You’ve just inherited a large sum of money. So, what do you do next? That’s the question, and how you answer it can be life-changing -- not only for you, but for your family’s future, too. What would you do with inheritance money? Would investing be a priority? Should it be? Where do you start? Keep reading to learn more about some of the smart financial planning moves that can be made with money from an inheritance.
The Will has been read and the Estate has been settled. As it turns out, you’re now wealthier than you were yesterday. What should you do with the money? An inheritance can be quite the windfall, but the spending habits and financial views of the person receiving it can make all the difference in how that money is put to use. When you’re considering the financial options that come with an inheritance, you should be thinking about what your inheritance means for your financial life.
How should I spend my inheritance?
Sure, it can be fun to speculate what you’d do with a large amount of cash. A flashy car, a beach house, luxury vacations, shopping sprees, you get the picture. This is how some people may decide to spend money they’ve inherited. But that can also be the way to burn through an entire inheritance in a shockingly brief amount of time. There are countless stories of people who have done this, and are left with nothing. It’s what the money-savvy strive to avoid through purchasing choices and smart investments. Instead of imagining what you could buy with a sudden influx of cash, you should think about what the inheritance means for your life, taking into consideration:
Your current financial situation – How are you doing financially, right now, and can your inheritance change that for the better. Take your income, your average expenses, your debts, and your assets into consideration. Is your inheritance effectively mad money, or is it a chance to get yourself onto better financial footing?
Your age – The age at which you inherit can at least partially dictate how that money can be used most wisely. Are you closer to retirement or are you still in college? Often, financial goals can differ greatly depending on the stage of life a person is in. A young couple may be saving for a down payment on their first house, while an older couple may be more concerned with retirement costs and medical expenses. You should also think about how long you may be using your retirement. The younger you are, the longer you may want your inheritance to last.
Your future financial goals – What are your longer-term financial goals? How does your inheritance factor into them? From buying property to starting a business, there are many ways to invest in your financial future. Choosing the right sort of investments for your financial situation and your financial ambitions, however, is key.
Do I need a financial advisor?
Paying your bills on time and keeping an eye on your bank account balance is one thing, but once you start considering how to best invest an inheritance, consulting with a financial advisor may be a good idea. A wealth management professional can help you navigate the financial and legal matters that may come along with a large inheritance. And, if you want to invest an inheritance, hiring an investment advisor can help make investment less intimidating. A good financial advisor can guide you through the risks and advantages of investing inheritance money.
Investing an inheritance: make it a priority
A good rule of thumb when investing an inheritance is to first pay off some debt. By minimizing the amount of money – and interest – that you owe, you can then better use your income and what’s left of your inheritance to build and grow your personal fortune. Debt – like wealth – is different in each situation and what works for one person may not align with your own situation and your personal goals. But to invest an inheritance means to use it on something that will provide returns into the future. Investment strategies for inheritance can include diversifying: investing in a variety of funds and options, and sticking to assets that are proven to reliably return yields.
Leave a financial legacy
Two words: generational wealth. For many investors, that’s the goal. Investments are made not only to grow wealth, not only to weather periods of economic uncertainty, but also to see that future generations in a family can do the same. Creating financial prosperity that continues for decades or more is one aim of investing, including the many ways inheritance can be invested. Creating investment accounts, buying stocks and bonds, owning income property, and purchasing assets that are likely to hold their value or appreciate in value, while also paying off or paying down debts, can help grow your net worth and build a valuable Estate.
But then, what will happen to that Estate? Learning about smart investment strategies and working to manage your investments during your lifetime is important. But so is setting up those investments and their profits for your heirs. Estate planning solutions exist for this very reason. There are estate planning strategies for every need. Creating a Will, setting up a Trust, and taking other financial planning measures can help transfer property to an heir, minimize taxes owed, ensure the financial care of a child or dependent, and more.
Just like you can control how you use your inheritance, you can also have a say in how your wealth is managed and passed down through future generations. At Trust & Will, we’re here to make generational wealth management possible. With our customized, state-specific documents available online, you can start setting up your Estate at any time. Take our quiz to see which documents you might need. If you want to invest inheritance money, make sure you invest in the right estate planning documents, too – get started today!