Yesterday we talked about how some folks in this country are relying on an inheritance to solve their money problems – and about how that’s not such a great idea. But if you beat the odds, have taken into consideration the tax implications that go along with receiving an inheritance, and are now set to get a fat wad of cash in the near future, what should you do with it? Well, let’s start by knowing what NOT to do with it, and then move onto good and financially sound ways to use that money wisely.
Don’t take the cash right away
This is counter-intuitive to most people. In fact, many people sit and count the days until that money finally comes out of a trust and can make it to their hot little hands. But truthfully, that money comes with a bit of shock and, if you were close to the person that passed away, a lot of grief. When you’re this emotionally distraught, making big decisions is not a good idea, and that includes suddenly having a lot of cash that you didn’t have a couple of weeks ago. Take some time, sort through the emotions, and when you feel as though you’re ready to move on with life, then ask for the money. Even if you weren’t close to the deceased, suddenly having wealth takes some adjustment, so take the time to adjust properly.
Don’t put in your bank account
Okay, you can put some of it in your bank account, but certainly not all of it or even the majority. A chequing account won’t earn you any interest, and with the low interest rate expected to stick around for the next year or two, even a standard savings account won’t get you a lot of return on that cash.
Don’t spend the principle
Once you have your money working for you, whether it’s in an investment or a high interest savings account, you should be making enough of a return that you won’t need to dip into the principle any. That money is going to be the biggest chunk for at least a little while, so hold onto it, and take solace in the fact that you’re not going to have financial problems for a long time.
Don’t buy big toys
If you’re in desperate need of a new car (notice we’re saying “need” and not “want”) then by all means, use a portion of your inheritance to put a down payment on one. If you’ve been looking forward to buying a home, then yes, go out and put a down payment on one you can afford, now and in the future. But don’t pay straight out cash for either of these, or any other big, flashy toys you want. Sure you may not have a mortgage by buying a home outright, but the chances are it will take all of your inheritance, and then you’ll be house poor and in the exact same position you were in before you received that inheritance.
Don’t think you don’t need help
Reading this mini-series on inheritances is a good start, but we can only give very general advice as we’re not closely associated with the personal circumstances of every reader – nor is any other website. Many people don’t want to waste their inheritance by hiring a personal financial advisor, but we guarantee that, especially with large chunks of money, this is money well spent and not wasted at all. An advisor will be able to give you good, sound advice when it comes to things like investments, taxes, and what to do with that money. They’ll help keep your inheritance around for a little longer, as long as you do the research and find one that is reputable, honest, and knows exactly what they’re doing and how to help.
These are the things you shouldn’t do with your inheritance. So what should you do? Come back tomorrow to find out!