Day 4: What to do with the inheritance?
For most people, an inheritance is a surprise, regardless of whether it’s 5000, 10,000, or even 500,000 euros. And a surprise like that can paralyze you, as you don’t know what you’re supposed to do. One of the most important investments you can make is to educate yourself financially.
First things first
You need to set priorities for handling your inherited funds. If you have debts with high interest rates, such as personal loans or credit cards, it makes sense to pay these off first. The same is true if your emergency fund – which should ideally be able to cover at least 3 to 6 months of expenses – has very little (or nothing at all). This is something we’ve already gone over extensively in previous courses. Recognize that the best way to use these unexpected surplus funds is to secure your finances.
After you’ve first taken care of the most important financial necessities, it’s time to consider how you’ll invest the rest of your inheritance. This is how you’ll build up wealth that you otherwise wouldn’t have been able to.
Cast your money wide
As you now know, you have to invest your money if you want to build wealth, as it will otherwise sit in a bank account and shrink. When you decide to invest a large sum after receiving an inheritance, make sure you invest your money in numerous stocks and bonds, for example with the help of exchange-traded funds (ETFs). You can also decide to invest in additional asset classes, such as real estate, gold, cryptocurrencies, or other alternative investments.
We also want to give you a few tips on what not to do in terms of making intelligent financial and investment decisions related to your inheritance:
· Failing to heed taxes
Learn about the tax implications of inheritance as soon as possible, and don’t delay paying inheritance tax. That’s a mistake some people make that winds up being costly later. Educate yourself so that you are familiar with the inheritance tax laws in your country before making any further decisions.
· Paying off the house
In the course that covered real estate, it has already been mentioned that it’s not actually the best idea to pay off the mortgage on a property quickly. Most people intuitively want to pay off their mortgage with an inheritance so they can be debt free. But if you’ve paid off a property’s mortgage and then you’re left with just the paid-off house, it doesn’t bring you any additional income. Instead, consider investing your money in other asset classes that will bring in a certain amount of income. Bottom line, you’ll have more growth potential – and the house – over the years.
· Not consulting with a good financial advisor
If you’ve received an inheritance, or will soon, the assistance of an experienced financial advisor or financial coach can have a huge impact. What you do with your inheritance can bring you long-term prosperity…or it can bring you riches that vanish just as suddenly as they appeared. And that is of course not the goal! You can avoid this pitfall by seeking out good advice early on.