Over a third of Americans blow through their inheritance within the first two years, according to a study from the Ohio State University about the money management habits of people who receive endowments. Furthermore, the study showed that most people get to save only half of their inheritance in the long run. If you’ve received your inheritance or expecting one soon, you’re probably thinking about all the savings and spending possibilities.
Overthinking about them, however, can lead to bad financial decisions you’ll regret for the rest of your life. Being an overnight millionaire is a curse as it is a blessing. Here’s a short guide to help you navigate through your sudden wealth.
Take Care of Your Debts
It’s easy to be caught up in the best way to spend or save your money that you forget to address your debts. Pay them off ultimately, and if that’s not possible, bring them down to a manageable amount. This helps you eliminate shelling out more cash on mortgage or credit card bills because of interest.
Don’t Give in to Pressure
When you receive a considerable amount of sudden wealth, two kinds of pressure start to mount on your back: your desire to go on a shopping spree and your friends and relatives wanting a cut of what you have. While it’s great to buy that phone you’ve always wanted or to help your cousin get the phone they’ve always wanted, keep those thoughts away first. Leave the money alone for at least a few weeks to think about the amount you need to save and how much you plan on spending. If you’re still on the fence about how you’ll manage your wealth, talk to a fiduciary advisor. They’ll help you regulate your money and investments so you won’t end up broke in a year.
Make a Wise Investment
It’s always smart to look towards starting or investing in a business when you receive a large inheritance. Investing in mutual funds or exchange-traded funds can help you grow the money you already have, but it’ll take a lot of studying and planning to get right. Enlist the help of an investment advisor if you’re not confident about your trading skills.
Another way to make your spending worthwhile is by starting your own business. Start that passion project you’ve always been meaning to work on now that you have the resources. However, you’ll need to create an effective business plan to make sure your venture is profitable as it is fun.
Pay it Forward
Your inheritance, no matter the amount, is a gift that was given to you by a loved one to enrich your life. What better way to show your appreciation than to pay it forward? Once you’ve planned out your savings, assign a portion of it as an inheritance for your loved ones as well. Donate to a cause that you genuinely care about. Better yet, start a foundation of your own. It’s always worth it to give back.
Receiving an inheritance is a delight, but it can turn you into an uncontrollable spender if you’re not careful. Take a step back and evaluate how you’ll manage your money. If you’re not sure about your next action, ask a financial professional to help you out. Your loved one entrusted you with that wealth. Honor their memory by spending wisely.