Spending your inheritance wisely…
It can be difficult to know what to do with substantial sums of inheritance, especially when also grieving the loss of a loved one. It goes without saying that your personal circumstances (and the amount received) will dictate your decisions but there are some basic principles that we think can help;
1. Avoid the temptation to rush into anything
As dull as it sounds when you’ve come into money, avoid the temptation to rush into any big decisions. While receiving an unexpected windfall can be a blessing, it can also be a double-edged sword if not carefully thought through.
We can be blasé about coming into inheritance but the stark reality is that any such windfall is likely to be compounded by the loss, and associated grief, of a significant loved one. The likelihood of your judgement being clouded is extremely high. So it is nearly always best to give yourself some time before hurrying into any major financial decisions. Remember! It’s ok (even advisable…) to take your time – patience really is a virtue!
Under the Financial Services Compensation Scheme an inheritance balance of up to £1million is protected for 6 months. So there really is no need to do anything hasty.
2. Seek advice
As financial advisers, we would always urge you to seek advice on your money. This is especially true though for unexpected lump sums. An adviser can help give you clarity on how best to make the most of your inheritance, in order to achieve your goals. They take into account your personal situation and aspirations; and most importantly, they should have your best interests at heart. Most financial advisers will happily give you a free initial meeting and we would suggest taking advantage of that, so that you can get a feel for how they can help before you sign up. There really is nothing to lose by seeing what’s out there.
We know it can be difficult to know what to look for in a good financial adviser. So, please do see the ‘Choosing an Adviser’ section on our website for some useful tips.
3. Clear your debts
One of the best ways you can spend unexpected monies is to pay off any monies you owe. Whether it be credit cards or personal loans you have outstanding, your inheritance will always be well spent settling debt. It’s best to prioritise settling debts costing the most interest first. These can feel like a real burden hanging round your neck, which is all the more reason they should go first! Clearing these down will save you paying back more than you owe in interest. Ultimately this will also increase your disposable income going forward.
4. Invest in your future
After paying off any debts from the past, it’s best to think to the future. We’d usually suggest putting away an emergency fund to cover three to six months of your normal outgoings. The options then available for any remaining windfall are countless. At this point, seeking professional advice for your specific circumstances can be key to your financial peace of mind.
You might consider adding to your nest-egg – saving for the future is always a good option. For your short term needs, please don’t assume that it’s best to put it all into Cash ISAs though. Often it proves wiser to have a good mix of easy-access and fixed-rate savings of between one and five years to allow you the flexibility and freedom you’ll need.
For those who have cash they won’t need to access for 5 years plus and are willing to commit to a longer term, there is also the option of investing in funds and stocks. These do carry investment risk and won’t necessarily be for all, but generally speaking, diversifying your investments and investing over long periods of time goes a long way towards providing protection and will give your money the chance to grow at a higher rate.
Often, people see inheritance as a chance to help the future generation. So, if you don’t need the money yourself, a deed of variation can be drafted to redirect the gift to a loved one.
Whatever you decide to do with your inheritance, please be sure to take your time and seek professional advice. Often making the most of opportunities isn’t about what you do but how you handle them… so make sure you handle them right!