Hello everybody, it's Sam and Sydney and in this episode we want to talk about Generational wealth and why there's so much angst of the not rich enough class But before we do, please don't forget to sign up for our weekly newsletter at financial samurai.com Forward-slash news and if you enjoy this ad free podcast We'd really appreciate a positive 5-star review as well as picking up a copy of by this not that at financial samurai.com By this not that So the other week some parents had asked me whether I had read a column in The Washington Post Entitled the 400k conundrum and in the post it talked about how households making 400k and above were struggling to make ends meet They didn't feel rich Even though they had a top 2% income now if this sounds familiar Well, I've been writing about this subject since I started financial samurai in 2009 Talking about earning two hundred thousand dollars not having much left over Making three hundred thousand dollars and living a middle-class lifestyle and even making five hundred thousand dollars and kind of scraping by that Was actually one of my most popular posts out of all time because there was a lot of pissed off people who read and said how can you make five hundred thousand dollars and Just scrape by and never be able to escape the rat race Well, I proved in each one of these posts with a budget a very detailed realistic a budget about How quickly money can go as a result?

I think there is a lot of ongoing angst and anxiety From some of these high-income earning households that seem to have at all great jobs upward mobility everything However, based on my years of research, I think the three main reasons why there's so much angst and anxiety are the following one never-ending comparison to a lack of generational wealth and three having children so before we had children, I Didn't feel that much angst and anxiety while I was making six figures a year working in investment banking Did you feel that I had any anxiety or did you have any angst and anxiety before we had children?

No, I think a lot of it all it pretty much started once the kids came Right, and so that's the thing When I wrote scraping by on five hundred thousand dollars a year, this was two years before we had children But I wanted to empathize with households who just couldn't get off the rat race I mean after all I had left a multiple six-figure job behind several years earlier And I was thinking myself.

Well if I could do it, why can't you too? But the real difference between then is that back then I didn't have children And now we do so now I clearly understand why there is so much ongoing Anxiety with these high-income earning households and you find many of them many of them in some of our larger cities like New York City San Francisco, Los Angeles Where Seattle I think everywhere like for example if you get a job in tech You're starting comp is around 150 to 200 thousand dollars as a 22 23 year old and it's the same thing with finance and management consulting So and then and then if you couple Couple up then that's double the income, right?

So I feel this anxiety comes from having kids and Worrying worrying that our kids will not have it as good as us because ironically the more you make the higher your income the harder it is for our kids to match that income and Potentially our lifestyle. So Cindy, I'm curious to hear your thoughts on Whether you have anxiety about our children's future and in terms of them making money and living a comfortable lifestyle Yes, if I start thinking about them having to apply to college and interviewing and finding a job I get stressed out quickly But then I have to remind myself, you know, they're not they're not at that age yet You know, we're trying to get through elementary school.

So we still have a long runway but I think a lot of parents can easily start to worry especially as their kids get into the teenage years and College becomes closer and closer You know, not just the cost but actually getting in it is so competitive you know, you hear all these stories on social media about such and such student who had Straight a's did all these extracurricular activities, you know They had this amazing looking resume and then they didn't get into any good schools It's I think it causes a lot of anxiety for parents.

What do you think? I think so as well as you know I've been obsessed with Colleges and college rankings and getting into college since you've known me. Yeah, the College of William & Mary. I just find it to be fascinating Because I got rejected at too many places and it didn't feel good, but things turned out.

All right in the end I think things turned out better than expected and to me it feels like where you went to school Matters only for your first job and then after that it's about what you do How you communicate how friendly sociable you are and the network that you build the problem with college and Sending our kid to school is that we are injected back into society And so we meet a lot of parents and this is the comparison point, you know who are doing a lot They're sending their kids to four different sports sporting activities They're sending their three to four year old to go skiing when I'm like thinking really Why three to four years old it's kind of painful skiing and it's so expensive the tickets here up in Palisades Tahoe is $199 a day now, obviously you want to get the season pass but $199 a day is Crazy expensive and I don't know who can afford that comfortably And so when you hear about other parents spending so much and doing all these activities and flying everywhere You start naturally feeling some FOMO.

I mean, do you feel any kind of FOMO? For me oddly not so much maybe later, you know when our kids are older. I don't feel like I'm Missing out from sports activities. We tried soccer for example with our son and he wasn't into it and I was okay with not Going for it or not signing him up for basketball.

I think we're just focusing on our our kids interests and I Don't have that kind of anxiety with missing out on activities though. But what do you think? I Mean, I always question whenever a parent says, oh we took up our son skiing and he's four years old And I'm thinking I said, oh we haven't taken them up at all I guess it's because for me I didn't learn how to ski until the first time I tried it.

I was in middle school Yeah, so and then I didn't learn how to snowboard until I was an adult in college So for me, I don't feel like we need to teach a five-year-old Snowboard. Yeah, especially if they're not interested. Yeah, and we're not big snowboarders either It just depends on I guess the family's interest.

Yeah. Yeah, I mean It is interesting though because you don't really know how well you're doing, you know, whether it's making money in your career Or being a parent unless you compare yourself to other people And that's one of the reasons why a lot of the posts that I've written on, you know Like the average net worth for the above average person, you know How much did you have accumulated by age 401k savings by age five to nine plan amounts by age?

these posts and Charts in my book by this not that help people Gauge where they should be or where they could be if they did everything appropriately and that's very important because I continuously tell people you shouldn't wing it when it comes to your finances because You'll wake up like ten years later and wonder where all your money went because you winged it and that's that's not the wise move so as parents I think we have this constant fear that if we don't do everything possible and If we just wing it by raising our children and just having them do whatever they want They're gonna miss out on opportunities or we might not be able to discover You know the hidden Mozart or that amazing composer or that artist we don't try everything Yeah, maybe so for those of you who don't have kids you might be rolling your eyes or thinking what the hell are we talking?

About well, it's hard to know what you don't know and I'll tell you straight up before having children My anxiety and stress was focused on climbing the corporate ladder Saving and investing as much money as possible so I could get the hell out of investment banking by the age of 40 that was where my stress anxiety lay and Also difficult clients who were super demanding at all hours of the night.

It was just no fun But beyond that now it's not about me It's not about you and it's about our children who are Essentially helpless and starting from zero and trying to understand the world and they're gonna go through some growing pains some painful moments and we just have to be there and If you look at the landscape, ooh the competitive landscape of every single thing we're doing getting into college Getting a job Let's say starting a personal finance site Writing a book.

Oh my gosh, the competition is Intense. Yes, and then when I look at the resumes of these high school students Congratulations to all parents and students who got into their colleges and if you didn't get into your dream college recently Well, it's okay things will work out fine If you learn practical knowledge and you network and you become a good person I'm saying like there's so much competition out there that if you don't have this intense focus.

I Don't think people are going to get to where they want to go. What are your thoughts? Yeah, I feel like the landscape has changed so much even in just ten years You look at the acceptance rates for some schools like Tulane Tulane 20 years ago acceptance rate was like, I don't know.

I was like 30 40 percent I think now the acceptance rate is 10% Huge change the same thing with schools like Boston University I remember that was like a safety school where a lot of rich families went, you know, who didn't get into Harvard and MIT It's Boston College.

It's fine. And those are very hard schools to get into but I remember that that school that had an acceptance rate of like 37% or 40% and now the acceptance rate of Boston University is 10% And it's the same thing with USC USC 20 25 years ago acceptance rate was over 30% and now I think it's in the single digits.

Oh my gosh. So what's going on here and given there's been this talk about a De-emphasis on merit so a lack of correlation with hard work and merit and getting in places That's also a cause of a lot of stress and anxiety. Yeah But I have a feeling and I think it's not a feeling I know this I feel like I think about the future and these things way more than you.

Yes. I feel you're much more happy-go-lucky Let's see what happens. You are a long-term planner. Absolutely now It is the reason why you don't think so intently about these topics is because I'm already thinking about these topics Or it's just your personality. I think it's a bit of both I think I I tend to focus more on the short term, you know, like okay what's going on at school this week?

What do we need to bring in? It's just separation of tasks I guess as we like to talk about so You definitely have a great strength at long-term planning. So I'm very fortunate But why don't we all think more long-term we think long-term about investing for the future? We think long-term about eating healthy now, so we don't suffer debilitating disease and health problems in the future Why don't we just think longer-term Maybe just the Desire to focus on now now now now as our as our preschooler loves to say I need it now Well, I suggest everyone to start thinking three years five years ten years fifteen years in advance Why because thinking is free and if you can create different scenario Analysis in your head.

I think it helps when that time comes you won't be left wondering. Uh, What should I do? You know pre-mortem planning and analysis is so important Yeah now, so let's say you are one of the parents who feel stressed out about your children's future Well, here is the solution.

There are three main solutions that I can think of One is to make generational wealth now What is generational wealth generational wealth to me is having enough wealth where you can pass down to your children and they'll never starve But I did a poll on financial samurai and you can participate in the poll if you are there's about 2,000 participants and it asked what is Generational wealth.

What is the minimum threshold? I had six choices having at least 1 million net worth to pass down 3 million 5 million 10 million 20 million and 50 million and the number one vote getter is 10 million dollars 30% of the votes and the number two vote getter is 5 million with 23% of the votes The third is 20 million The fourth is 3 million.

The fifth is 1 million and the last option is 50 million with 7% of the votes. I Personally voted for 10 million Which is close to the estate tax threshold now, it's twelve point nine two million What do you think is the right generational wealth figure? You say five and and how did you come up with five?

I mean 1 million these days just doesn't sound It's a 1 million is obviously a lot of money, but it doesn't have the same Impact. I think you wrote a post that said 3 million is the new 1 million due to inflation. Yeah, so you know, I thought about 3 million as well, but I felt like 5 million was you know a Big enough bump up a 2 million is a big difference between 3 and 5.

Yeah, what made you come up with 10? Well, what what made me come up with 10 was because one it's a nice round number the two It's very close to the estate tax threshold Previously, it was like twelve point two million and then eleven million ten million and the top a top 1% net worth Figure in America is now over 10 million.

I think it's like over 12 million Basically the estate tax threshold is the top 1% net worth threshold. It's very close So I figured well if you can accumulate up to the state tax threshold and then give it to your children and other Institutions or whatnot and not have to pay 40% tax that seems like generational wealth Yeah, but the fear about giving all that money away is that you know from rice paddy field to rice paddy field in three generations Which means the first generation has nothing they work their butts off to accumulate wealth The second generation inherits the wealth and tries to maintain the wealth and then the third generation They didn't have to bust their butts accumulating any wealth and then they spend it all and it goes back to poverty again So there you have it the number one recommendation to feel less stressed about your kids future is to generate 10 million dollars Easy peasy.

There you go. Now, of course, not everybody's gonna get there But with enough time we could get there, you know, it's just about time and compounding returns so maybe everyone should do an exercise where they take their net worth currently and Plug it into a calculator and run some different scenarios on how long would it take for their net worth to get to?

10 million based on different durations of time and different rates of return The second strategy to reducing anxiety for your children is to give them housing security now housing Almost in every single budget is the largest budget item generally Recommended 30 30% or less I recommend 10% or less of your household income goes to living but it's generally around 30 to up to 40% So if you can get that housing equation that expense out of the way By the time your children are adults.

I think that is huge For no longer worrying about them because at least they'll have a place to live Everything else from clothing to food to transportation Transportation is not as expensive. So the one recommendation I have which other it's interesting This curved article from New York City wrote an article said said oh your landlord could be a baby and they highlighted My post on the suggestion But the idea is that when you have a baby or before you have a baby or before the baby the earlier the better basically buy a rental property and In 18 years the rental property could be paid off and it should definitely be spitting out a lot of cash flow So when your child is an adult if they don't go to college or even if they do go to college they could earn money from that rental property to pay for their living expenses or they could live in that property if their job so happens to be where that property is and Then if they were able to find a job that is not in the same city where the property is Well, that's fine.

We parents can then use that property to fund our Retirement so it's a win-win scenario. What do you think about this strategy? I think it's very creative and definitely unique way to provide security for Your children in the future. I don't know how many people would actually be able to do it but I think it's it's a great way to Set a goal that can benefit benefit your kids and potentially benefit yourself as well if they don't end up Wanting to manage it or live in it So one property per child is my baseline recommendation So two properties two children and so forth one commenter did make a really good point though And he said don't buy a property when your child is born because that first year of life is chaos Crazy and you might be stuck with some tenant issues maintenance issues and it'll make your life a living hell and I totally believe that because in 2017 I Sold our old house and our old rental property because it was giving me nightmare headaches.

It was always five four or five dudes throwing parties bashing at the place and Neighbors complaining and there's some deferred maintenance yet some leagues change some windows Turnover to turnover because we have four or five roommates. There's always turnover every single year So it's a real PIT a and I hear you.

However, if you can get things through rental properties owning real estate is a war of attrition the longer you can hold on the longer you can survive the more wealth you will build for you and your family and Once you get to that maximum, I do like investing in public REITs and also private real estate Fundraise is my favorite platform.

I've worked with them for years and check them out at financial samurai.com /fundraise it's a way for me to earn real estate income passively and diversify our expensive real estate holdings in San Francisco Lake Tahoe and Honolulu Towards the Sun Belt now the final strategy to help reduce anxiety for your children is to start and maintain a Lifestyle family business if you have a family business, you are the boss you can do whatever the hell you want Especially if you have no outside shareholders, what is you know, the thing that we worry about most Living expenses housing shelter, right and also whether our children will be able to get jobs and So if you have a family business Even if they don't want to work at your family business if they have no job and no way to make money Well, there's always going to be this career insurance policy for them And this is something really common with immigrants many immigrants own small businesses restaurants Laundromats things that don't really need a super high education But you can do by bypassing the gatekeepers So long as you have some money and some hustle and some ingenuity And the other thing is if you build your family business large enough, it could knock out something else Which is your goal to try to achieve?

Generational wealth it could be three million for you five million ten million from my definition Whatever your definition is of generational wealth having a small business that generates income for your family and also generates equity that can be multiplied because businesses are Traded off multiple of revenue or of operating profits or of net profits Every single dollar you make from your small business actually boosts your equity by multiple fold Alright, so we have three solutions generational wealth owning rental properties Maintaining a small business and you can also teach your children as they grow up Here's a final point.

I want to make Downward mobility is still a good life folks You don't need your children to earn as much as you to have the same lifestyle as you after all Our lifestyle middle-class lifestyle today is way better than a king and Queens lifestyle from centuries ago Our lifestyles continue to improve thanks to technology medical breakthroughs and more so don't think Each generation needs to earn more money and have a better lifestyle than the last Our lifestyles are pretty good as they are right now.

I mean just speaking into my recording machine my iPhone I mean, wow, I've got this awesome Computer the size of nothing that I can carry around and do so many things with I mean This is a huge breakthrough over the past 15 20 years we will always worry about whether our children will get into a good school or get a good job But I think if we can spend a lot of time with our children Educate them on what we know about provide them practical knowledge.

I think whatever they do They're gonna turn out. Okay, because at the end of the day our Current standard of living is pretty good compared to the past. Thanks so much everyone for listening We'd love to hear your definition of what generational wealth is if you have any anxiety and angst Currently despite making a high income we want to know leave a comment in the post shoot us an email and again Don't forget to sign up for the free financial samurai newsletter at financial samurai comm forward slash news.

Take care everyone. Bye