Studies show that approximately 33% of people who receive an inheritance squander it in about two years. This result undoubtedly comes from either a lack of knowledge, research, or proper consultation.
If an inheritance has recently fallen into your lap, follow these 4 helpful tips to keep yourself out of the red.
As with any complex entity, financial terminology can sometimes be overbearing. Before you consider your options on how to properly handle your inheritance, it’s a good rule-of-thumb to learn as much as possible about the words associated with this type of transaction.
Knowing the definition of terms such as beneficiary, executor, and grantor is a good place to start. This will help you comprehend more complex ideas like inheritance and estate tax. The more informed you are, the better decision you’ll be able to make.
Maybe you got lucky and the only type of inheritance you received was a bank vault filled with gold bars. But more than likely, your inheritance wasn’t this cut and dry. A majority of inheritances come in many “shapes and sizes.”
Common types of inheritances are cash, assets via a 4o1(k) or IRA, and property. Each of these types comes with particular stipulations on how they are to be handled as well as the taxes that are associated with them. There are plenty of readily available resources that can help you understand the different nuances.
Although financial consultants can be expensive, it’s worth the investment. There are financial advisors that specialize in such things as inheritances. Researching and studying may be your strong suit but having an expert to further explain your financial options is tantamount to managing your inheritance properly.
Do not neglect the need for a consultant. Not only will they help you understand how to diversify your assets but they will also support you in your decisions (if you choose the right one of course).
Now that you’re a self-proclaimed inheritance expert, it’s time to sit back and do… nothing. Yes. Just take a moment to separate yourself from all of your research and all of the number-crunching to ensure that you make a wise decision.
Look at all of your options including paying off debt, building your emergency fund, saving for education, putting a down payment on a home, or any other option that lies ahead of you. More than likely you’ve already discussed such options with your financial consultant but it’s never a bad call to double or triple check your decisions.
Receiving an inheritance can be very exciting, but it’s also a huge responsibility. Take this responsibility seriously and make sure you are a good steward of your money. It’s also a good way to honor those that trust you with their earnings.