Receiving a large sum of money through an inheritance or other windfall can be stressful, exciting, and confusing all at once. Managing a large sum of cash can seem overwhelming, particularly if it’s an experience you’ve never had before. Here are seven common inheritance mistakes and how you can best avoid them. Follow these tips and you’ll find yourself benefitting from your inheritance not just in the short-term, but for decades to come.
Spending without a plan in place
Many people who receive a large inheritance are so overwhelmed that they get right to spending. They justify each purchase by saying that it’s only a small chunk of what they received. But those small chunks add up to big portions of your sum, and before you know it you’ve depleted much of your inheritance. Try to take things slow at first, at least until you have a set plan in place.
Making big changes all at once
Large inheritances can bring about the chance for big lifestyle changes. That might mean a new, bigger house, or the ability to quit working. But we advise holding off on these decisions. A huge sum of money might seem like it will last forever at first, but that’s not always the case. Resist the urge to immediately upgrade your lifestyle all at once.
Missing out on investment opportunities
The world of investing can be strange and foreign to the unexperienced. They might feel safer just leaving their lump sum of cash in a bank where nothing can “happen to it.” But smart, carefully guided investing is a vital way to stretch out the impact of your inheritance to have a long-lasting impact on your future.
Spreading yourself too thin
Even with the best intentions, it’s easy to forget the foundation of long-term saving and investing. It can be tempting to immediately begin giving away your sum of money to children, loved ones, or even charities. But remember that you can’t take care of others long-term if you haven’t taken care of your own situation first. Plan for your own future, then begin to think about helping others with theirs.
Forgetting about the future
It might seem like your life has changed all at once. You’ve likely lost a loved one, you’ve come into a great deal of money, and you have all kinds of decisions to make. Just remember that smart planning now will lead to a stable, enjoyable life in the long-term. Don’t sacrifice lasting financial security for short term thrills or financial excitement.
Being your own financial manager
Abraham Lincoln once said that any lawyer who represents himself has a fool for a client. The same could be said for an individual who’s come into a great sum of money. When you come into a large inheritance, there are a lot of personal and emotional factors wrapped up into it. Your relationship with the deceased, your family members and friends who might benefit from some of that money, and other thoughts can affect your thinking. You need someone on your team who can be truly impartial, giving you unbiased and experienced advice to help plan for your future.
Taxes and other liabilities
There will be certain tax consequences surrounding any decision you make so you should consider how to be as tax efficient as possible. You should consider how to structure yourself for appropriate asset/liability protection. Could this money go to your spouse? Could this money get taken by creditors? Could I lose this money in a divorce?
It’s heartbreaking how often we see individuals miss out on building a lasting financial foundation for themselves because they don’t know the options available to them. It’s particularly difficult when we know that we can offer free information about investment options, saving plans and financial planning solutions.
Set up an appointment with us today so that we can learn about your situation and walk you through every solution available to you.