Working out what to do with your inheritance can be very difficult and emotional for many people – and so lots of us end up not really making a proper plan. Here’s how to move forward and make the most of spending your inheritance.
It’s sad for us to think about, but at a certain point in our lives someone close to us will die. With that comes not only all the grief and sadness, but perhaps also the responsibility of receiving (and deciding what to do with) an inheritance. For some, this will be a large amount of money and for others smaller – but either way it’s something we don’t tend to plan for.
How emotion complicates things
A sudden windfall of money from any source can be a difficult concept to wrap your head around. I my role as a financial coach I meet people all the time who feel that they can’t spend or make the most of money that they haven’t earned.
This is especially true for inheritance, which is tied up in so much emotion – after all, it does involve someone (usually) close to you dying, and there might be guilt or obligations associated with that. Plus, other angsty stuff like friction with siblings, selling/dividing up assets and all that paperwork along the way.
While all this can seem overwhelming, it doesn’t have to be. But it’s important to know that the cost of not planning can be high.
You may have heard that a third of lottery winners end up bankrupt, mostly because they fail to properly plan and end up handing out cash all over the place without realising how quickly it can dry up. So I wasn’t surprised to find out a large amount of people also waste their inheritance within a couple of years.
In my experience, not everyone throws their inheritance away intentionally. Sometimes, people are unsure and feel guilty about spending inheritance, so they just park it in a savings account somewhere. In this case, there is an opportunity cost – money doing nothing that could be invested or spent on something worthwhile – not to mention inflation.
Here are some tips for how to let go of the guilt and indecision and use your inheritance to help create the life you want. Because really, that’s the best way to honour the person who’s gone.
Step 1: Know yourself and your relationship to money
Before making any decision around your money (whether you receive an inheritance of not), it’s important to get clear on who you are. I know that sounds strange, after all you’ve known yourself your whole life. But actually, there is a lot of our life that we live on autopilot, or more specifically, from our subconscious.
Part of this is understanding what motivates you, what your desires are and the lifestyle you want to have.
Understanding how you think, feel and relate to money is also important as this can be a driver for how you earn, save and spend money. This includes working out what money means to you what stories you have about the inheritance as well as money in general.
If you find that you overspend or you can’t manage the money you have right now, it might be tempting to think that this inheritance will solve those problems. But understanding your weakness and strengths around money before you make decisions around it will be a more sustainable solution.
If you don’t have a great relationship with money, then maybe use this clean slate as a chance to work to improve your money mindset and so prevent yourself from falling back into bad habits.
Also, it’s worth working out how having more money might change other people’s perceptions of you. I’ve helped clients who have decided not to tell all their friends as they don’t want them to see them another way or view their achievements in a different light. But equally I have worked with people who want to overcome this fear of judgement and feel comfortable at their new level of wealth, no matter what.
Step 2: Work out how money can help you reach your goals
The second step is to look at this money in terms of what you want out of life. Have you always dreamed of setting up your own business and can this give you the cash backing you need? Can you live overseas for a year? Buy a new home? Drop back to part-time work and spend more time with family?
Also remember that you don’t have to feel obligated to ‘do’ something big with the money. If you decide to sensibly invest your inheritance and therefore make life more comfortable, then that’s just as valid as making a grand gesture. And by the way, there’s nothing wrong with spending your inheritance either. Just ensure you do it intentionally and in a way that supports the you of today and tomorrow.
And of course, inheritance is not necessarily going to solve all your problems, nor is it going to let you click your fingers and suddenly live your dream life. That beach house you have your eye on? Maybe you don’t get to buy it right away. But, it might allow you to invest in assets that will take you there one day.
Step 3: Make a plan for how to do it (with help!)
Finally, once you’ve sorted your goals and your emotions, then it’s time to make a clear and practical plan.
This includes where and how much you’d like to invest, any gifts to others or charitable causes and any you simply want to spend, for example on travelling or a new car.
At this stage, it’s important to assemble a great team to help you. There’s different skills that various professionals bring along: a financial coach such as myself can help you work out how to manage all this new money and sort your beliefs about money, an adviser/planner will give advice about investing the money or preparing for retirement and an accountant can deal with things like setting up trusts or other possible tax implications of your new investments.
Having someone impartial on your side is also important when managing the emotional aspect of inheritance that I mentioned before. That person who is one step removed – both objective and supporting – to help you make good decisions.
Inheritance planning might seem like an awkward thing to think about, but it’s such a crucial one to get right. It’s always best to try to move beyond the emotional aspects of inheriting money and use it to build the life you want.
If you need some help in managing your inheritance or just managing your money in general, then why not book your free mini-session with me today.