People can come into lump sums of money in countless ways. Maybe you win the lottery (unlikely), sell a business or property, or perhaps you receive an inheritance from a loved one’s passing. Inherited money is inherently different than money from other ventures. So how you handle it should be too.
Take Your Time
One of the biggest differentiators for inherited funds is the emotional ties. If you get your parents’ house as part of their estate, your grandfather’s classic car, or farmland from an aunt/uncle, there’s some real emotion behind that gift. The last thing anyone should do is make a rash decision about the next steps to take.
Wait until you think you’re ready, then wait a little more. The best money decisions are made from a clear headspace. When you lose a loved one who cared enough (and was able) to leave you a financial legacy, you need time to work through the emotional side before you can begin on the financial side.
Reassess Your Plans
Very, very few people plan to receive an inheritance. Most clients I talk with understand there’s the potential to receive some money down the road, but don’t account for it altering their course. So when a sudden windfall arrives, no matter how big or small, treat it like the surprise find that it is.
What would an extra $X do to your financial life? Would you want to retire earlier? More lavishly? Eliminate debts? Travel? Really think about your goals in life and how this money can be best used to achieve them! Revisit your financial plan to determine how best to allocate these assets to maximize their potential.
Don’t Blow It (But Splurge A Little)
Many lottery winners wind up going broke. Receiving an inheritance can cause you to throw caution to the wind and rapidly change your lifestyle. If you give in to the temptation to spend it can quickly spiral out of control. That doesn’t mean you shouldn’t live a little… just exercise caution before making big purchases!
Start by asking yourself “what would my loved one value me spending the money on?” Did you always have a dream of traveling to a certain place together? What about a shared hobby or mutual interest? Consider treating yourself in a way that honors the memory of the person you lost. You’ll feel much more validated in your spending decision and likely curb that urge to live beyond your means.
When it comes to inherited money, a level head always prevails. By waiting for the right time to act, planning how to deploy the funds in advance and rewarding yourself emotionally, you’ll be firmly on the path to financial success.
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