Paying Closer Attention To My Financial Statements

Take A Step Back And Seriously Think About Investment Strategies For Inherited Money

2 March 2017

Barb Morgan

Inheriting a significant sum of money definitely brings forth very positive feelings. Someone who might be struggling financially would definitely benefit from receiving, say, $150,000 of a deceased relative's savings. Enthusiasm over the newfound wealth can be more than a bit overwhelming. Being too enthused, however, might lead to squandering all the money away. A prudent financial perspective must be taken when receiving an inheritance of a substantial amount. Perhaps it may be best to discuss things with a financial advisor before making mistakes and losing the wealth.

A Reality Check on the Funds

A person who earns $150,000 per year and draws such an income for several years in a row has a reasonable expectation of earning similar in the future. An inheritance, like any other type of lump sum payment, is a one-time receipt. The recipient of the inheritance may feel thrilled to be able to finally buy a new car or take a vacation with the money received. The problem with such an attitude is it is fiscally unwise. Once the money is spent, it is gone. The funds could be better served to address debt issues and also to be put towards long-term savings. This way, the inheritance works to financially serve the recipient for the long-term.

Dealing with Debt

Maybe the best strategy to take is to clear out debts as quickly as possible. Few would want to see their newfound gains go towards paying a malicious credit card institution that charges very high interest rates. Anger over the high interest rates should be a shining light on the folly of not paying off the debt. The high rates of interest are going to do little more than drain funds. Getting rid of secured and unsecured debt could be the smartest strategy -- and a gift -- when "found money" arrives.

The Long-Term/Short-Term Plan

Found money should be looked at as a gift of sorts. Perhaps it would be wise to not make any drastic and unnecessary lifestyle changes that would drain the funds right away. Perhaps setting up a mix of long-term and short-term investment goals would be wise:

Long-Term: Perhaps $100,000 should be directed towards ten years worth of reasonable investments. Finding investments that safely pay between 4% and 6% should not be too difficult considering all the different assets to choose from.

Short-Term: $50,000 could be put into, say, an income fund at 5%. This would pay out $2,500 per year for as long as one holds the funds. Those struggling with paying health insurance could put the interest payment towards the insurance for the next three years cutting down the costs immensely without losing the principle.

Ultimately, a mix of self-control and wise investment planning could lead to inherited money delivering the maximum financial benefits to the recipient.

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