The following article appeared on the Peach State Federal Credit Union blog on Feb. 20. Peach State serves more than 41,000 members in Barrow, Clarke, DeKalb, Gwinnett, Jackson, Oconee and Walton counties.
Receiving an inheritance can be a great financial opportunity, as well as a challenge. It can also be very emotional since it means that you have lost someone close to you. If you are an heir to someone’s will, that means that you are going to get an undetermined amount of money soon. If you aren’t careful, you run the risk of losing your money just as quickly as you receive it. The big question is what you can do with the money, and how to handle the situation correctly.
You need to come up with a plan to save yourself from wasting the inheritance. Many people end up spending the money on things they don’t need. Others end up choosing bad investments and lose the money.
This article will help you understand how you can benefit from your inheritance. The following is a list of do’s and don’t’s when it comes to your inheritance:
- DO put your money into an FDIC account. The maximum amount that an FDIC account can insure is $250,000. So if your inheritance is more than that, you can set up multiple FDIC accounts in different financial institutions. The best strategy for you to not use up the money is to put it in a savings account that has a penalty fee for early withdrawal.
- DO consult with an advisor. If you have a habit of spending too much or can’t keep up with expenses, it would be wise to hire a financial planner. They will help you save money and keep you from spending it on things you don’t need. Make sure to find yourself a planner who doesn’t take a commission. Go through several of them to find the right one for yourself. A financial advisor can help you invest money in the right places, tell you when the market is going up, and also help save up for retirement.
- DO pay off all your high-interest debts like credit card loans, personal loans, Mortgages and home equity loans should come next.
- DO contribute to a college fund for your children if you have them. Contributing towards your child’s education is a smart way to spend your inheritance.
- DO save up for retirement. If you are close to retiring or want to maintain your standard of living, then you must sign up for an IRA. Putting money from your inheritance into your retirement account is a good step towards a solid future.
- DO make as many solid investments and contributions to your IRA as you can. Try investing in a taxable brokerage account and make sure you to open a CD account.
- DO learn to say no. Once people start getting informed that you have come into a large sum of money, there will be plenty of long lost family members and friends along with charities or other institutions that will come to you to help them financially. It is a good deed to help others and to give to charities, but you need to know when to say NO. Not everyone who will come to you will be in need of money. Learn how to establish boundaries with family and friends and try to stay away from scammers.
- DO indulge yourself once you’ve made your investments and saved up enough for the future, but make sure not to go overboard. Try to limit your impulse spending to no more than 10% of your inheritance.
- DON’T spend your money without thinking about the consequences. Splurging a little is fine, but you need to look at your financial situation. You may have just have received a large sum of money, but that doesn’t mean it won’t diminish.
- DON’T quit your job. Getting an inheritance might make you rethink about keeping your job, but it should only be thought of if you are coming into a lot of money such as a few million dollars. Quitting or retiring early will only make you blow through your inheritance more quickly.
- DON’T be unrealistic. Inheriting a large amount of money should not change how you live your life. Make sure to be reasonable with your spending to avoid going broke or into Even if you inherit millions of dollars, there is no guarantee how long you will be able to live a life of luxury if you don’t limit your spending.
- DON’T act rashly. When you inherit money, you might feel the sudden urge to make big purchases that you always wanted to make but never could. It is okay to buy a new car or get a bigger house if your inheritance is big enough and if you need it, but for the most part, try avoiding such rash and impulse buys.