While coming into an inheritance is an exciting prospect, the majority of people who inherit money squander it in an incredibly quick period of time. In fact, experts have revealed that a full third of people who receive an inheritance are back in the red within two years.
The good news is that you don’t need to be a part of this statistic. With careful planning, professional consultation, and an appropriate lifestyle, you can ensure that you have the money to live comfortably for the rest of your life (and that you also have some wealth to pass on to your own children).
Read on to learn what you should do after receiving a large inheritance to ensure you don’t squander future opportunities with immediate impulsiveness.
Talk with the Pros
Before doing anything with your money, seek professional guidance. While you may have an idea of what you want to do with your inheritance, those who know finance can help you prioritize your goals and determine what’s feasible for both your short and long-term goals.
Click here to speak with people who work with individuals like you. These professionals will help you map out what you want to do with your money and show you how to attain your personal goals.
Keep a Savings Account
While it’s tempting to go out and spend a massive amount of money on things you’ve always wanted, this is one of the worst things you could possibly do. While treating yourself is something to look forward to, that comes later. The very first thing you should do after receiving an inheritance is open a bank account that exists specifically for the purpose of holding the money.
This keeps your money secure while you figure out what you’ll do next. It also puts the estate into your name so you can provide proof of ownership to legal and financial professionals.
Review Insurance and Liability
One question to ask after inheriting a large amount of money is whether you need to change your insurance policies. You may want to increase your property coverage, especially if you inherit real estate or plan on buying some. Also consider increasing liability limits on homeowner policies.
You also should determine whether you’re responsible for higher taxes. If your estate is large enough, you may need to pay estate taxes to the government in addition to your regular taxes. These taxes are paid upon the transfer of a deceased individual’s property to a new owner and must be paid if the inheritance exceeds a certain threshold.
Pay Off All Debt
Now that you have enough money, it’s a good idea to pay off all your debts. You can likely pay off your mortgage immediately as well as your student loans, credit cards, and other outstanding financial obligations. Doing so will save you from worrying about them in the future.
It’s important to prioritize debt payoff above other expenditures because it will take significant weight off your shoulders, increase your credit, and keep you from paying future additional interest.
Live Below Your Means
The quickest way to squander every penny of your inheritance is to immediately enter the lap of luxury. If you buy mansions and vacation homes and yachts and planes and … well, you get the drift … you’re going to lose your money in less time than it took to inherit it.
Make sure that you live below your means. There are ways you can do this while still being more than comfortable. All you need is to create a plan for what you’re going to do with your money and budget accordingly.
That said, it’s okay to treat yourself occasionally, especially immediately after inheriting. Set aside a predetermined amount of money — no more than 10% of your total inheritance — and allow yourself a luxury item. Once that’s out of your system, you can more easily budget a realistic amount for entertainment and fun going forward.
Work Toward Other Goals
Now that you have a pile of money, you can start to work toward other life goals. Since you likely won’t need to work as much, it may be time to travel to places you’ve always wanted to see or to write that book you always wanted to.
Inheriting a large sum of money also comes with the responsibility to give back to both your family and the community. Establish a trust fund for your heirs so that they can access some money before your death. Set up organizations for charitable causes close to your heart or donate to existing charities that mean something personal to you.
Manage Your Large Inheritance
While inheriting an estate or a fortune is an exciting prospect, it also requires additional planning. If you don’t use your money responsibly, you’re likely to lose it quickly, so it’s crucial to take these tips seriously.
Now that you understand the basics of managing a large inheritance, it’s time to talk to knowledgeable professionals to determine the specifics of your situation.
Contact us to schedule your free consultation with a Financial Life Planner. And congratulations again. We wish you the best of luck.