For many people, receiving an inheritance is an emotionally charged experience. Depending on who has left it for you, you may either have a clear idea of what you will do with the money or be at a complete loss. Nevertheless, in both cases, you will want to put this to the best use for you.
When it comes to allocating inheritance money, you should approach it realistically and logically. One solution is to hire a financial planner to help you assess the funds and provide you with financial advice. Or, you can keep reading and find out several clever ways to maximize your inheritance.
Below, you will find information about managing this money wisely, ranging from investing, paying down your debts, and creating an emergency fund to setting up a trust, using it for your children’s college education, and adding to your retirement savings, among other things. Let’s see!
Hire a Financial Planner or Make a Plan Yourself
Many people are so happy to get an inheritance that they don’t think much about what they will do with it. But this is quite a common mistake, especially if you have been left an inheritance by a family member who has passed away. In such cases, there are many things that you should consider before you decide where to allocate your newfound money. In other words, you need to make a plan.
One of the best ways to get started is to hire a financial planner. This expert will help you organize your finances and set up a budget to achieve what you want to accomplish with your inheritance.
If you don’t want to spend that much money on a financial advisor, you can still invest in some financial planning software. You can even find free online tools that will help you create a budget and organize your expenses. Then, you can sit down and create a plan for the use of your inheritance. You can make a list of goals that you want to achieve and then figure out how much money will be needed to reach them.
Invest in a Good Project
Investing your inheritance is one of the best ways to maximize its value. However, when it comes to investing, there are two main strategies at your disposal. One is to invest in the stock market or real estate. The other is to invest in less risky projects, such as bonds or CDs.
If you decide to invest in stocks and bonds, there will always be some risk involved. Therefore, you should only invest money that you could afford to lose. However, the upside is that your money could grow substantially in a short period of time and become worth much more than initially invested.
You should learn as much as possible about investing in stocks and bonds, especially if it is your first time investing. It will allow you to evaluate if the risks are worth the benefits of investing in your particular case. On the other hand, there are much safer investments, such as CDs (certificates of deposits).
Pay Down Your Debts
When getting an inheritance, you might also want to pay down your debts first. If you have outstanding debts and struggle to make ends meet every month, paying them off with inheritance money seems to be an obvious decision.
Therefore, before spending or investing any of it, you should start by paying off any outstanding debts that you might have. Also, if there are any high-interest debts (credit cards), it might be better to pay off these debts before focusing on low-interest debt options available (for example, student loans). This way, you can save a lot of money each month on interest charges.
Create an Emergency Fund
An emergency fund is something that everyone needs – whether they have an inheritance or not. An emergency fund is a reserve of money that you keep just in case something goes wrong, and you need extra cash. There are countless reasons why people need emergency funds: car breaks down, house needs to be repainted, emergency dental surgery, etc.
Usually, people keep their emergency funds in a savings account or under their mattress – completely useless. In order to make the most of this nest egg, you may consider putting it in an interest-bearing investment account like a savings account, CDs, or money market account. This way, your emergency fund will continue growing while waiting for that rainy day.
College Planning for Your Children
Another way to maximize an inheritance is to use it for college planning for your children. This is one of the most important things that you can do with your money. Even if you don’t have a lot of money to spare, saving up for your child’s college education is absolutely necessary.
An excellent way to start is by planning ahead and putting some money aside each month from your own income and also with your inherited money. Depending on how much you will receive as an inheritance, you can put aside about half of your newfound money or more.
Use It to Set Up a Trust
A trust is a legal entity that allows you to transfer assets to another person – usually your children – and manage those assets for their benefit. Therefore, you can use a trust to create long-term financial security for your children and grandchildren. It can provide them with a financial boost when they need it the most – for example, after college graduation.
You may want to set up a trust for other reasons as well, such as if you are close to retirement age and wish to make sure that the money will be spent solely on certain things, like paying off the mortgage of your house. If this is the case, you can also create a trust that will allow you to pass your home down to your children tax-free.
Create an Estate Plan
An estate plan includes all legal documents that you would need to manage your assets when you die. This includes wills, trusts, life insurance policies, etc. An estate plan is crucial if you have children or any other dependents. For example, it could become difficult for them to access your bank accounts and other assets in the event of your death. Also, they could face significant tax burdens as well – an estate plan can help you avoid these kinds of problems.
There are several ways to maximize your inheritance or spend it wisely. First of all, it is always beneficial to have a plan. So, you can either hire a financial planner or create a plan of your future expenses on your own. It will allow you to assess how much money you need to spend and where to allocate the rest. Creating an estate plan, paying off your outstanding debts, investing, or making the most out of your savings are a few of the most beneficial ways to put inherited money to good use.