I received an inheritance before, and I found this philosophy on financial planning for an inheritance – but first,
Take as long as you need to grief and heal from your loss – let the money sit in a high yield savings account. Money isn’t going to solve anything, and it can set you up for the future if you use it right.
Invest 1/3: to the future
Invest 1/3 to pay back the past
Invest 1/3 and live for the now.
Invest for the Future. Take 1/3rd of the inheritance and invest it into a brokerage investment account (how you invest the money is actually the ‘easy’ part and perhaps a discussion for another day – it all really depends on what you need.) This account can act as future retirement savings or something like an emergency fund – stay disciplined in this part of the plan.
Payback the Past. Take 1/3rd of the inheritance and use it as a down payment on a home. If you rent, the funds that you are currently using for rent can now be used to pay down the mortgage which increases your net worth each month. Your net worth is a tool to measure how wealthy you are.
If you own your home – think of what debt you can pay off. Student loans? Car loan? Personal loan? Maybe put it into an account to save for your child’s education, or even reinvest into your education? If interest rates are low, no rush to pay the home off.
What to do if you are debt free and own your home, with a no or low interest rate? That’s a great spot to be in. Think of investing more into your future, or increasing your earning ability.
Live for the Now. The final 1/3rd of the inheritance I would use to go on an amazing trip, buy a sports car, see the world, cross something off your bucket list, make a charitable donation to your parent’s favorite charity, upgrade your education. Think outside the box. You may not get another chance in your life to do something amazing. Give yourself permission to follow your dreams – maybe that’s what they wanted?
Joe DiAndrea 