence the future. 

From a business point of view, legacy building can take the form of working to ensure the long-term viability of the organisation and make it stronger, more productive and more valuable. 

On a personal level, a legacy is about preparing a better future for your children, grandchildren and great-grandchildren. It is about the simple goal of enabling the next generation to have a better life. It is not about handing over the younger generations the indulgence in a carefree life. It is about ensuring that they dedicate their lives to what is most important to them, without the constraint of ponderous financial concerns. 

A financial legacy, the building of generational wealth, can be materialised in different ways. 

What is a financial legacy? 

By definition, a financial legacy comprises the assets (money, shares, real estate, etc.) that are passed on in a family from one generation to the next. A financial legacy creates an advantage for those who inherit it. However, that advantage tends to diminish from generation to generation as family members deplete wealth without replacing it.

 Statistics show that after the second generation, 70% of wealth is depleted, and after the third generation, that figure increases to 90%. This statistic teaches us that one should pass on not only assets, but also the knowledge and habits that preserve wealth from generation to generation. Discover how to build a lasting financial legacy.

How to create a financial legacy 

A lasting financial legacy is not only made of a substantial inheritance. It is necessary to leave an estate capable of generating wealth and pass on knowledge of how to cultivate healthy financial habits.

A legacy of financial assets 

To pass on a legacy to future generations, it is important to define what a financial asset is. Financial assets are assets with the potential to generate wealth, such as money that earns interest in a savings account; real estate that generates rent; shares that generate income via dividends or appreciate in value, or investments in companies. In short, any asset with a multiplier effect.

This formula not only creates financial freedom in this life, it allows you to pass it on to future generations.

A legacy of knowledge 

Knowledge is the secret to achieving a high level of wealth. The same is true when building a legacy. It is not enough to have, one must know - and pass on that knowledge. 

After a lifetime dedicated to a particular profession, there may be gaps in your financial knowledge. It is important to strengthen this know-how and pass it on to your children, to know what different investment vehicles such as shares or bonds consist of, the potential returns and the risks involved. And what to take into account when building investment portfolios. And the opportunities and dangers of investing in times of economic boom and bust.

At Banco Carregosa, we are committed to increasing the financial literacy of our clients. In our Academy, you will find updated, relevant and practical information that you can use to increase your skills in this area and then pass them on to the next generation. 

Find out how to talk to your children about wealth management.

A legacy of healthy financial habits 

We are the sum of our habits. Good financial habits create wealth, bad financial habits destroy it. And children are like sponges, they absorb everything their parents do, including their financial habits.

The first step to creating a legacy is to teach—and practise—healthy financial habits: eliminate impulse buys, look after assets, avoid selling short, and reduce your leverage ratio. This is the only way younger generations will appreciate the efforts of their parents and grandparents who have worked and sacrificed to give them many of the advantages they now enjoy.  

Everyone should be thinking about creating a legacy

Anyone can build generational wealth if they have these three objectives in mind: to create a financial legacy, a legacy of knowledge, and a legacy of sound habits. The only requirement to build a legacy is to live a life aiming to achieve those objectives.

It requires long-term financial discipline and a concrete plan for your money. But it is definitely a goal you can achieve with the right actions and mindset. Especially in these challenging times, it is crucial to maintain a positive mindset and recognise the financial thoughts that help and those that hurt.  Find out how we can help you achieve this goal. 

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