managing an inheritance

Tips on Managing Your New Inheritance

In Articles, Estate Planning, Wealth Management by Dannell Stuart

 
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By Dannell Stuart, CFP®, ChFC®, CLU®, CASL®
Partner, Client Advisor and Director of Business Development

 
Receiving a sizable inheritance can be life-changing. For many people, it can open up new possibilities. The biggest question of all is how your new inheritance should be managed to benefit you the most. Whether wealth management is something you are familiar with or whether your inheritance suddenly places you in an entirely new financial situation, most people don’t know how to manage their new funds prudently. Receiving a substantial amount of money all at once can become overwhelming when you don’t know what to do with it. Most people wonder where to allocate their money and how much they should use to invest, save, pay down debt, or spend.

A windfall can cause people to lose focus. They forget their previous money management skills and ultimately deflate their money supply within a short amount of time. Often, they do this by making impulsive purchases and failing to think ahead. With the following money management strategies you can make smart decisions and reduce unnecessary risk.
 
Give Yourself Plenty of Time to Think

thinking about financial goalsThe worst thing you could do when you receive your inheritance is to start spending it immediately, unless you have a plan for how to do so. Therefore, don’t make hasty decisions on where to put your money. You need time to process your thoughts and your goals so that you can put yourself in a better position to make financial decisions. There is nothing wrong with taking the time to figure out your plan. Start by placing your money into a savings account, a short-term CD, or money market account. Your money won’t go anywhere. Put your money in a safe and liquid place and give yourself plenty of time to talk to financial experts and explore your options before you start moving your money around. It can be tempting to immediately spend your funds on a few lifestyle upgrades, but this is not the way to make the most of your inheritance.
 
Take All of Your Emotions Out of the Equation

Another reason it is smart to give yourself time to figure everything out is that you need to process all of the emotions that come with receiving inheritance money. It is very common for people to feel confused and guilty about receiving this money. Unfortunately, emotions tend to drive decisions where inheritance is concerned. Before you can make smart financial decisions with your inheritance, you need to have a clear head. If you feel you are still grieving from the death of a loved one or a divorce, then focus on processing these negative emotions before you start investing or spending your money.
 
Make Paying Off Debt Your #1 Priority

paying off debtEliminating any consumer debt you have should be high up on your to-do list once you figure out a solid plan for your finances. Any credit card debt that can be eliminated easily should be paid off. This will give you more financial freedom and will take off some of the burden and stress of your debt and the payments associated with it. Student loans and mortgage loans are different, however. You may be less concerned with paying these off since they are likely at low interest rates and in the case of your mortgage the interest may be tax deductible. Your money may do better invested somewhere else unless for some reason your interest rates are abnormally high or the payments are burdensome.
 
Invest in Your Retirement Savings

Another high priority should be to invest in your 401(k) or IRA, especially if you have not been contributing the maximum. Contributing to your retirement funds can reduce your taxable income and let it grow tax-deferred. Don’t just worry so much about the length of time your money will be invested, but also the quality of your investment portfolio. Once you have the right mix of stocks and bonds in place, you can estimate the probability for a secure retirement based on your goals. This is when you really want to hire the help of financial advisors to help you make smart decisions based on understood risks.
 
Hire Professional Wealth Management Advisors

hiring a wealth management advisorThe last thing you want to do is add any extra stress to your life as a result of your inheritance. Hiring experts will help because they can educate you about what you should know about investing your windfall to give you the highest probability of achieving your short and long term goals. A financial advisor can help you plan out your financial life based on your goals and expectations. Look for advisors who are CERTIFIED FINANCIAL PLANNERS® (CFP®), have experience with planning for windfalls, and who won’t have a conflict of interest based on how they get paid.

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CFP®, ChFC®, CLU®, CASL®

Partner, Client Advisor and Director of Business Development


About the Author
Dannell is responsible for the firm’s business development activities and enjoys being involved in welcoming new clients to the firm. She serves on the Investment Committee and also devotes time to servicing client relationships.

CFP®, ChFC®, CLU®, CASL®

Partner, Client Advisor and Director of Business Development


About the Author
Dannell is responsible for the firm’s business development activities and enjoys being involved in welcoming new clients to the firm. She serves on the Investment Committee and also devotes time to servicing client relationships.