Strategies for Stretching a Humble Inheritance as Far as Possible
Inherited a bit of dough? Hooray! You could splurge it, but here's a smarter idea: invest it in something meaningful to you. Before diving in, take a breather. Inheriting coins, even a small haul, can evoke emotional decisions—particularly if it came from someone close to you. A pause can help you make decisions that align with your long-term goals.
Here's a simple roadmap to stretch your modest inheritance:
1. Chill Pills
Take a moment to assess your financial landscape and combat the urge to splurge impulsively. Adopting a calm, measured approach will help you make wiser choices.
2. Hide and Earn
Instead of a common bank account, search for one that will at least generate interest. Certified financial planner, Mari Adam, suggests a money market account at a discount brokerage firm or a high-yield online savings account. These accounts currently pay around 4%. Take note that online banks tend to offer higher rates compared to more traditional banks.
3. Tax Talk
Generally, inheritances are tax-free for the recipient. However, there could be exceptions. If you received someone's Individual Retirement Account (IRA), for instance, you'd be subject to different tax rules.
4. Set Your Sights
You might want to earmark the money for future goals such as a home down payment, your kid's education, or retirement. Alternatively, you could use it for immediate needs like clearing out high-interest credit card debt.
If you're okay with splurging, go ahead and use it for a dream you've always coveted but never managed—a dream vacation, for instance. As Adam puts it, "Someone cherished you enough to give you this gift. They wanted you to enjoy it."
5. Invest Wisely
If your plans for the money involve a short-term goal, like a new automobile in a year, consider investing it more conservatively. Keep it in the money market or high-yield savings account. In case you have a long-term aim like your retirement in 20, 30, or 40 years, you'll have more options for potentially higher returns, such as stock index mutual funds.
Wrapping Up
What you do next with your inherited money is your call. You could spend it, save it temporarily, or invest it for the long haul. Whatever you decide to do, try to contemplate your choices before acting since once the money's gone, it vanishes. A modest inheritance can run out quickly.
Pepperstone offers CFDsJoin now
Fun Fact:
Ideally, you should limit your portfolio to no more than 6 different kinds of investments to avoid investing in too many places and diluting your focus.
- Reflect on your financial situation before making any impulsive decisions with the inherited money to ensure wiser choices.
- Instead of a common bank account, explore options like a money market account at a discount brokerage firm or a high-yield online savings account that can generate interest.
- Be aware that tax rules might apply to specific types of inheritance, such as an Individual Retirement Account (IRA).
- Determine whether to use the money for immediate needs like clearing debt or earmark it for future goals like education, retirement, or purchasing a home.
- If you have a long-term goal like retirement, consider investing in stock index mutual funds for potentially higher returns, while keeping shorter-term goals' money more conservatively in a money market or high-yield savings account.
