An exploration of money, mindset and a meaningful life
what to do with inheritance

Not sure what to do with your inheritance? Here’s where to start

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 other complicated emotions, but perhaps also the responsibility of receiving (and deciding what to do with) that 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. In my previous role as a financial coach and now an adviser, I’ve met people who feel completely overwhelmed with making decisions around their money.

This is especially true for an inheritance, which is tied up in so much emotion – after all, it does involve someone (usually) close to you dying, and there might be feelings of guilt or a sense of obligation associated with that. Plus, other angsty stuff like friction with siblings, selling/dividing up assets and all the 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 and not taking action can be high.

You may have heard that a third of lottery winners end up bankrupt. This is mostly because people 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 learn that 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 the 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 with money

Before making any decision about your money (whether you receive an inheritance or 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, invest 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 weaknesses 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 their friends as they don’t want them to see or treat them differently. But equally, I have worked with people who want to overcome this fear of judgement and feel comfortable and own 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 your family? There is no right or wrong here.

Also, know that you shouldn’t 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 you now and into the future.

Of course, inheritance is not necessarily going to solve all your problems. Even with a large amount of money, no one is happy all the time. Humans have a tendency to poorly predict how something is going to make them feel. Think having a nice house/handbag/holiday will make you happy? Probably only in the short term. The dopamine hit always wears off, so remember to do the inner work as well.

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 how to manage your cashflow, how much you should invest, what the most tax effective entities and cost-effective vehicles are to make it happen. Do you want to give any gifts or donate to charitable causes and are there any large purchases you want to make, for example on travelling or a new car.

At this stage, it’s important to assemble a great team to help you. There are different skills that various professionals bring along: a financial coach can help you budget 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 supportive – to help you make good decisions.

Inheritance planning might seem like an overwhelming thing to think about, but it’s important to move past the emotion of it and make good decisions that meet your financial (and ultimately life) goals.