On the plus side – depending on how much you inherited, you do not have to live paycheck to paycheck anymore. You might want to quit that job you have been stuck at. You might even think you do not have to work another day in your life. But, be careful. Your inheritance is bound to run out, no matter how much it actually was. It could last many years or it could last just a few months if you are not careful.
Here are some of the first things that you should do:
Think Before You Spend
It may sound like a no brainer, but we know from experience that you’re thinking about that car you want to buy or the shopping spree you can now afford to go on.
First, take a step back and really think about the money and what you want or need. Look at your current financial situation. Look at the big picture like your income, expenses, assets, debts, and liabilities. This will help you get an overall idea of where you are. You’ll also know what you need to do next to get to where you ultimately want to be.
Pay Off Debts, Don’t Incur Them
We are sure you are probably thinking, “I have this inheritance now, of course I will not incur debts!”. However, if you blow your inheritance in a short period of time, you will incur more debts to try and keep up the lavish lifestyle you became used. It’s a good idea to pay off or down the debts that you currently have. This will free up your future cash flow, reduce your expenses, and will even save you money that you would be paying toward interest on your debts. It is always a good idea to first pay down or off the debts that you currently have.
Make Investing a Priority
Now that you have taken care of your debts, it is a great idea to invest your inheritance. This gives it an opportunity to grow. This is especially a great idea if you are young. It gives your inheritance an opportunity to grow so when you get older and retire, you have more money available to you.
You have paid your debts and you have invested some money. Maybe you still have a large sum of money in savings and plenty left over after you pay your bills. You can now start thinking about what is something you truly want to splurge on. You should not do this on a whim. This should be something you consider carefully. Maybe you buy that new car or maybe you take a dream vacation. Just be careful not to over do it. If you are not happy with your job, maybe this is an opportunity to go back to school to do something else or a way for you to start your own business. Consider all the options and opportunities that are now available to you.
Leave Something for Your Heirs or Consider Donating to Charity
Your inheritance was not earned, it was a “gift”. Why not make it a positive lasting impact on your heirs or even your favorite charities? You can honor your loved one that left you their inheritance by continually trying to pay it forward. Leave something to your heirs or charities for them to remember you.
Don’t Rush to Switch Financial Advisors
Some people think as soon as they get that huge inheritance, they should fire their current financial advisor, but why? You are almost always encouraged to make a change to something new, if you hire someone who does not know you. More often than not that means your inheritance takes a dive too. If you are going to find a new advisor, do your research and take your time finding one. Consider referrals from friends that you trust or those with high reviews amongst your peers. You can always check an Advisor with BrokerCheck, powered by FINRA. BrokerCheck is a free tool to research the background and experience of financial brokers, advisers and firms.
The bottom line is after you inherit that cash, be it large or small, take care of it. Plan ahead of time what you are going to do with it, care for it, get wise counsel and advice, and use your common sense.
Plan to leave some to your heirs or other people or organizations that you love. Hopefully they will take care of it and do the same when you are gone.