If you happen to inherit a lot of wealth, you’re not alone.
A sudden cash windfall changes your life forever, and it leaves you wondering: What do I do now?
The short answer: Nothing.
Financial professionals recommend waiting a few months before doing anything with your inheritance. Patience guards against rash decision-making and delays family bickering over the cut each family member receives.
The latter is especially common when large inheritances are at stake. If your family is vulnerable to conflict, leave the conflict resolution to a financial advisor. Hiring an advisor to facilitate an intergenerational family sit-down not only sets monetary parameters and sorts out personal differences, but also shields you from becoming the “bad guy.” You don’t want to be the subject of your family members’ ire. Instead, let your advisor be the villain and trust him or her to diffuse the situation.
Once you’ve taken a few months to contemplate and dealt with your family, the next step is financial planning. It’s your job to think of the long game—how you’ll generally spend the cash—and your advisors’ to sort out the technicalities for you.
Financial professionals generally suggest five spending categories:
- Safety—medical expenses, home repair, etc
- Fun—vacations, sporting events, etc.
- Future—investing, business financing, etc.
- Charity—philanthropic donations
- Cushion—the emergency fund
Break down your spending by category, leaving enough cash for the last category. Every situation is different, but financial planning is a necessity for every inheritor.