The 5 Smartest Thing to Do With Inheritance
Getting an inheritance can be a bittersweet experience. No matter what emotions come with the money, though, you must make a plan for its use. Instead of going out and splurging, look at the list below. Each of these five items is considered by experts to be the smartest thing to do with inheritance.
Pay Down Debt
Most financial gurus advise that you should use your inheritance to pay down as much debt as you can. It doesn’t matter if all you can do is take a chunk out of the principle of a credit card debt – doing so frees up more money for you to use in the future. Removing debt is a key part of securing your own financial future.
Save for Retirement
Your inheritance doesn’t need to be spent right away. In fact, it’s often a very good idea to put it away for the future. If you receive an inheritance, it’s probably a good idea to use it to fund your IRA or your 401(k). While it may not seem particularly fun to put the money away for retirement, you’ll be happy that you have it later.
One of the best things you can do with your inheritance is to put your money somewhere where it will work for you. If you don’t already have an active investment portfolio, it’s a good idea to seed it with this money. Not only will this money theoretically be outside of your usual budget, but you can also invest with it without disrupting your other investment plans.
Establish An Emergency Account
If you didn’t need your inheritance for a rainy day, it might be a good idea to put it away just in case. A good emergency fund is one of the best gifts you can ever give yourself. As a rule, you should have at least one full month’s worth of expenses put away in a savings account to deal with any short term emergency. If you can afford to fund your account for several months, you can rest a bit more easily next time a financial disaster occurs.
Leave Something for Others
If you’ve inherited more than you need to take care of yourself, why not do something for others? A substantial inheritance can help you to leave something in your estate for your own heirs, so it might be a good idea to talk to an estate lawyer about setting up a trust. If you are comfortable with your estate as it is or you don’t have heirs, you may also want to think about giving something to a charity. Not only can this help you to fund a cause about which you are truly passionate, but doing so will also be tax deductible.
If you’re not sure what to do with your money, talk to a professional. Receiving an inheritance can be very emotional and many aren’t thinking clearly when they get the money. Take some time, think about it, and make sure that you use this money in a way that can help you prepare for the future.