Unlike other financial windfalls, like bonuses or competition wins, inheritances can typically come with a lot of emotional baggage, and it can be difficult to know what to do with them. Especially if you’re not thinking very clearly, or navigating grief at the same time, you might be tempted to rush in and spend it, or terrified to touch it.
When I was 20, my dad died after a short illness and left me an inheritance, which I promptly spent on travel and university life, leaving me nothing to really show for it. I lived with that regret for a long time, particularly when I later found myself in a difficult financial situation, so I’ve had a lot of opportunity to think about how I would deal with an inheritance now, all these years later.
There are lots of factors dictating what you might like to do with your inheritance, and the right choice for you will depend on your circ*mstances, priorities and goals - and how large the inheritance is - but here’s a basic blueprint of options for using that money wisely:
Pay off debt
Sinking your inheritance into paying off a loan or credit card might feel like a raw deal, and it’s easy to assume that you won’t feel the benefit of that cash if you choose to put it towards debt. But if you have debt that’s becoming expensive or stressful, putting your inheritance towards clearing it could help you to make a fresh start with your finances, and push you towards those financial goals a bit quicker.
There’s no point having a small windfall stashed in a low-interest savings account while you’re paying an APR of 20%+ on your credit card - this approach is actually costing you money, and you still have the stress of that debt hanging over you. If your debt is manageable and on a 0% card or low interest loan, however, you might not feel that paying it off is too urgent, and might choose to use your inheritance for something else.
Read More
The ultimate guide to paying off debt (from someone who paid off £27k's worth)
It's Debt Awareness Week, so let's talk about it.
By Clare Seal
Create an emergency fund
The pandemic has made lots of us feel way more financially precarious, particularly those of us working in certain industries or self-employed people. A great use for your inheritance, if you don’t already have one, is to create a small financial safety net - say, 3-6 months’ worth of living expenses - which will give you peace of mind and the power to make difficult choices if a job or relationship isn’t working out, without jeopardising your financial wellbeing.
Save for a home or pay it off your mortgage
Investing your inheritance in property, especially if you’ve been struggling to save the huge deposit required and are currently renting, is a popular choice for good reason. It’s a lot more difficult to get on the property ladder than in previous generations, and buying a home will allow you to invest in an asset rather than paying monthly rent for a place to live, which is then lost to you - probably paying off somebody else’s mortgage. If you already own your home and have a mortgage, you might be able to pay a lump sum off at the end of your fixed term and really reduce your monthly payments and the amount of interest that you’re paying. This makes it a smart choice for your monthly cash flow and your long-term financial security, too.
Read More
The 3-step wealth-building process you need to know to retrain your brain to be richer (yes, really)
By Jennifer Barrett
Invest in the stock market
Investing has had a bit of a makeover in the eyes of the public in recent years, becoming far more accessible and understandable to the general public. Investing apps and robo-investing platforms have made it possible to invest in different funds, mitigate risk and build up a strong investment portfolio really easily, but if you’re thinking of investing a large sum, it’s a good idea to speak to a financial planner or advisor to ensure that you’re not putting your capital at unnecessary risk. It’s also worth noting that investing should be for the long-haul, so don’t invest what you plan to spend within 5 years. And maybe don’t invest it in bitcoin - too risky.
Put it in your pension
Another really sensible suggestion, especially for those further along in their careers or those who fancy the idea of an earlier retirement. Planning your pension is not particularly glamorous, but think of it as buying yourself extra time when you won’t have to work, and making sure that you actually have some money to spend on enjoying life once you leave the world of work behind. Because most pension savings are essentially investing with a handy tax break, you could really see your money grow into a healthy sum by the time that you retire.
