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What’s the best thing to do with an inheritance?

The 3 things to consider before you decide what to do with your money  

When you’ve come into an inheritance, you may be thinking about the best thing to do with your sudden influx of funds. 

If you’re trying to do “the responsible thing” with your inheritance, you’ll probably think about investing most or all of it. It seems like the right thing to do... but is it always?

The fact is, “the right use” for inherited funds will be different for every person. That’s why it’s important not to make any hurried decisions about what you’ll use your inheritance for.

It’s easy to make an emotional decision or assumption that’s not quite right – particularly if you’re still grieving the loss of a close friend or family member. That’s why it’s important to take your time, seek independent financial advice, and thoroughly research your options before you commit. In this way, you can make an educated decision on the best use for the inheritance you’ve received.

We asked the Henderson Matusch team of financial advisers to share their thoughts about some of the most popular uses for inheritance money, and the pros and cons of each.

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Consider the goals you want to achieve in your life

One major point that our financial advisers made, is that it’s so important to think about “the big picture” when you’re deciding what to do with an inheritance.

Start by thinking about your life goals. What do you want to achieve in the medium to long term, and how could your inheritance help you with that?

Are you close to retirement, and looking to top up your super? Are you looking to pay off more of your ‘bad debt’ such as your mortgage? Perhaps your financial position means that the lump sum won’t make a huge difference to you – but it could make all the difference to your children when they’re saving for a home. 

Thinking about these factors will help you decide on the best use for your inheritance funds.

1) Investing your inheritance, or putting it into super

Number one on the list for many people is investing your lump sum, either in a managed fund or perhaps into your superannuation. It sounds like a responsible, sensible thing to do with inherited money. But is it always the best way to go?

Again it comes back to thinking about your life goals, and considering how the inherited funds can best be used to accomplish them.

For example, let’s say one of your goals is to renovate your kitchen or bathroom. You might be better off using your inheritance to pay for the renos with cash, rather than borrowing and having to pay interest.

A word of caution before you “do it yourself” – if you’re not a professional investor, you probably just won’t be aware of all your investment options. That’s why it’s a good idea to seek professional advice about your options, before you commit to a particular investment approach.

One final thought about investing an inheritance: you may wish to consider keeping your inherited money separate from your other investments. That way, you’ll always have a tangible connection to the person who left you the funds. 

If this is the case for you, make sure you look for a financial planner who thinks this way and will understand and respect your connection with your family’s legacy. There’s more to this situation than simple dollars and cents or the best interest rate, so make sure your adviser is on the same page with you.

2) Pay down debt

You might assume that paying down debt would always be the responsible way to use an inheritance. And many times you would be right.

And yet, it still pays to think carefully about your individual circumstances before you make a decision. What stage of life are you at? What are the prevailing economic conditions?

If interest rates are low and you’re not paying much to service your debt, you might be better off investing any additional funds in order to achieve a higher return.

Once again, it pays to look at the big picture, and not what your inherited funds can do in isolation.

3) Spend your inheritance to improve your lifestyle

The third option for your inheritance money is to spend the majority of it to improve your lifestyle. Again, this could be a perfectly suitable use depending on your situation. 

For example, perhaps you’d like to leave a legacy for your children – such as by helping them with a deposit so they can buy a home of their own. You might like to refresh that run-down kitchen or tired old bathroom. Or maybe you’d like to “give something back” to the community, and focus on philanthropic uses for your money.

Meeting with a HM financial adviser

Make the most of an inheritance with expert advice from Henderson Matusch

Of course, none of the options above are strictly ‘right’ or ‘wrong’. And each of them could suit you at different times in your life.

Making the best use of an inheritance is a matter of considering your individual circumstances, the prevailing economic situation, and your life goals. It all starts with a conversation with a financial adviser who will take a sympathetic and comprehensive approach to your situation. For a complimentary no-obligation chat, call us on 07 3229 3688 or use the simple contact form here.

Topics: wealth building, goal setting

Posted by Henderson Matusch on Nov 27, 2018 4:25:54 PM
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