Everyone hopes their rich, reclusive uncle will leave them a mysterious inheritance, but nobody thinks to consider how hard it can be to decide how to spend their fortune. While the idea of having a large sum of money fall in your lap seems like a dream come true, most Americans find themselves in worse financial shape after inheriting wealth, according to Ohio State University. It can be tempting to immediately treat yourself to the lavish car or vacation you’ve always dreamed of, but before you know it, your entire fortune (plus some) has evaporated.
What if instead you used the money to get out of debt or secure the financial future of your family? The way you spend an inheritance can greatly impact your future, so spend it wisely. Here are some tips on how to make a lump sum of money benefit you long-term.
We advise you to always do three things with a large sum of money: give some, save some, and spend some. Devoting a purpose to each of your dollars makes it less likely that you’ll blow it all in one place. Below, we suggest some smart ways to give, save, and spend that will help you avoid impulse spending and brighten your future.
What goes around comes around, they say. When good fortune comes your way, remember to give back to society and share your wealth. If you’ve always wished you could do more to help a particular cause, now is your chance with your newfound monetary freedom. Consider donating a percentage to a charity that you consider to be a worthy cause.
Rainy days happen. Unexpected car problems, home repairs, medical emergencies, job losses, and other such events seem to always happen at the most inconvenient times. But as long as you have an emergency fund, you’ll be prepared to bounce back quickly. If you’re just starting out with this kind of fund, experts recommend having at least three to six months’ worth of expenses saved in your account. If you feel comfortable putting in more, do it.
One of the keys to financial freedom is becoming debt-free. Use some of your newfound wealth to pay off some debt, including all your credit cards, vehicles, student loans, and other debts (besides your mortgage loan) from the smallest to the largest amount. This will consolidate the number of payments you’re making each month and give you a more flexible monthly income.
Investing allows you to grow your wealth beyond what it already is. Take advantage of any retirement funds your company offers and diversify your investments in good growth stock mutual funds or exchange traded funds (ETFs). Although each investor’s circumstances are unique, consider putting about 15% of your income towards investments.
Inheriting money is fun and exciting, and you don’t have to save or invest the entire amount. It’s completely acceptable to spend a limited amount on something you enjoy. Whatever you do, though, be sure that the way you spend your money honors your deceased loved one’s legacy. If he/she valued family time, for example, you could use your “fun” funds to take a weekend family trip.
If you’re feeling a little overwhelmed with your inheritance and feel like you could use some guidance with regard to wealth management, contact Dechtman Wealth Management. We specialize in simplifying investment so that everyone can do it. Our transparent team is eager to set you up for long-term success.