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How Not to Blow That Inheritance

FYL 5.26.16

 

The internet is filled with stories from people who blew through an inheritance. It’s not surprising, since

MarketWatch reports that 33 percent of people end up with no savings and even more debt just 2 years

after inheriting assets.

While these stories illustrate the unfortunate circumstances others find themselves in, for us they can

serve as great lessons in what not to do. With millennials poised to be on the receiving end of the

biggest transfers of wealth we’ve ever seen, it’s vital to learn these lessons without repeating the

mistakes of others.

Three Inheritance Lessons

1. Don’t spend it all. By far, the biggest mistake that people make with an inheritance (or any large

windfall) is to waste it on impulse purchases. A lot of justification goes into making these

purchases. People convince themselves that the items they buy are necessary, smart—an

investment, even! From vacations to clothing, expensive cars to furniture, there are hundreds of

ways to waste your inheritance. To avoid this, allow yourself only a small percentage of the

inheritance to play with—anywhere from 1 to 5 percent. The rest of it should be put away for

more significant purchases.

2. Pay off high interest debt. If the interest on your debt is higher than the interest you’ll earn on

your inheritance, then you should consider paying off your debt with some of the inheritance.

While it might seem scary to do this, consider the money you’ll save by getting rid of that debt and

interest. To really make this a valuable move, make sure you’re ready to reduce your living

expenses so that you don’t add new debt afterward.

3. Invest in yourself. An inheritance can be a once-in- a-lifetime opportunity to take a risk and

invest in yourself. It can help you start a business, go back to school, take a professional leap,

relocate, buy a home or make another major change. But don’t do this on your own. Talk to a

professional financial advisor who can go over your plans and give you an impartial opinion about

whether the plan makes financial sense.

Remember, the person who left you that inheritance cared enough about you to make sure there was

money set aside for you after their death. Don’t squander that gift.

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