Inheritance money somehow feels different to the money that you’ve earned and saved yourself. It’s a special kind of money; money that’s been earned from the toil of your parents and grandparents. Now it’s been handed down to you, you have responsibility for how to best use it and get the most out of it.
For many people, inheritance is a modest amount. But for some, it can be a lot. There are more than 5,000 estates worth more than £15 million, meaning that many people come into sudden wealth, requiring a lot of planning and some soul-searching too. When a parent dies, it can be a tragic thing. But more tragic still is when all their hard work, wrapped up in that money, actually makes the lives of their children worse.
So how should you spend and save your inheritance wisely?
Inheritance Money Is Different
As discussed, many people see their inheritance money as somehow “different.” If they’ve had a good relationship with their parents, they ask themselves questions like, “how would dad want me to spend this money if he was here?” These types of questions help motivate the majority of people to put their inheritance money to good use. But of course, not all family relationships are positive.
For instance, many people who receive a large inheritance from a relative they hate try to disown or disavow the money. They spend it lavishly, believing that this is their reward for enduring a nasty or abusive relationship. And while this might seem cathartic, it’s actually a waste of an opportunity to secure your financial future and make a bad situation into something good. If you find yourself in this situation, CBS News suggests that therapy “could be a big help here.”
Get Your Assets Valued
When a parent passes on, he or she will leave you a lot of stuff, most of which you probably don’t want or need. It’s a good idea, therefore, to get a probate valuation for any property that has been left to you in the will. An estimate will help you establish how much a home can be sold for so that you can figure out exactly how much your cut of the inheritance is worth. You may also find that your parents were regular investors in certain asset classes. If you suspect that these assets are underperforming now or in the future, switch out of these and put your money into something more lucrative.
Use The 10 Percent Rule
When people get a large sum of money, seemingly out of the blue, they can be tempted to go mad and spend it all in an afternoon. But, as discussed, if you get a large inheritance, blowing it all is an enormous missed opportunity. Most people in this situation use what’s been dubbed the 10 percent rule. Here, they set aside 10 percent of their inheritance to spend on their shopping list and reinvest the rest for their future. This means that you are still left with 90 percent of the wealth your parents left you.