This week’s theme is: What Do I Do With Inheritance Money?

Today, I’m asking an important question to help you begin to think about the best way for your in your situation to allocate future inheritance dollars. What would you do with $1 million?

Most of us don’t daydream too much about our future inheritance, because it also leads to thinking about the death of our parents. Personally, I think it’s best not to count on an inheritance at all, even if you think it will be sizable. It’s not something you can plan for since you don’t know when the windfall will occur, and you may end up receiving a lot less than you anticipated. 

Yet at the same time, it’s also a worthy exercise to put yourself in the shoes of your future self and think about how you would spend, save, and invest your inheritance. 

When you make decisions in advance or at least set some guidelines for yourself, you’ll be better prepared to handle the inheritance when the time comes. 

So with that in mind, here’s how I would advise the vast majority of people to handle an inheritance: 

#1 - Pay off debt 1st. If you have expensive credit card debt, I would start there. If you have car loans I would also consider paying those off as well depending on the size of your inheritance. The goal here is to use the funds to get out of debt, except for your house. 

Next, you can earmark some for spend, gifting, and donating, but the most I would recommend is 10% - realistically, that should be lower for most people. Then use the rest to save and invest for the long-term and for retirement. 

Going back to the $1,000,000 example, lets see what that looks like: 

• Let’s say I have $5,000 in unpaid medical bills and $25,000 left on my car loan. Those are my only debts. So I would use $30,000 to wipe out those debts first. 
• Next, I have a maximum of 10% that I can spend, gift, or donate - which leads me to $100,000. Perhaps my house needs a new roof and my kitchen is 15 years overdue for a remodel - I might spend $50,000 on those 2 things, donate $20,000 and earmark the rest of a $15,000/year vacation budget over the next 2 years. You can see that it’s pretty easy to spend $130,000 on making debt problems and a leaky roof go away among other things - perhaps some deferred upgrades on your house and some deferred vacation spending. 
• With $130,000 spent, you’re going to want to use the remaining $870,000 to keep enough cash for emergencies, then save and invest the rest for the long-term and your own retirement. 

Now if you already have millions and you don’t need this inheritance at all, it may be best to earmark this money for other things. But for most Americans, any inheritance received is money that will help ensure better financial security down the road, which makes prudent decision making essential. 

The most important point here is that the spending and gifting must be constrained with boundaries, so the inheritance isn’t continually used like a piggy bank to fund a lifestyle you can’t afford until the money runs out. 

That’s it for today. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

---------

>>> Subscribe on Apple Podcasts: https://apple.co/2DI2LSP

>>> Subscribe on Amazon Alexa: https://amzn.to/2xRKrCs

>>> Check out our blog: https://truenorthretirementadvisors.com/blog/

----------

Tags: retirement, investing, money, finance, finances, financial planning, retirement planning, saving money, personal finance, wealth management, money tips, fee only financial advisor, financial planner, financial podcast, retirement podcast, financial independence podcast