Imagine that you have inherited a cool $50 million. What do you do with it? Before you go blowing it all on a fancy cruise vacation, new house, BMW, new car, or yes, avocado toast, take some time to collect your thoughts and let the fact that you’ve inherited a fortune sink in. That’s what Ken from Sacramento did. After inheriting $50 million dollars from his parents, he called into the Dave Ramsey show to gain some perspective on how to manage his money. You can learn from Ken on what to do if you ever wind up in the same situation. Here are a few tips on managing inheritance that we’d like to share:
1. Take a Breath and Don’t Rush
This one should be obvious: don’t rush to blow it all. When Ken reached out to the Dave Ramsey show about how to spend his $50 million dollar inheritance, Ramsey offered the following advice: spend some, save some, invest some, give some of the money to charity, etc. The news of an unexpected inheritance can be overwhelming, triggering a flurry of emotions. Try to adjust to your new financial reality before making any rash decisions.
2. Seek Professional Advice
One of the first things you may want to do is to seek out professional advice from a financial advisor. While Ken Consider consulting with a financial advisor, accountant, or lawyer who specializes in inheritance matters. That is why the caller called into the Dave Ramsey show: to receive advice from a professional on what to do with his inheritance. A financial advisor can help you grasp the full picture of dealing with taxes, investments, any fees, bills to pay off, debts, etc. An advisor can offer the best strategies for managing or investing your assets. A financial advisor may also help you tackle paying for everything in this era of high inflation. You may want to consult with an advisor you are really comfortable with, and who you have a good relationship with. You don’t want to stick with the SAME advisor just because that particular person is someone who your parents used (IF your parents had one).
3. Set Clear Goals
Once you’ve gathered the necessary information, it’s time to set clear goals for what you want to achieve with your inheritance. You may want to look at paying everything off you owe before deciding to (wisely) use the money to invest, renovate your house, travel, etc. Specific goals are the key: whether it be diversifying your portfolio, or planning your estate.
4. Pay Off Debts and Build Emergency Fund
This one goes without saying: If you have any outstanding debts (student loans, credit card debt, etc.), consider using a portion of your inheritance to pay them off. Even if you comb through your finances with a financial advisor, you still shouldn’t touch that money and just brazenly spend it all. When you pay off your all of your debts, you can relax and focus on investing for the future. It’s a practical way to secure your financial future and relieve the burden of debt. It’s also good to prioritize an building up an emergency fund to cover unexpected expenses. You don’t have to have a specific amount between three to six months of savings, but if you have an inheritance and are looking to save for the future, it’s always wise to do following: pay off debt and have an emergency fund. It sounds obvious, but when you actually have access to the money, it’s tempting to simply blow it all. You might also underestimate how much money you really need to live on and invest for your future.
5. Invest Wisely
Consider diversifying your inheritance into investments to mitigate risks and maximize returns. Consult with a financial advisor to develop an investment strategy. Whether you invest in stocks, bonds, real estate, or put money into mutual funds, TFSAs, or RRSPs, make informed decisions.
6. Plan for the Future
Once you have used that money to plan for YOUR future and invest wisely, you may also want to spread the wealth (to your family members and loved ones, that is). You may want to use some of that inheritance to fund your children’s education. You may not have a million to your name, but estate planning is always valuable. Take the time to create or update your estate plan, including Wills, trusts, and beneficiaries. Planning ahead ensures that your assets are distributed.
7. Enjoy Responsibly
It sounds like a beer slogan, but it’s true: enjoy your money responsibly. Treat yourself to something special, but avoid overspending or making impulsive decisions that could deplete your inheritance. Stories abound about lottery winners who blow through their money within a decade and wind up broke. If you’re not careful, the same could happen to you, regardless of how you come across your windfall (i.e. lottery or inheritance).
8. Give Back
Lastly, many people who have their Wills drawn up often consider leaving something for charity. Many people do this in their Wills, but if you ever come across a significant windfall, you may want to consider donating the money right away. That money you donate will surely have a meaningful impact on others around you.
Whether you inherit a million, or a small windfall, just be sure to manage it carefully.
Be sure to seek out advice, like Ken from Sacramento.