Wealth acquired suddenly through an inheritance can bring emotional difficulties as well as financial challenges. People lacking experience in managing large sums of money can experience stress and anxiety at the sudden array of spending options open to them. Guilt also plays a part since the beneficiary received the money because of someone else's death. A financial adviser can present many investment options, although you might want to consider your personal situation first.
Maintaining the same lifestyle you had before the inheritance for at least six months. This can remove some of the stress and pressure by holding off on any drastic or hasty decisions until the reality of the situation has sunk in. Additionally, you may need to wait for the funds to come in pieces as the estate sells off different investments. Resist the urge to indulge in shopping sprees or expensive vacation plans. Consider putting the money in a money market account or short-term certificate of deposit. Unless your inheritance is over $500,000, Quinn recommends hanging on to your current job unless you already have a large amount of savings.
Focus on financial goals, such as college for the kids, a paid-off mortgage, enough funds set aside to retire in comfort, or annuity investments that will pay a steady cash flow stream. Concentrate on important financial goals instead of instant gratification spending with no future monetary benefit. Ask your financial adviser about the tax implications of your inheritance. For example, inheriting an individual retirement account (IRA), can trigger a huge tax payment and penalty depending on how you withdraw the money.
Financial risk involves not just your willingness to take on risk, but how much you can afford given your needs and investment time line. Generally, the closer a person is to retirement, the more important it is to invest in lower-risk financial instruments. If you plan to retire soon, keep some cash in short-term investments. A financial adviser can help you allocate remaining long-term investment funds between stocks and bonds for a balanced return.
Allocate your inheritance among several different investments, depending on the amount of the proceeds. Start with putting three to six months of the inherited funds in an emergency account to cover your regular expenses. Next, satisfy your long-term financial goals of retirement funding and debt payoff. Your adviser can recommend mutual funds, permanent life insurance with cash value, annuities or other instruments to achieve these goals. After meeting these goals, fund a separate bank account with the money you plan to spend on a splurge for yourself. Do not dip into any of your other inherited funds once you empty this account.
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