An inheritance should be used wisely.
Money earned just spends differently than gifted money.
Paychecks are readily used for supporting charitable causes, paying bills, reducing debt, and preparing for retirement.
Gifted money is often allocated to impulse spending, vacations, or big-ticket items.
According to a recent Go Banking Rates article titled “Suze Orman: 3 Things You Must Do If You Receive an Inheritance,” an inheritance is a form of gifted money.
Although it is tempting to make a large or luxury purchase with an inheritance, the money often goes further with strategic allocation and delayed gratification.
How can heirs set themselves up for wise financial decisions with an inheritance?
Heirs Should Take an Inventory of Their Debt.
Having debt is fairly common.
Sometimes taking on debt is necessary for greater returns.
Make a list of car loans, credit card debt, student loans, mortgages, and personal debt.
Record how much you owe on each and the average interest rate you are paying for them.
With this information, build a plan for paying off the debts.
Whether you have a large or small inheritance, you can set yourself up better financially by immediately reducing or eliminating debt.
Heirs Can Build Emergency Savings.
If you have some of the inheritance left after paying your debts, turn your attention to savings.
The value of an emergency savings account cannot be overstated.
Life is filled with unexpected and costly events like car trouble and refrigerators or other appliances breaking.
The repairs can cost several hundred dollars.
Although a credit card could allow you to make a quick payment, it will do you little good if you do not have the funds to make the credit card payment.
It is best to have at least $1,000 to $2,000 in an emergency fund.
Heirs Can Create a “Must Pay Now Savings Account.”
This savings account is designated for recurring monthly payments.
To determine how much you need to pay each month, list your car payments, your rent, your mortgage, your insurance premiums, and other expenses.
For those who receive an inheritance and are living paycheck to paycheck, it can be helpful to use the money to fund an account to pay these bills for at least eight months.
Although heirs are often distraught about the passing of a loved one, using the inheritance wisely is a wonderful way to honor the memory of the family member or friend who died.
Reference: Go Banking Rates (Oct. 7, 2023) “Suze Orman: 3 Things You Must Do If You Receive an Inheritance”