Receiving an Unexpected Inheritance
Managing your money when confronted with an unplanned inheritance.
The feeling of inheriting a large sum of money can send you on both an emotional and financial roller coaster. Knowing what to do with your newfound money can eliminate the stress and over whelming sense of emotions and allow you to focus on the joy of the ride.
If you’re lucky enough to find yourself in the situation, here are a few tips to help you manage your money and the stress that comes with it.
Don’t make any major purchases, yet.
Coming into a large sum of money, your first reaction may be to spend it. What are you going to buy first, a new car or maybe a boat? Tempting as it may be, try and hold off from buying any major luxury items until you consult or hire a financial team. Your financial team should consist of a lawyer, financial planner and a certified public accountant. This team will help guide you every step of the way in deciding how to invest your money wisely by developing long term money strategies, and taking a closer look at taxes and legal issues. And, yes, even letting you know when it’s okay to spend a little on yourself!
Review your finances.
If you have any major debt, like student loans or mortgages, you may want to spend a portion of your windfall on paying it off. Also, now would be a great time to take a second look at your Rainy Day Savings™ account and your retirement fund. Your Rainy Day Savings should have enough easily accessible money to last you for 6 months to a 1 year of living expenses, just in case of your luck swings in the other direction and unexpected life emergencies, like a job loss, divorce or sudden death in the family. Understanding your immediate and potential financial needs will help you prioritize how you spend your inheritance money.
Keep your day job.
“See ya later, suckers!” Quitting your day job may seem like a good idea at the time, but it may be one you regret in the long run. While, an unexpected windfall may give you a reason to reexamine your priorities, you can do that while staying employed; and, it’s better for your finances, too. You can easily keep your inheritance and income growing by continuing to work.
To stop working would mean more than just a loss of income; it could have detrimental effects down the line. For example, if you decide to stop working, you’ll stop contributing to the Social Security system, which could have an impact on the level of benefits you’ll receive in retirement. This could be especially detrimental if that rainy day does come your way and your money runs out.
If you keep your job, you'll also be able to keep making 401(k) contributions, and probably be able to increase what you're setting aside for your nest egg. Thing your inheritance is enough of a nest egg? Think market crash of the Great Recession and think again! Keeping up your Social Security and 401(k) contributions will help you protect yourself from putting too many of your nest eggs in one basket.
More often than not, speaking openly about your new inheritance can lead you into trouble. Recognizing that what’s fair isn’t always what’s equal, parents and grandparents will at times leave different sums of money for each child. While perhaps wise, this approach can lead to hurt feelings and bruised egos, especially among those who feel they didn’t get what they deserved.
Talking about your inheritance money to other family members may lead to family disconnect and even legal trouble. Another benefit: by keeping quiet, you’ll escape hearing about Uncle Bob’s crazy investment schemes. His restaurant on the moon: it’s gonna be big!
Invest & spend wisely.
As mentioned above, consulting with a financial team will benefit you greatly in making decisions on where to invest your money. CDs, investment portfolios, and savings accounts are all good ideas when it comes to planning for your future. When it comes to spending, purchase items that will benefit you and help you accomplish your goals. Maybe earn your Masters Degree or finally take that family vacation you’ve been planning! Whatever it is, view your new inheritance or windfall as an opportunity and a responsibility, not extra cash to blow.