During their lifetime many people will experience the (mostly) unexpected windfall of an inheritance. Family members will accumulate assets throughout their lifetimes, and at their death they leave them to those that they love. Getting the inheritance is usually somewhat expected, however, the amount can often be a bit of a surprise. Since most people are rather private with their finances the heir often can only speculate as to how much is coming their way. If you are waiting for an inheritance, make some plans now so that you can avoid the curse of the lottery winner.
Whether you stand to inherit $100 or $100,000 the first thing to do is to make a plan. Without it, you will be sucked into the trap of spending, and often when you start spending some, you keep spending long past when the inheritance is depleted. Making a plan well in advance of the inheritance will help you keep your spending under control. This should be done with all sudden influxes of money, whether from gambling winnings, tax refunds, or large gifts.
Each plan will be different according to each person’s individual financial situation. Ideally at least half of the money will be deposited into savings. Even if you have a well funded emergency fund, put more in there. Once it is out of your pocket you will be less tempted to spend it. If you have debt, you will want to use some of the money to pay down that debt. The remainder can be used to top off your retirement accounts, and be sure to use a little bit to splurge. Those leaving the money behind would want to know that you used at least some of it to have fun. The plan can be as complicated as you want, or as simple as 50% to savings, 25% to debt payments, and 25% to investments and splurging.Making a plan will be the best way to avoid squandering the inheritance. Like all sudden influxes of money, inheritances play strange things with our psychology. While the heir often feels as though they deserve or have done something to earn the inheritance, the incoming money can give them a sense of power. This power is coupled with spending that is unsustainable, and too many people squander their inheritances within just a few years of receiving them. If you expect to get an inheritance during your lifetime, make the decision now what you will do with the money. That way you can honor your loved ones by not squandering what they have worked hard to earn.