What to Do with an Inheritance

The book Money 911: Your Most Pressing Money Questions Answered, Your Money Emergencies Solved answers the questions of "What should I do with an inheritance?" by listing the following ways to allocate the money:

• Save in an emergency fund
• Pay off high-interest-rate debts
• Make one small splurge (5% or 10% max)
• Start on one big goal (saving for a house, etc.)

This seems like good advice to me. It's a good blend of taking care of current obligations, helping yourself out for the long term, and having a bit of fun.

The author also advises not to do anything with the money for six months and to store it in a high-interest-rate savings account during that time. IMO, this is good advice too.

I don't think I'll be inheriting much money (if any) from anyone. We did get some money when my wife's father died but by that time we had all of our debts paid and were doing pretty well on our own. I think we saved the entire amount.

How about you? Anyone out there ever inherit a good amount (or are you planning to)? What did you do with it? Or maybe you're planning to leave a good portion to others. Have you talked to them about it?

Comments

[sunil]

children's education fund, and in the event that is taken care of through scholarships, the idea is to hang on to it until the children settle. if they need it, we keep it for them and pass it along. otherwise, we pass it on to a good cause of choice.

[Matt]

We've been fortunate enough to have a 5.5% (guaranteed, no fees) investment savings account through my stepfather's employer, where we've left the money except for a 2-year stint where we invested it all in a home (we got out right before the bubble burst). I think the above advice is good advice.

[Budgeting in the Fun Stuff]

Thankfully, people in our families live long and full lives, so if we do get an iheritance, it will hopefully not be for at least another 30 years. If our grandparents leave us anything, we'll either save it or apply it towards our mortgage. We may split about 10% between our vacation fund and fun money accounts, but I hope it's not anything we need to think about for a while.

[The Dude]

I am the executor under my parents' wills. Both of them are in their eighties are are doing really well. I hope that continues for many years. They have a net worth of about $3 million. My wife and I--and my two siblings and their spouses--live as if we won't receive anything. We save and invest on our own. Waiting for an inheritance that may or may not materialize is no way to live.

[Shelley]

I inherited about $10K from a distant cousin I'd never heard of. He was a lawyer, strangely enough, in LA with a paid-for house, which was the bulk of his estate. He died without a will. I always thought it sad that he wasn't close enough to anyone to leave his estate to person. Anyhow, I paid down my mortgage, which I was doing any way. I was great to buy a house in 8 years and then be done.

[JT]

I received an inheritance earlier this summer from my grandmother's estate for $35,000. I both tithed 10% and donated another 10% to our church for a total of $7,000, used $8,000 to pay off most of a truck loan and put $20,000 into a taxable mutual fund to start a house fund. My wife and I were in agreement to tithe AND donate 10% and she was adamant that we put the rest into something that would work for us instead of just spending it. Hopefully using it as seed money for a house fund will accomplish that.

[Patty]

When I get that question, I have suggested that the person tie it up into a certificate of deposit for six months to a year. The time frame is for the individual to make an assessment of his/her needs/wants/desires not for the interest rate. When appropriate, make the allocation that best serves you.

I find too many folks are not disciplined enough (unlike FMF readers) as they wish to spend it right away. The ole money buring a hole in your pocket.

[Funny about Money]

Mine went direct to savings. Eventually they were used to help pay off a mortgage...the smartest thing I've ever done, since post-layoff I couldn't have kept my home if I'd owed mortgage payments.

[MasterPo]

The question can't be answered without knowing what the inherited amount is.

If it's a low figure probably paying off the high interest debt is a good thing (presuming you don't just run it up again).

If it's a big figure perhaps half to debt/half to savings.

And if it's a really BIG figure (say high 6-figures or more) do it all! :-)

[SAFTM]

I look at it two way: If you know the person who passed away would have wanted you to do something specific with that money, consider honoring that request if you agree with it. (If they direct it to be used in a certain way in their will you likely have to do that, but you should check with a lawyer in your area about that.)

If the money is just yours to do whatever you want, I would treat it as I would any money I receive. I would audit my goals (house, 529, retirement, etc.) and make sure they're still accurate. Then I would work that money into my plan. I agree generally that if you had debt - especially high-interest debt - it may be wise to pay that off first, and an emergency fund is a must-have. I don't mind treating yourself with a small percentage either. But definitely step away from the mall with the vast majority of it! Whoever passed worked very hard for that money. Respect it as much as they did! Or at least that's how I look at it.

[JimL]

To me, it would be just like any other income received and I would follow the baby steps outlined by Dave Ramsey.