Receiving an inheritance of money can be an overwhelming experience, as you may be tempted to spend it or invest it. The problem many people have is making the decision that’s right for them and their inheritance. It’s very crucial that you get as much information and advice as possible in order to help you make the right decision. Here are your top tips for your inheritance.
Speak to an Advisor
The first thing you’ll want to do when you find out you’re receiving an inheritance is to speak to a professional. Before you begin making a list of things that you want/need, or paying down debt, you need to make sure you are on the financial track before you risk making any mistakes. If you’re completely stuck on finding a financial advisor, there is nothing wrong with getting advice from multiple professionals.
Assess Your Situation
If you haven’t analyzed your situation before you received an inheritance, now is the time to do it. Take the time to write down your current financial needs and set up goals. Taking advice from a friend or family member may be one thing, but you have to remember that everyone’s situation is different.
Set up an Emergency Account
The one thing that many people don’t think about is having money set aside for emergencies. Setting up an emergency account is critical, especially if there are other people in your life that are financially dependent upon you. This type of account should cover living costs for multiple months in any chance you lose your job or medical expenses in case of an emergency. Emergency accounts can be long term or short term, as long as you have money set aside.
If you haven’t been able to contribute to your retirement plan recently (or at all), it’s probably a good idea to take contribute some of your inheritance towards that account. Over 33% of people don’t have any money saved in their retirement plan, which is shocking considering social security is expected to run out by 2034. If you were able to receive an inheritance, now is your chance to make the right decisions about your future. The older you are, the more crucial it is to have money set aside for retirement. This is why speaking to a financial advisor is crucial, as they will help you understand how much you’ll be needing to save for retirement.
Pay Down Debt
Debt is typically looked at as a bad thing, when most of Americans have some sort of debt. It’s one thing if you $0 in your bank account and thousands of dollars of debt, but if you’re continuously making payments and have an income, then using inheritance money to pay off your credit cards should be the last thing on your spend list. Depending on your situation (which a financial advisor will be able to help you with), paying off your mortgage could be a good idea, as a home is typically an investment. Most finance professionals will tell you to pay off the the debt that has the highest interest attached to it. If your debt is only a small amount (say 5%) of your total inheritance, then it won’t hurt you to pay off your liabilities.