At first, it may seem like a silly question; receiving an inheritance would be a welcome financial windfall, despite the sad circumstances. For most of us, even a small amount could make a big impact and reduce some of the financial stress we tend to carry around with us. However, it’s important to carefully plan for an inheritance or it may just slip through your fingers. Here are 4 helpful tips to keep in mind if you are expecting an inheritance:
- Stop, think & wait
Gaining an inheritance usually means we’ve lost someone very close to us, and dealing with grief, their estate or personal belongings, a funeral and other family issues are important things to manage. Taking time to process everything and begin making a financial plan is recommended; there is no need to rush. You may find that the amount is less or more than originally thought, in which case you may need to re-group. It’s also not a good idea to promise other people money, spend lavishly or to make elaborate plans at this stage. Just wait.
- Deal with debt
No, it’s not exciting or sexy, but one of the first things to do with any windfall is to assess your current debt load. If you’re paying a lot of interest, it makes sense to tackle that debt and interest payments so that you keep more of your money. If, however, you only carry a small mortgage with a low-interest rate, you may decide on leaving your mortgage alone and investing your money elsewhere that could yield higher interest. For anyone who owes money on various credit cards and loans, consolidating everything into one loan that has lower interest rates may be beneficial, and then you can make a large payment against it. Getting that weight off your shoulders can be life-changing and you’ll likely find yourself with fewer sleepless nights.
- Set aside fun money
If you’ve always dreamed of having a vintage Harley Davidson or a trip to Paris (and funds are aplenty), then, by all means, go for it. However, it’s important to set aside a specific amount for fun and spending…once the debt and other financial obligations have been adequately met. A frighteningly large amount of people blow all of their money in the first few years of receiving a lottery win, inheritance or other windfall and end up right back where they were, with nothing to show for it except for maybe a few extravagant items and some ticket stubs. If you’re at all worried about spending it too quickly, there are accounts and investments you can get that lock in your funds or make it harder to access; be sure to talk to a financial planner or your lender for advice. Also, before gifting your inheritance to others be sure you’ve secured your own financial future first.
For most Canadians, our financial goals include paying off our mortgage and other debt, having a solid retirement savings plan, and having an emergency fund. If you’ve received an inheritance, you can split it up to help make a dent in achieving all of those goals, and hopefully, you set a little bit aside for making special memories. It’s also important to diversify your investments so that you aren’t putting all your eggs into one financial basket. You will likely want to max out your TFSA, RESP, RRSPs and so on. Do your research and talk to an accredited financial planner to ensure your inheritance money will be working for you.
Finally, take care of the money you were willed; doing so helps to honour the deceased and recognize that they likely worked hard to earn and save that money. Blowing it all on fast and fleeting items may sound intriguing and fun, but having a safety net, reduced debt and sound investments to carry you into retirement and beyond is an admirable goal. If you’d like to learn more about managing an inheritance, investments, retirement planning, debt-reduction strategies and more, be sure to connect with me. I’ve got the experience and financial know-how to help you navigate the various ins and outs of financial planning and offer sound advice. Call me to book an appointment at 705-315-0516.