Whether you knew about the inheritance or not, it can be overwhelming to receive a lump sum of money or property. The key is to keep a level head before you start figuring out your next moves. Finding a way to manage it could help you stretch the money for longer than you may have expected.
1. Take a Breather
Inheritances are the result of transitions, which can be stressful under the best of circumstances and devastating under the worst. Sometimes, the best thing to do with an inheritance is nothing. Impulse purchases are common and can hit epic proportions faster than anyone expected. Once you've had a cool-down period, it's recommended that you list out priorities when it comes to long-term financial goals. Retirement may not be your first priority, but don't forget to include it somewhere on the list. It also helps to find out how much tax you'll need to pay on your inheritance and start mapping out how and when to pay them.
2. Plan for Emergencies
Unexpected illnesses, accidents, and natural disasters may not be predictable, but they are all but inevitable. Depending on your income and the amount of the inheritance, consider setting aside enough to cover expenses from a major future emergency, such as car repairs or medical bills. At Retire Secure Financial Planning, we recommend to our clients that they keep the equivalent of 3 to 6 months of expenses in a separate savings or money market account. To cut down on spending temptation you should avoid, if possible, putting the inheritance into your checking account
3. Pay off Debt
Debt often has nothing to do with how much you owed at one point, but rather how much interest has accrued since then. Paying off debt opens up cash flow for the future, and it cuts out future interest. Debt has a way of monopolizing your life, regardless of how well it's being managed. When it comes to long-term debt, though, such as mortgages, it's more practical to look at your interest rates before deciding on one course of action over another. For example, a low-interest rate on a 30-year mortgage probably doesn't need to be paid off when the money can be invested instead.
4. Evaluate Investment Opportunities
Investing money may carry certain risk factors, but there are opportunities available that are safer than others. Regardless of the type of investment you choose, you may want to look for low-risk options that yield moderate returns. The market can be volatile, but there are ways to responsibly use stocks and bonds to extend the value of your inheritance. Consider hiring a fee-only financial advisor to help you determine where and how an inheritance should be used both now and in the future.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.