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Family Finance: How to Make the Most of Your Inheritance, Avoidable Mistakes
Family Finance: How to Make the Most of Your Inheritance, Avoidable Mistakes
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Money Management

Family Finance: How to Make the Most of Your Inheritance, Avoidable Mistakes

Money254
Sheila Brenda Andoi
March 31, 2022

Research shows that people who are given money suddenly treat it differently than the money they have worked for. This applies to winning a lottery, grants, and inheritance.  Even the savviest individuals might become enslaved by their sudden acquired money. 

Many people feel compelled to spend such money on new automobiles, larger homes, or even fantasy vacations for themselves or their loved ones. Others may feel empowered to quit their job and enjoy the money.

After receiving an inheritance and mismanaging it, many people regret rushing into significant expenditures. Others find themselves giving away a large portion of their earnings to friends or making poor investments that are utterly unsuitable for their ambitions and financial needs. 

If you don't devote the time necessary to build a strategy for your inheritance, you may find yourself in a worse financial position than you were before you received an inheritance. 

So, how can you make the most of your inheritance?

According to Pagliarini of Pacifica Wealth Advisors, "assigning" your inheritance to certain uses or goals is equally as important as managing your family budget. Depending on your financial status, the simple principles of saving, spending, investing and giving back may be a good place to start when deciding what to do with an inheritance.

Let's give more depth to this.

Pay Off Debt

Debt comes in a number of shapes and sizes, as well as interest rates that range from very high to very low. In most cases, paying off the debt with the highest interest rate will be the most beneficial.

While paying down debt may not be as exciting as investing for example, it is a necessary part of personal financial management. Think of it as a financial investment in your future. 

You can use some of your inheritance to pay down your outstanding debts such as student loans, auto loans, and any other outstanding bills that increase your monthly spending or consolidate them into a single payment

You'll discover that once these debts are paid off, it's not only easier to build your wealth by reducing your monthly spending but also you will no longer be under as much pressure because debt can really be stressful.

Save for Retirement

Investing your inheritance for retirement, like paying off debt or establishing an emergency fund, may not be enjoyable, but it is a sound investment. 

In the case that you decide to save money for retirement, you have several possibilities. If you have an employer-sponsored retirement plan, you may not be able to directly contribute to it with the money you've inherited. Instead, you can use the inheritance to cover living expenses while increasing the amount you contribute to your retirement account from each paycheck.

If you don't have an employer-sponsored retirement plan, then you can open a retirement savings account and invest as much as you can using your inheritance money.

Ready to Invest?

When you get an inheritance, you should examine whether you are prepared to invest. 

If you have debt as mentioned above, especially high-interest loans you are probably not in a position to begin investing immediately until a clear repayment plan is set and all debts are cleared.

If you are presently debt-free or have money left over after paying off your debt, it is time to look at your savings. Experts recommend keeping three to six months' worth of expenses in reserve like an emergency fund. It is not only a wise financial move, but it can also provide you with the security and confidence you need to begin investing. You'll have peace of mind knowing that your emergency fund will safeguard you regardless of what happens to the money you invest in the future.

Investing your inheritance can take various forms, and heirs can mix and match based on their financial situation to create long-term wealth and income. You might divide the funds across multiple investment accounts, set it on autopilot until you retire, and allow compound interest to treble the original amount. 

You might want to consider purchasing a rental property or two if you know how to invest in real estate or have access to someone who does. You might also use a portion of your inheritance to establish a business. 

Before making any decisions, remember to invest wisely and seek counsel from an expert or an unbiased third party.

Enjoyment! Enjoy Some of it

While you probably won't want to spend your entire inheritance on exotic vacations, it's good to put some of it toward accomplishing one of your own personal lifestyle goals. 

Getting a better degree or certification, buying a car, going on a vacation are different ways you can enjoy your inheritance. Remember that your parents or the person who transferred the money to you most likely intended for you to also enjoy and be happy. 

This is especially helpful once you've done some, if not most of the things listed above. Managing your money well does not mean postponing some enjoyment for you and your family!

What if You Don’t Get an Inheritance in the form of Cash?

Inheritance does not always mean money. In reality, many people most likely inherit a mix of less liquid assets, such as land, livestock, high-value furniture, a house, and even souvenirs and collectibles. 

The best technique for dealing with inheritance may vary based on the asset received therefore if you receive an inheritance in other forms that aren’t cash, you’ll need to adopt a slightly different approach to assessing and using them.

For example; being a beneficiary of a house may be both a blessing and a curse. Homes are an exceptionally emotional asset to inherit (especially if that’s where you grew up), and it can be difficult to strike a balance between your emotional attachment to the property and the financial aspects of its administration. 

Fortunately, real estate market data is more plentiful than antiques and collectibles, so evaluating the home's selling worth will be easier If you decide to sell the house. If you opt to keep the residence, that’s also great. You may want to consider whether you will move to it or rent it out.

In any case, you should examine the many costs associated with keeping the home, such as upkeep, renovation costs, and other unplanned charges that can quickly add up.

Don't Let it Impact Your Life Negatively

It is common to see people who have unexpectedly received a large amount of money change their lifestyle. 

Some may quit their work, relocate to a different town, buy an expensive car, throw massive parties, or even dish out money uncontrollably. While this type of conduct is dangerous and shortsighted at any time, it is especially dangerous if it takes you to a worse state than where you were before getting the money.

Consult with a lawyer or financial adviser to help you make the best financial decisions and avoid any hasty changes that could cause further stress.

Honour the people who Left you the inheritance

It is honourable to use the inheritance given to you in a respectable manner and to maintain your parents’ heritage. 

If you're truly grateful for your inheritance, use it in a way that enriches your life while also honouring your parents' or guardians' legacy, and a way that also inspires confidence and tranquillity in you instead of guilt, regret, and fear.

Inheritance Mistakes to Avoid

Avoid making the following inheritance mistakes:

  • Don’t make it the breaking news. When it comes to inheritance issues, it's best to keep a low profile. Speak with your parents or other benefactors. This will help to avoid misunderstandings.
  • Don’t make any hasty decisions. Please be patient. 
  • Don’t undervalue your inheritance. Money gained via a paycheck is worth the same as money inherited. Treat your inheritance with the care you would your paycheck. That's how you should go about it.
  • Don’t allow anyone to take advantage of your inheritance money.
  • Don’t neglect your spouse or family. Notifying your better half is a wise thing to do. They can be of great advice on how to better use the money or assets. 
  • Don’t give too much away.

WRAPPING UP

Whether you like it or not, deciding what to do with an inheritance is a duty you must accomplish. The last thing you want is for your loved ones' legacy to be squandered as a result of poor planning and management. 

If you want your money to last for several generations, you should be proactive in guarding your inheritance against careless use and planning for future heirs. 

In sum, even with this unexpected financial windfall, you should still live within your means, develop a complete plan for investing, spending, and saving that is centred on long-term wealth preservation.

Sheila Brenda Andoi is a communicator, journalist, editor, and writer passionate about human-interest stories. You can find her on Twitter @sheilaandoi

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