If you have just received a significant amount of money through an inheritance, would you know what to do with it?
Many people think getting a large lump of money may last longer than it really does. Unfortunately, most inheriting a large sum of money won’t know how to put it to good use.
But with some planning and understanding of your financial needs, you can make sure your inheritance can help you reach your financial goals, maybe a bit quicker than you had expected.
Although inheritances are decreasing, about 20% of U.S. consumers receive an inheritance at some point in their lives. But unfortunately nearly 75% of people who are left money will lose it all in just a few years.
Get advice from a financial planner
First and foremost, you should seek professional help. Working with a financial expert will provide you with guidance, tips, or advice you may not have thought of before. The expert will get to know you and your financial situation and will be able to steer you in the right direction for you!
When choosing your financial planner, make sure they are certified and will work with you as a fiduciary.
What is a fiduciary?
By law, all of a fiduciary’s actions are performed for the advantage of the beneficiary. That means when you work with a financial advisor/planner as a fiduciary, they will hold the highest standards of proficiency in the industry, will be comprehensive in their approach to financial planning, and will be unconflicted when it comes to their investment recommendations.
Without knowing the details of your financial background, there is still some guidance you should follow when managing your inheritance.
Don’t go on a spending spree
When people come into new found money, the first thing they think is that they can now spend it on things they’ve wanted but just couldn’t afford. Just because you now have some cash, it doesn’t mean you can now afford these luxuries.
Before you waste this money, evaluate your financial situation and determine where you can best use the money.
Pretend you never received the money
Before you received the inheritance money, you likely lived a certain lifestyle that was within your financial means. It wouldn’t be a prudent financial decision to change your lifestyle and start buying extravagant things. Before you know it, you’ll blow through the money. Instead, a wise decision would be to put the money away.
The best place to put the money will depend on different variables specific to your situation. Remember, if you work with a financial expert, they can learn about your situation and tailor the advice to you!
However, without knowing any personal details about your situation, some good options are saving money for retirement or perhaps your kids’ 529 plans for their education.
Pay off your debt
The average American is $38K in personal debt (excluding mortgage). You may want to use your inheritance money to pay off some of your debt. The benefit of this option is you are eliminating interest, which is now coming out of your pocket.
A question that always comes up when discussing paying off debt is the mortgage. Should you keep the mortgage or pay some of that off, too? Again, these questions are more easily answered when personal situations are divulged. However, you can always pay down a portion of the mortgage if you feel comfortable doing that.
The bottom line
There are many examples of people who have come into wealth only to lose it quickly. Learn from their mistakes and take a smarter approach to what you can do with your new found wealth.
Remember, the best option is to work with a financial expert who will provide you with guidance, tips, or advice based on your specific financial situation.
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