If you’ve received an inheritance, you know that it can be a time full of emotion. While you’re grieving the loss of your loved one, you’re now flush with cash that you might’ve not expected to have and aren’t sure what to do next.
Here are five ways you can ensure your inheritance gets used in a way that stabilizes your financial situation and maximizes your opportunities.
1. Pay off outstanding debt now
If you have any outstanding debt, now is the time to get rid of it. Try using the avalanche method to create an actionable plan to become debt-free and save money on interest. The longer you wait, the more interest you’ll accrue, which will make it even harder to get out from under your debt. Use this windfall as an opportunity to start fresh with a life free from past financial mistakes.
2. Add more to your emergency fund
If you haven’t started an emergency fund yet, use your inheritance to get one going ASAP. While it might not be a fun way to use your windfall, ensuring you’re protected from any financial emergencies like job loss or medical bills is one of the best ways to maintain good financial health.
If you already have an emergency fund, consider setting aside a portion of your inheritance to add more to it. There’s no set amount for how much you should have, but most experts recommend anywhere from six months to one year’s worth of expenses.
3. Hire a financial advisor
If your inheritance puts you into a high net worth category, it may be a good idea to hire a financial advisor that can put your money to work for you. A financial advisor typically handles wealth management for their clients and will set a plan that utilizes the amount of money you have to keep you in a comfortable life for decades.
Look for an advisor who is licensed and accredited by either the Financial Industry Regulatory Authority (FINRA) or the Securities and Exchanges Commission (SEC). Take the time to do a background check, too, by looking up disciplinary records from the state bar association so that you’ll know your money is protected.
4. Buy appreciating assets to grow your net worth
To maximize returns on your inheritance and have your money earn more money effortlessly, look into buying appreciating assets. Appreciating assets are investments that increase in value over time, such as land and property, education, and art. Depreciating assets like vehicles or electronics, however, decrease in value and shouldn’t be a priority.
5. Stick to living the same life (or something close to it)
While it’s fine to treat yourself when you’re given a lot of money, you can make your wealth last longer if you can maintain a frugal lifestyle. That doesn’t necessarily mean living in poverty, but the more you’re able to live a simple life with a few luxuries, the more stable your financial situation will be. Avoid letting “lifestyle creep” (the process where your lifestyle slowly becomes more expensive) drain your finances and put you in a worse situation than when you had no inheritance or windfall to rely on.
The bottom line
Receiving an inheritance can come with a lot of emotion. Use this guide as a way to keep yourself in check with your cash flow so that you’re able to use the money the way your loved one hoped you could.