Many members of the “baby boomer” generation will, at some point in their lives, receive an inheritance. With the average inheritance estimated at $65,000, having some kind of plan for managing that sum of money will certainly prevent problems and help keep your financial future secure.
If you inherit a significant amount of money, these 7 tips will help ensure that you manage your inheritance for maximum benefit.
1. Reevaluate Financial Goals
Determine your overall financial goals for the best way to invest your inheritance. Are you after short-term gains or long-term stability? Defining your ideal future will help you (and your financial advisor) make decisions about using your inheritance to reach those goals.
2. Review Your Estate Plan
With an inheritance, your overall financial picture can change drastically. These types of major changes to your assets should always prompt a review of your estate plan to make sure protections are in place. Inheriting property or valuables like art and jewelry should also be accompanied by a review of your estate plan – the provisions you have in place must accurately reflect your assets to be effective.
3. Rainy Day Fund
If you come into a large sum of money, it’s a great idea to stash away at least 6 months worth of living expenses in an emergency fund. If you already have some savings in place, it can’t hurt to add to it. This “rainy day fund” will help provide peace of mind should you need to change careers, become ill, or encounter some other scenario that impacts your regular earnings.
4. Pay Off Debts
One of the first things to consider with a large inheritance is paying down debts, particularly those with high interest rates (like credit cards). Consider paying off these high interest loans in their entirety if you can. Evaluate how much you are paying in interest to determine if it’s in your best interest to wipe out a loan balance completely, or, depending on your savings and other assets, consider paying down large portions of loans and negotiating new interest rates for the remaining balance.
5. Seek Professional Assistance
Financial planners and accounting professionals may have insight into your financial portrait that you simply cannot see. By consulting a trained financial advisor, you will gain an extra advantage for navigating investments and estate planning, and have a go-to source of information for any financial questions you may have.
6. Go Slow
Making financial decisions is not something to rush. Take your time when determining your goals and evaluating your financial needs. Depending on your personal situation, choices for investment, savings, or various types of retirement accounts could all have very different outcomes. Avoid making hasty decisions that could affect you for years to come.
7. Treat Yourself
While you shouldn’t go overboard with your spending, there is nothing wrong with satisfying a want outside of sensible financial planning. If this means taking a trip or making a purchase, go for it! Just remember to exercise control – treat yourself, but don’t overindulge!
With these tips for managing an inheritance, you will be able to enjoy both the short and long-term benefits of increased financial assets, and ideally be able to plan for not only your future, but your family’s as well.
