Coming into a lump sum of money suddenly, be it big or small, can be jarring to say the least. A sizable inheritance can represent a life-changing opportunity, if managed properly. Follow these five tips to make sure you’re managing your money smart and effectively to keep you financially stable for years to come.
1. Take A Step Back
Because an inheritance usually comes with a loss, it’s important for you take time to deal with your grief. You don’t want to be making any major financial decision when you’re in an emotional haze.
The second thing you need to do is take a reality check. Before you go quitting your job or booking a flight to Europe, you need to think realistically about what your inheritance is going to do for your life. $90,000 might seem like a lot at the time, but that’s not enough to sustain you and your family for 25+ years. You need to consider whether your new found fortune is going to rewrite your financial goals, or simply just help you reach some of your existing goals a bit sooner.
2. Pay off Debts
Using your inheritance to pay down or pay off any current debts can help you to reduce your expenses and save you money that would go towards interest down the line. When choosing which debts to pay off first, always pick the loans with higher interest rates first, like credit cards, personal loans, or car loans, before paying off a lower interest rate loan like your mortgage.
3. Prioritize Your Goals
Identifying your financial goals will help you determine the next steps you take with your money. Cleaning up any debt should always be a top priority, followed by creating a retirement nest egg. After that the sky’s the limit; others goals may include:
- Setting up a trust
- Starting a college fund for your children
- Contributing to charity
Determining what your financial goals are will help guide you in the types of investments you make, or the types of accounts you open.
4. Splurge Thoughtfully
It’s okay, and even encouraged, to have a little fun with your new money! Depending on the size of the inheritance, your “splurge” will look very different. It could be anything from some new shoes to a new house! Remember: reason and moderation are what it’s all about. Just because you can buy 10 swimming pools doesn’t necessarily mean that you should!
5. Hire Some Help
Depending on the type of inheritance you received (ex. Investments, life insurance, etc.) there may be some hidden taxes you are unaware of. A financial advisor or accountant can help you create a financial plan and deal with any tax implications that might come your way. They will help you understand your inheritance, and can assist you in managing it moving forward.
For help managing your inheritance, trust the team at Liu & Associates. Call today to book an appointment.