What would you do if you were given X amount of money? It’s a question you’ve probably been asked in casual conversation with friends at some point in your life. Hypothetically, it’s easy to say something like, “Well, I’d quit my job and head off on a yacht cruise around the world” or “I’d buy my family a holiday house in the Maldives”. But in reality, if you’re the beneficiary of a financial windfall, decided how to use the unanticipated sum isn’t that simple.
Ultimately, you want to make decisions that will lead to greater wealth down the line, rather than focusing on what the money can bring you right now. At the end of the day, it’s about thinking long-term and establishing an effective financial abundance mindset. To help you do so, we’ve outlined three things to do with an unexpected inheritance that will help you pave the path to prosperity.
Effective Ways to Use An Unexpected Ineritance
1. Pay off your debts
Being in debt doesn’t just put strain on your finances; it puts strain on your emotional state and potentially your relationships, too. The first thing you should do with an unexpected inheritance is get rid of unnecessary debt, like unpaid student loans, credit card bills and shopping accounts. Naturally, you might not be able to entirely pay off something like a bond, but ideally you want to be in a position where you have no high-interest consumer debt so you can enjoy the associated lack of stress and start thinking about how to put your money to better use.
2. Set up an emergency fund
You might not think you need one, but the truth is, everyone does. So, if you haven’t set up an emergency fund yet, you should absolutely use some of that inheritance money to do so. Having a reserve like this should be part of everyone’s wealth management plan and is critical for a number of reasons: it prepares you for job loss (and yes, everyone is at risk in this department), for large medical bills as the result of an unexpected illness or accident, for managing tax payments that are bigger than you anticipated (if you’re self-employed) and for big events, like a move to another city or country. Essentially, it’s the best way to make sure you’re ready to handle unexpected costs, and what better way to get started than with an unexpected inheritance.
3. Invest, invest, invest
As mentioned before, an out-of-the-blue inheritance can and should be put to use to further grow your wealth and guarantee financial independence in the future. So, once you’ve paid off debts and established an emergency fund, it’s advisable to use the rest of your inheritance to build an investment portfolio that will protect and maximise your success. Start by defining your goals and giving serious thought to your tolerance for risk, then match your objectives to asset classes and investment products – a Retirement Annuity, unit trusts and/or real estate, for example – that will help you achieve them. By putting a solid investment strategy in place, you can help to ensure that your good fortune today is transformed into great riches tomorrow.
Of course, if you’re not confident about making these kinds of decisions alone, it’s always a good idea to seek sound financial advice from a qualified professional. As independent financial advisers, we at TRG can offer you personalised guidance on every aspect of your financial life, including investment and insurance solutions geared towards your needs, to help you protect your wealth well into your retirement years.