So, you’ve just learned of the passing of a loved one. During this stressful time, you may also find out that you’re receiving an inheritance. While you’re grateful for the thought, knowing what to do with an inheritance can bring its own share of stress. Even though the Federal Reserve Board’s survey reports that an average of roughly 1.7 million households receives an inheritance each year, a study funded by the Bureau of Labor Statistics showed that one-third of people, who receive an inheritance, spend all of it — and even dip into other savings — within the first two years. Don’t become another statistic! Be smart when a loved one’s inheritance unexpectedly comes your way with these 3 tips:
Take time to grieve your loss.
Deciding what to do with an inheritance can bring with it mixed emotions: a sense of reprieve for this unexpected financial gain and sadness for the loss of a loved one. During this time, you might feel confused, upset, and overwhelmed. The last thing you want to do when deciding what to do with an inheritance, however, makes financial decisions under emotional turbulence. Avoid making any drastic moves right away, such as quitting your job or buying a brand-new car. Some experts suggest giving yourself a six-month buffer before using any of your inheritance, dedicating the time to develop a financial plan, instead. While you are thinking about steps to take with your inheritance, you can stow away any funds in a high-yield savings account or a certificate of deposit.
Know what you’re inheriting.
Before you determine what to do with an inheritance, you need to know the assets you’re receiving. An inheritance will come in the form of assets from one of three places: real estate, a retirement account, or investment assets. If you receive property, it is up to you to choose what to do with it, whether you want to sell, rent, or live in it. A retirement account, such as an IRA, Roth IRA, or 401(k), can be distributed in one lump sum if certain requirements are met. Inheritance in the form of assets, including stocks and mutual funds, should become part of your own financial picture. And, don’t forget that an individual may also bequeath cash or valuables, like jewelry or family heirlooms, as well as life insurance or stock certificates. Once you know what you have, it’s easier to decide how to handle it accordingly.
Plan what to do with your financial gain.
Just like doing your household budgeting, it’s important to assign your inheritance to specific purposes or goals. Depending on your financial situation, you’ll either want to save, spend, or give away your inheritance. If you decide to save it, for example, you could bolster your emergency fund, which accounts for three to six months of living expenses. This will help your family to avoid unexpected financial ruptures, like a job loss or car repair.
Choosing to spend, on the other hand, could allow you to tackle credit card debt, pay off student loans, or enjoy a vacation or big purchase. Finally, there’s nothing like a little generosity, and we’re sure that your loved one would have adored their money going to a worthwhile cause or charity of your choice – or even one that honors their legacy!
Improve your daily life with help from The Heights at La Salle Apartments in Durham, North Carolina. By passing along this information, we hope to provide you with all that you need to live your life to the fullest.