Inherited Money? Here Are the 6 Smartest Things You Can Do With It

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An inheritance may be expected or come as a windfall. In either case, read on for six smart ways you can make an inheritance work for you. 

Whether you’ve inherited $2,500 or $2.5 million, a sudden influx of cash calls for decisions. The goal is to use the funds in a way that ultimately makes your life easier and leaves you with no regrets. If you’ve received an inheritance or expect one in the future, wait to spend a penny until you put a plan in place. Here are six smart moves you can make, each designed with your well-being in mind.

1. Don’t get dragged into an argument

If your inheritance stirs up conflict, how you handle that conflict can directly impact your future.

There are many reasons someone may feel you received an unfair portion of the inheritance pie. Trevor Todd is a Canadian estate litigation lawyer who has spent decades helping those who have been disinherited contest wills, and offers these reasons people might come after you for your inheritance:

For some people, money equates love, and the lack of an inheritance equates a lack of love.Humans are greedy.The death of a loved one activates the death anxieties of those left behind, causing some people to strike out in response.

You’re less likely to make the best decisions regarding the inheritance if someone is yapping in your ear like an excited chihuahua. Refrain from getting dragged into conflict regarding any money or property left to you, and if need be, hire an attorney to argue on your behalf.

2. Wipe out debt

If you have high-interest debt hanging over your head, there’s little doubt that it should be the first thing you tackle. Let’s say you owe $7,500 on a credit card carrying an interest rate of 17%. The fact that you’re making a $150 monthly payment doesn’t feel like that big of a deal. However, if you keep making $150 payments, it will take 59 months to pay off, and you’ll pay a total of $3,583 in interest.

Failing to pay that debt off means spending just shy of five years paying interest when you could be earning interest in a money market account or high-yield savings account.

3. Set a splurge limit

Now is the time to set a spending limit. If someone cared enough about you to leave an inheritance, you’re probably going through your own grief. Decide how much money you will spend, then stick with that budget. It’s okay to splurge if it does not negatively impact your ability to cover expenses later.

4. Build an emergency fund

More than half of Americans (53%) say they don’t have an emergency fund. That means scrambling to come up with the money to pay for things like a cracked radiator or an emergency visit to the dentist. If you’re like most Americans and don’t have money put away for a rainy day, there’s no better time to do it than after receiving an inheritance.

Experts recommend that you tuck away enough to cover three to six months’ worth of expenses. You can figure out how much you need by listing your fixed monthly expenses and multiplying by three or six. Or, you can use a calculator like this to walk you through the process.

You may want to save even more if you have serious health problems or an unpredictable job. Imagine knowing your bills will be paid, and you’ll be okay if everything goes south.

5. Don’t go it alone

The most tempting thing to do with “found” money is to spend. This is especially true if you’ve been living paycheck to paycheck. What’s the hurry? The more time you take to consider what to do with the money, the less likely you are to have regrets.

If you need help figuring out where to start, work with a financial advisor who will offer you unbiased advice regarding optimizing your windfall. A Northwestern Mutual study found that people who work with financial advisors are twice as likely to feel financially secure and more likely to have a clear picture of how much they should spend and how much they should save.

And here’s the great part if you’re the independent type: You don’t have to marry yourself to a particular advisor. Sure, some ask for a monthly retainer, but there are also those who charge an hourly rate or a flat fee to complete a specific project. You can meet with this person as often or as infrequently as you want.

6. Plan for the future

We all have dreams. Yours may include buying your first home or upgrading to a larger home. You may want nothing more than to return to college or to travel the globe. Whatever your heart’s desire might be, planning for it allows you to systematically put away enough to cover that goal while still considering things like healthcare and retirement.

If you’ve received an inheritance, it’s a token of someone’s affection for you. Why not take your time to use the money in a way that would make that person proud?

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