Getting your inheritance is a pretty big deal, but before you start planning your dream vacation or buying that shiny new car, consider a few things. Namely, the easy mistakes that could ruin that windfall. Let’s examine 18 things you should never waste your inheritance on and why.
Ignoring Financial Advice
The first thing you should do is speak to a financial advisor because they’ll figure out how to help you stretch your inheritance. You’ll be able to cover your needs and even some of the things you want with it long into the future. They’ll also help you avoid any costly mistakes that could blow your entire inheritance.
Impulse Buys
Once you get that inheritance check, going on a spending spree is pretty tempting. But wasting it all on expensive items will leave you with little for the future, so take a breath and think about it first. You should try to make that money last longer than the excitement of simply spending it.
Avoiding Existing Debts
If you have any debts, then you should use some of your inheritance to clear them out. While it might not be the most thrilling way to spend your money, it’ll give you a fresh start and save you loads on interest fees. Paying off your existing debts is a way of investing in your future financial freedom.
Risky Investments
As exciting as they sound, high-risk investments can quickly drain your inheritance beyond something you can recover from. Don’t let the adrenaline rush of those potentially high returns blind you to the risks of investing. Always do your homework and speak to a financial advisor to help you weigh up your options.
Not Updating Your Will
Now that you’ve got more to your name, it’s a good time to update your will. Make sure your assets go exactly where you want them to, just in case the unexpected happens to you. Of course, it’s not nice to think about, but you’ve got to do it. After all, do you want all that money to go to the state instead?
Ignoring Taxes
Depending on where you live, you might need to pay taxes on your inheritance, so make sure you understand them before you start spending. You should be prepared rather than be caught off-guard by a huge tax payment. Don’t forget that different assets are usually taxed in different ways, and you may want to speak to a tax expert to keep things in order.
Lending Money Too Freely
Helping out friends and family always feels good, but be careful about lending out your inheritance. Loans can make your relationships difficult, especially if they’re not paid back, so it’s often better to just say no. If you decide to help someone out, you might want to think about it as a gift rather than a loan to avoid awkward situations.
Procrastinating on Decisions
You may think it’s better to wait until you can make the right decision, but that can also be bad. You’ll miss out on opportunities to make more money, and usually, taking action is better than doing nothing. Instead of being paralyzed over your decision, just do something to make the most of your new finances.
Maintaining Things
If you decide to make a big investment, consider the cost of maintaining it. A boat or luxury car isn’t just a one-time purchase; these costs can eat into your inheritance faster than you might expect. You’ve got insurance and repairs to consider, which could be twice as expensive as you thought.
Forgetting About Retirement
It’s always a good move to invest in your retirement savings, even though it’s not exactly exciting. The more money you put in your retirement pot, the more comfortable and secure you’ll feel in your old age. You don’t have to use your entire inheritance on it, but topping up your IRA or 401(k) with a little extra can be useful.
Falling for Scams
Scammers love targeting people who’ve just received huge windfalls. Be careful of any investment offers that seem too good to be true, and double-check where you’re putting your money before you start spending. Always check that the company or individual is legit because skepticism never hurts anybody.
Quitting Your Job
Now that you’ve got all that money, you may be tempted to send your boss a “goodbye” email and live off your inheritance. But before you do that, make sure you’ve got a solid plan first, as running out of money without a job lined up will only cause trouble. Plan your next steps and how your inheritance can support your career goals before making the leap if you decide to do it.
Educational Opportunities
Your inheritance could help support your dreams or your kids’ dreams about further education. It’s an investment that could lead to better job prospects or even higher earnings, so don’t forget about it. Even outside of your career, you may want to use your inheritance to improve your skills and learn new things, which are always valuable.
Emergency Funds
Life’s full of surprises, and not all of them are pleasant. Setting aside part of your inheritance as an emergency fund will save you from financial stress later. You can use these funds to pay for unexpected expenses like medical emergencies or home repairs, which can get expensive.
Investing in the Wrong Assets
Even if you don’t buy those pricey things, buying things that lose value quickly isn’t a good idea. A new TV, for example, will only ever depreciate in value, so you should stick to things that will increase in value. This way, your inheritance will maintain its worth and maybe even grow.
Getting Insurance
When your assets grow, so does your need to protect them. Check if you need more insurance coverage to protect your sudden wealth, whether that’s property, life, or some other kind of insurance. Getting the right insurance will protect you from any major financial issues that can crop up at any moment.
Forgetting About Charity
We all know that donating to charity makes us feel good, but it can also be good for our taxes. It’s also a good way to make a positive impact with our money by giving some of it a purpose just beyond our own needs. Think about any causes you really care about and whether you want to support them.
Not Keeping Good Records
No matter what you spend your inheritance on, you need to keep detailed records of how you’re managing and investing them. Good record-keeping will help you monitor your financial progress and make it easier during tax time. Plus, if you start facing any legal questions about your assets, you can point the lawyers in the right direction.
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