The challenge of taking care of inherited money is not insignificant. Too many stories abound where the inheritance was wiped out by incompetence of the person receiving the windfall or the evil efforts of others. Here are 4 ways to make the most of an inherited gift of cash.
1. Pay down debt
If you receive cash as an inheritance, paying down debt is a safe option.
If your debt carries an interest rate of, say, 3 per cent, then paying down that debt will allow you to achieve a guaranteed 3-per-cent after-tax rate of return. Not bad. And if paying down this debt helps you sleep at night, even better.
2. Invest the money
If you’re far behind in saving for retirement, the option of investing an inheritance needs to be seriously considered – even if you have debt. It’s difficult to make up for lost time when your retirement savings have been insufficient, so a shot in the arm can help. This decision should also be impacted by your income. If your income is low or unstable, and your retirement nest egg is small today, investing that inheritance is likely your best option.
3. Take care of others
Using your inheritance to help others can make good sense if your levels of retirement savings and debt are in decent shape. When I talk about giving money away, this can be in two general fashions: (1) to charity to help causes important to you, and (2) to family or friends to help them with needs.
4. Spend the money - but only once
I’m not going to be the one to tell you that spending part of an inheritance is completely taboo – particularly if your debt is under control, your retirement savings are decent, and you’ve got a sufficient and stable income.
In this case, go ahead and spend some of that inheritance. A renovation to your home is never a bad idea if it’s going to increase the value of your place. However you spend the money, make it a purchase that is lasting that will allow you to remember that special person each and every time that you see or use the purchased item. I discussed this in an earlier article.
You can get other ideas on wisely using your inheritance at this article: Four ways to make the most of inheritance dollars - The Globe and Mail