Inheriting a large amount of money gives you an opportunity to improve your financial situation and move towards your goal of financial freedom. For many people, it is the silver lining after the loss of a loved one.
Unfortunately, people don’t always know how to handle their inheritance and they make a few bad decisions which leads to a lot of missed opportunities. But if you follow these simple rules, you can make sure that you don’t make the same mistakes.
Give Yourself Time To Plan
When you receive a large lump sum of cash, it’s tempting to start spending it right away. You can finally get the car fixed or maybe do some home renovations that you’ve been wanting to do for a while. But even if you spend the money on practical things, that doesn’t necessarily mean that you are making good choices.
In most cases, it’s best to consider how to use that money to establish long term financial stability rather than deal with short term expenses. So, the best thing to do is give yourself time to plan and work out how best to spend the money before you make any decisions.
Start Dealing With Property Immediately
Dealing with an inherited property can be a very time consuming process, especially if it is shared between multiple people. There may be disputes and even inherited properties that are passed to a single beneficiary can be difficult to manage. You need to decide whether you want to keep the property and rent it out, sell it on, or even live in it yourself. All of these questions need to be discussed with the family before you can do anything else.
Clear Debts First
You might think it’s best to put your entire inheritance into an investment of some kind. If you’re completely debt free, that is one of the best things to do. But if you have a lot of debts, the interest you pay on them is often higher than what you would earn from your investments.
That means that your overall financial situation won’t get better until you can clear those debts. If you are struggling to do that on your own, your inheritance can be a lifeline and you should take the opportunity to get rid of any debts. If you don’t want to use the entire lump sum to clear debts, at least pay off the ones with the highest interest levels. This will make it easier to pay off the rest of your debts in the future.
Save Some For Your Emergency Fund
Whatever you do with the money, you should always put a chunk of it into your emergency fund. Having emergency savings is the best way to avoid debt because you are not forced to borrow money when you get hit with unexpected expenses. Use this inheritance as an opportunity to bolster your emergency fund and you will be able to protect your finances in the future.
Knowing how to deal with an inheritance can be tough, but if you follow these rules, you can use it to improve your long term financial situation.