Making the most of an inheritance
What do you do if you receive an inheritance?
Paul Dodd takes a look at the what to do, and what to avoid, when receiving any kind of financial windfall.
Investing inheritance money wisely can help secure your financial future
A friend of mine whose entire salary is usually spent on necessities before it is even earned, recently inherited a sizeable sum of money from a deceased relative. Not being used to having any disposable income left after the essentials are covered, she was at a bit of a loss as to what to do with it and asked my advice.
An inheritance is a blessing, especially in this age of debt, rising costs and stagnant wages, the last thing anyone should do is squander it. However, many heirs fail to make the most of what is often a once-in-a-lifetime opportunity to invest in a more secure financial future.
While it is tempting to splurge a lump sum on a luxury item you wouldn’t normally be able to afford, I advised my friend to indulge herself one treat and invest the rest of the money for the future. Granted, this is not the sexiest of ways to spend an inheritance, but the reassurance of securing a greater degree of financial freedom later on in life more than compensates for sacrificing the fleeting high of a special purchase!
The advice I gave her boiled down to three main points, which are relevant to anyone who has been lucky enough to receive an inheritance, or indeed a windfall of any kind.
1. Pay off debts
Before you do anything else with your windfall, pay off all your high-interest debts. Any interest that you are paying on credit card debts, payday loans or storecards will be significantly higher than the interest you can earn on money saved or invested so zero those balances.
2. Avoid keeping large bank deposits
For those not used to having large sums of money, the bank might seem like the safest option, however the interest rates currently offered on savings account are paltry, even if your bank balance is high. Combine this with the erosive effect of inflation and your money in the bank could actually be losing in value. Keep a small amount in easily accessible bank deposits for use as an emergency fund but look elsewhere to invest the rest.
3. Set up an investment plan
You want to make your money work for you. If you haven’t done it before, investing in stocks, shares and property can be a scary prospect. Suddenly you are faced with a whole new terminology with phrases such as capital protection, income generation, asset classes and diversification. Where do you start?
For most people without specialist knowledge a professional and trustworthy independent financial advisor is the sensible answer. They know the options and can find out what works for you. A good adviser will help you analyse your existing circumstances and your attitude to risk which is crucial to choosing the right investment option. The will help you define your financial goals and advise you on how best to invest them with your inheritance windfall.
For an obligation free and no cost consultation on any financial planning issue get in touch on email at pdodd [at] infinitysolutions [dot] com or give me a call 089 on 330 082.
Paul is Area Manager and Senior Financial Consultant at Infinity Financial Solutions Cambodia.
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