Feb 17, 2020  | Tags: Inheritance, estate planning, money management

Our Insights

What do you do when a large sum of money suddenly lands in your lap? Becoming the inheritor of a large sum of money can leave you reeling in disbelief.

If you’re careful and smart, you can use this financial boost to set you up for life. But if you aren’t careful, your joy will be short-lived.

How can you make wise use of your inheritance windfall?

These tips can help.

Slow Down and Make a Plan

Before you spend a cent of your inheritance, identify exactly where you are financially so that you can next determine how the windfall can help you the most.

It’s possible that you were totally surprised by your inheritance and never expected to have that much extra money to manage at one time. So now is the time to stop and carefully get your bearings, financially-speaking.

Take the time to balance your accounts and tally up your debts. Revisit your super fund and savings and investment accounts to see how those are looking. Complete a financial health checkup to figure out how much debt you have.

Your current financial situation is likely dependent on the stage of life you’ve reached. This, in turn, affects how you can afford to view your sudden cash windfall.

For example, if you’ve reached or are close to your retirement years, then you might already be on top of your debts and have a significant amount of cash stashed away in savings or investment properties. At this point, you might enjoy using the extra money to fund a trip around the world, pay for a relative’s college education or donate to a charitable cause. 

But like most other beneficiaries, you’re more likely at a phase in your life where there seems to be no end to all your financial obligations. You may have children to take care of, a mortgage to pay, a retirement to fund and a pile of debt that keeps growing.

So it’s important to take stock of your situation before you start to spend.

Set Aside Only a Small Amount for Splurges

Aim to use only 5-10% of your inherited funds on here-and-now fun purchases like a new vehicle or luxury holiday trip.

An inheritance windfall may be 'free money', but it’s probably not something you can or should expect to have happen on a regular basis.

Make wise use of the unexpected cash by putting it to more profitable use instead of spending it all at once.

Clear Away Your Debts 

If you have a lot of debt that you cannot feasibly pay off with your present earning capacity, then the smartest thing to do with a cash inheritance is put it towards those debts. Debt is a huge hindrance to growing your wealth and achieving financial stability. So use an inheritance windfall to reset your financial situation, stop wasting money on interest and enjoy a fresh start.

Invest Wisely

An inheritance windfall might look like a tempting heap of funds that you want to spend right away. And if your financial situation is already stable, then you might feel completely justified in spending the cash as it pleases you. 

But never forget the power of compound interest. A large amount today could become an incredibly larger amount over the next five, ten, twenty years.

Investing is the best way to make a lump of cash grow more valuable over time. So if you come into a financial windfall, consider carefully how you can invest it so as to reap the benefits of your inheritance for many years to come.

Understand your tax position

Depending on the circumstances, beneficiaries of an inheritance may face tax considerations or see an impact on Centrelink payments. Make sure you get advice from an experienced lawyer or accountant about this.

Consult an Experienced Financial Adviser

Receiving an inheritance is an amazing opportunity to set yourself and your loved ones up. Stewarding your inhertiance well also honours the person you received the gift from! So it is important to make the most of it.

The best way to do this is to ensure you get advice from an experienced financial adviser, who can assess your situation and help you use the extra funds best. 

Going it alone is risky, and could see if go back to financial square one quickly. 

Let's talk

How can we help? Talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your free initial appointment. 

Written by Ben Calder at Calder Wealth Management.