Got a Fat Inheritance? Here’s What to Do With It.

Patrick Villanova OCT 30, 2021

Receiving an inheritance from a family member can create a large windfall of cash, and with it, new financial opportunities. What you do with the money will depend on the size of the inheritance, your financial situation and level of experience managing investments. But having a defined plan for the inheritance is vital.

A frequently cited study conducted by The Williams Group of San Clemente, California, found that 70% of wealthy families lose their fortune by the second generation and 90% squander it by the third generation. A financial advisor can help you make the most of your inheritance by taking stock of your financial circumstances and creating a plan for the future.

Are You Ready to Invest?

The first question to ask yourself upon receiving an inheritance is whether or not you’re truly ready to invest. If you have debt, especially high-interest loans or credit card bills, you probably aren’t in position to begin investing.

While it may not be as exciting as picking mutual funds, exchange-traded funds or individual stocks, paying off debt is a logical and responsible way to use the money. Think of it as an investment in your future. By wiping out your student loan or credit card debt, you’ll free up hundreds, if not thousands, of dollars each month to use in some other way.

If you’re already debt-free or have money left over after paying off your debt, it’s time to examine your savings. Experts recommend having three to six months’ worth of expenses saved in an emergency fund. Not only is it a prudent financial move, but building an emergency fund can give you the sense of security and confidence you need to start investing. You’ll know that no matter what happens to the money you invest in the future, you have a security blanket in the form of your emergency fund.

Save It for Retirement

Like paying off debt or building an emergency fund, putting your inheritance toward retirement may not get your juices flowing, but it’s a sound investment. A recent Schwab Retirement Plan Services survey found that 401(k) plan participants across the country now believe they must save $1.9 million for retirement. Yet, one in four Americans have nothing at all saved for retirement, according to a PwC report.

If you choose to save the money for retirement, you can do so in several ways.

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