While it’s not everyday someone leaves you an inheritance, it’s quite common to receive one. A 2022 CNBC survey showed that over 50% of millennials will receive an inheritance and more than 50% of baby boomers plan to leave one.
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It can be exciting to come into ownership of a large sum of money because everyone likes wealth transfer, and there’s a lot that money can do. But before you start spending, it’s important to consult the experts and figure out how to be use this inheritance.
Finance expert, Dave Ramsey shared his 3 tips for what do when you receive this cash inheritance and how to go about building wealth.
Take Your Time
Since cash inheritance usually results from the loss of a loved one, it’s best to take your time and deal with your emotions before doing anything else.
Grief comes with a range of feelings that can cloud your reasoning. So, adjust to your new situation so that you don’t make irrational decisions with your cash inheritance.
It’s your money now and can wait for as long as it takes you to be ready. This also helps you avoid jumping into financial decisions immediately, as you could end up with ones you may regret.
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Honor Their Legacy
It can be tempting to have a large sum of money at your disposal. But before you go ahead with any small or big plans you may have, think about the person who has left you the inheritance. It is honorable to preserve their legacy through the money they have left behind even if they’re no longer around.
Dave Ramsey puts it this way: “Think about the person that left the inheritance and what would make them smile from heaven?”
Consult the Right People
No matter how much your family and friends love you, they’re not going to give you the best financial advice. That’s why it’s best to leave financial advice up to the professionals.
Many people with come to you with different opinions on what they think is best; they’re only trying to help after all. But the right people in this case are the investment and insurance professionals, tax attorneys, accountants and insurance agents. Which professionals you need will depend on the amount of your cash inheritance. With a smaller amount, you could use a small team, while a larger inheritance would need a bigger one.
7 Ways To Utilize Your Inheritance
After considering these 3 main factors, you’ll have to decide how to utilize the inheritance and grow your wealth. Dave Ramsey offers some advice about different ways to make these funds work for you below:
Give some percentage away. The saying that givers never lack is quite common, and it’s noble to allow others to share in your inheritance. Consider donating to a charity or cause you’re passionate about.
Pay off your debt. With so much money, it’s expected that you use some of it to pay off your debt. Eliminate as much debt as you can to enjoy freedom and peace. Avoid acquiring more debts that will lead to a cycle of debt accumulation and interest payments, quickly blowing your inheritance.
Build your emergency fund. Before this inheritance, it’s safe to assume you were already building up your emergency fund. Any extra money you can put into this fund will keep you prepared for any kind of emergency, potentially even multiple emergencies.
Pay down your mortgage. Increasing the value of your down payment on your mortgage is a closer step to house ownership. Your inheritance money can save you months or even years of accrued interest which you could invest into other things. Imagine having more money at your disposal to purchase your dream home. That’s what a cash inheritance can do for you.
Save for kids’ college fund. A cash inheritance also gives you more funds to save towards your kids’ college fees. Saving for college is a long process and you may not necessarily need help in this area as the savings is spread over many years, but your inheritance can bump it up and make things happen faster and easier for you, especially if you’re behind.
Invest. This is important as it ensures you can grow your money even while spending it. Consider long-term investments as opposed to short-term ones because the returns are more rewarding. Consult a financial advisor to tailor your investment portfolio to avoid taking financial risks that could have been avoided. Ramsey believes investing should take up a good percentage of your cash inheritance so it can grow.
Spend some of it. People who work hard also play hard. Spending some of your cash inheritance on something you’ve always wanted but couldn’t afford is okay. The idea is to spend it wisely, not to avoid spending it at all. What’s the point of receiving the money if you can’t spoil yourself a little? Remember your life is what you make of it, and don’t forget to be thankful to your benefactor while you’re enjoying that purchase you’ve always wanted.
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This article originally appeared on GOBankingRates.com: Dave Ramsey: What To Do With a Cash Inheritance
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