When you receive a large inheritance, you may not know exactly what to do. When a loved one passes away, and you get a huge windfall of money, you may go through the entire range of various emotions. It’s important to not make any quick decisions during this time of grief.
If you’ve always been in the position of following a strict budget, you may want to immediately go out and spend everything on large purchases that you’ve always dreamed of. The smart thing to do, however, is to carefully consider your options and to make choices that can help your inheritance last as long as possible.
1. Make a Plan
The first thing to do before you even consider spending any of your newly found money, is to make a plan. Depending on how much you get, you need to think about what the tax implications are as well as the details about how to get the money disbursed to you. It’s important to not spend anything just yet so that you can give yourself time to decide the best options.
2. Evaluate Your Expenses
Next, you need to evaluate all of your expenses and current income. Look at the budget that you’ve been using since before you received the large sum of money. Focus on what you’ve been doing to pay your current bills and what you can continue to do to support your current lifestyle. If your inheritance is enough to make it possible for you to retire, consider all of your current spending and how your new money supports it.
3. Partner With an Advisor
The next thing to do is to find a financial professional who you can partner with. It’s important to find the best advisors who can give you advice to support your money’s growth. Working with someone you trust is a big part of that, so you should research firms or individuals who have impeccable reputations in your area. For example, an industry expert like a Fisher Investments manager highlights the need for professional portfolio assistance for those with large asset amounts. People with experience in this arena can show you how to keep your money growing throughout the rest of your life.
4. Eliminate All Debt
Once you’ve got a team of finance people working for you, what you may need to do next is pay off your high-interest debt. If you owe credit card balances or student loans, you may want to eliminate your debt in order to start fresh.
5. Focus on Retirement
No matter how close you are to retirement, it’s also a good idea to create an investment strategy that gives you freedom once you stop working. For many people that may mean starting either a 401(k) plan or an IRA fund. Depending on whether or not you continue to work, you may need to be aggressive in your retirement funding in order to reach your financial goals.
6. Build a Portfolio
Your financial team can help you build a strong investment portfolio as your next step. With your advisors, you can develop a plan that assigns a portion of your money into various investment opportunities. Depending on your goals, you may want to consider stock options, mutual funds, or other types of low-risk choices.
7. Fund Your Kids’ Education
After you’ve taken the steps to secure your retirement, deal with your debt, and make a plan for your money’s growth, some people may want to start an education fund for the kids. With the continuing increases in the cost of a college education, you can help your children get a financial advantage by creating a college fund.
8. Make an Emergency Cushion
Finally, when everything has been taken care of, don’t forget to put aside a portion of your new riches as an emergency cushion in case things go wrong in other areas of your financial portfolio. Ideally, your advisors can show you the right amount to put aside in a savings or other type of interest bearing account. In most cases, if you’ve made the right decisions regarding the rest of your money, your emergency fund may never need to be used.
When you suddenly find yourself thousands of dollars richer after the death of a family member, you may feel a combination of sadness, guilt, and elation. It’s vital to work with a team of experienced financial professionals in order to find the best course of action for your new cash. That way, you can make it work for you for years down the road.