Receiving an inheritance from a family member should be a blessing. But, for some people, it turns into a curse when they don’t manage it well.
Take Linda, for example. Linda’s father blessed her with a sizeable inheritance. But, with help from someone she thought was her friend, that money is mostly gone.
Linda’s situation is not uncommon. Dave has talked to many people who were handed a golden opportunity to improve their financial future, but they blew it. Usually, it’s because the person inheriting the money didn’t know how to manage it in the first place. Instead of paying down debt or investing the money so it would grow, they bought stuff.
They used the money to make a down payment on a house or buy a car they couldn’t afford—which only sent them deeper into debt. They justified their spending by saying, “We’ll only buy this one thing.” But, before long, they had spent everything.
Linda’s situation was different. Instead of blowing all the money, she made another mistake. She trusted someone to manage the money for her at a time when she was emotionally unable to make decisions.
Here’s the deal: When a loved one dies, you are not thinking clearly enough to make major financial decisions. Instead of making a rash decision, park the money until you are ready. It won’t hurt to allow the money to sit in a checking or savings account for a few months while you grieve.
When you are ready, develop a plan. How will this inheritance best bless your life? Can you change your family tree? If you use it to pay off debt, will you have a fresh start? Are you debt-free and ready to invest the money and let it grow?
The absolute most important thing is to know why you are doing what you are doing. That doesn’t mean you need to take six finance classes and watch five hours of financial shows every day. But do some reading. Find a financial advisor with the heart of a teacher—one who will explain investing as many times as you need them to. Don’t do anything unless you understand why.
It’s okay for the plan to include some fun. There are only three things you can do with money: spend, save and give. Make all three part of your plan. Just have a plan before you do anything with your inheritance.
When someone leaves you an inheritance, your goal should be to use the money to honor their memory. Don’t make hasty decisions that you will regret later.