More money than ever has started to pass from the baby boomer generation to the Gen X, Gen Y and millennial’s. In total, it’s possible that $30-70 TRILLION dollars might pass through the generations!
Many people are unsure of what to do when they receive an inheritance.
First off, we always recommend that they honor the person who has passed… whether that’s an appropriate donation or create an experience that solidifies their memory (within reason).
Second, put the money/assets to work!
Just remember, this person left you the money—now you can use it to move your financial life forward.
Here are few tips to help you through the process.
- Evaluate your current situation
Inheriting assets is always a bittersweet situation and, if you find yourself here, we hope you choose to use it as a tool to set yourself up for long-term financial success. If you inherit assets, call your financial advisor so they can help to create a plan that is right for you. Begin to prioritize your needs over wants.
- Pay off any bad debts (credit cards, high interest loans)
When you have high-interest consumer debt, paying it down first can help you solve ongoing problems with managing your money. You’ll get a guaranteed return by cutting your interest payments. This is particularly helpful if you have high-interest credit card debt. It can help improve your credit score too. Once your debt is paid, you can really focus on saving and other financial goals.
- Re-calibrate/re-confirm your long-term goals and objectives
Setting short-term, mid-term, and long-term financial goals is an important step toward becoming financially secure. If you aren’t working toward anything specific, you’re likely to spend more than you should. You’ll then come up short when you need money for unexpected bills, not to mention when you want to retire.
- Build cash reserves
This new-found money can help build a solid financial foundation. Whether it’s for future emergencies or investment opportunities, always having some cash on hand is a smart idea. Cash reserves provide you with the ability to take advantage of any opportunities that may arise, or if you need to get out of a tough situation, without having to use consumer debt (ie. credit cards), which can carry high interest rates.
- Fund long term goals
Long-term goals are usually your big-picture costs. These goals may take several years or even decades to reach. Your distant goals typically involve more money and regular attention than short-term goals.
Long-term goal examples:
- Funding retirement.
- Paying off a mortgage.
- Starting a business.
- Saving for a child’s college tuition.
- Build a middle bucket
When it comes to money, most people don’t know about the middle bucket. Ultimately, you want cash on hand to spend in your current life, not only long-term. Creating your budget with different “buckets” allows you to balance financial security for your family while maintaining the fun and adventure you crave. The middle bucket should be an investment account that is fully liquid but not as conservative as money in the bank. This is for the goals that are 5, 10, and 15 years away.
Take ACTION
Overall, receiving an inheritance can be a confusing and difficult time for many people. Having an actionable plan of what you are going to do can help alleviate many of these stressful feelings. Being able to implement a financial strategy is one of the most important things you can do in this situation, and by evaluating the steps listed above, receiving an inheritance will not seem like such a confusing time.
