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When someone in your family dies, its often an extremely hard time. Although money doesn’t make up for the fact that they’re not with you anymore, it does help to cushion you in lots of ways.
Now while some people would spend this money on something frivolous like a holiday, a car or a wedding, I know you’re different. You came looking for a better way to spend this gifted money, and quite rightly so! I always think that gifts like this need to be honoured by turning it into something more – like a new, fulfilling career, a business venture, or a nest-egg for the future.
Mind Over Money
According to author of “Mind over Money”, Claudia Hammond, psychologically, money that is gifted often takes a lower level of respect in our minds than money that we have earned. We sort of compartmentalise it as a separate entity away from our usual money and treat it differently. This makes us come up with all sorts of excuses – “oh she would have wanted me to buy x,y,z with the money”, “she would have wanted me to have fun”. This is human nature unfortunately, and the way our minds work. But you have to be aware of any temptation you have to spend “free” money without a plan.
Anyway, take a look at the following 8 worth-while things you could do with this amazing gift.
Do you have any other ideas? Post in the comments at the end!
If one of your relatives has passed away recently, and you have inherited a modest sum, you might be tempted to blow it on a world cruise, or buy a new car. However, there are better ways of using the funds to improve your financial future and your lifestyle at the same time. Below you will find 5 (+3 bonus ones at the end) ways you can use your inheritance to build long term wealth.
We all expect a state pension when we retire, but it is likely that the amount we receive will not be enough to cover our desired lifestyle. If you don’t yet have a private pension, it might be time to put some money down and start contributing. Your pension investments give you a tax rebate in some cases, and can grow at a much higher rate than a savings account. This Free E-Book lists out your options in the UK.
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Investing in your home can increase the value of your property, but it has to be sensible! There’s no point in doing something (like putting in a hot-tub) if it does not improve the value of your property. Talking with a local estate agent might be helpful in this case. They can also help with working out the potential value of your home, especially if this is something you want to start tracking to work out your net worth.
Possible upgrades could include solar panel installation, heating and ventilation system improvements, and new plumbing and electricity. Just make sure that you focus on home improvements that give you the greatest return on investment.
Then you might want to think about how you are going to pass this asset on. Talk to probate solicitors for advice. They can go through your options and help you make a will if you don’t already have one.
Paying off credit card debt
Paying off your credit card debt might be your first priority after receiving a large sum of money. This will free up some of your monthly income to start putting into investments, such as index trackers, and will do wonders to improve your net worth. You will also save yourself a lot of money by avoiding paying interest to your credit card company for years to come. Credit card fees and interest are generally the most expensive among all debt, so it makes sense to get rid of them first. If you have personal loans as well, pay them off next. This free E-book will help you to work out your own plan.
Putting money towards your mortgage (or even getting a mortgage to buy your first home!)
If you took out a mortgage for 20-30 years, chances are you will end up paying back 1.5-2.5 times the value of your house over time. If you can make extra payments without a penalty, you can reduce the term of the mortgage and the overall interest paid over the term. This is useful if you are approaching retirement, because having to still pay off a mortgage after you stop working will be a massive headache. If you have nothing to pay on your mortgage at the point of your retirement, this will definitely help your pension money stretch further!
If you’re still in your 20s and 30s however, and can stretch to buying your first home, then it is a excellent platform to start building wealth. A lump sum from a relative could be the leg up you need, and could make all the difference in the amount of money you end up borrowing. Investing doesn’t just stop at property though (see later).
You will need to focus on long term investments that will increase your income over time. If you have been dreaming about a career change for a long time, it might be time to get back into learning again. You could get an extra qualification, a better job, and a higher salary, and this will benefit you for many more years that a trip abroad will. Take the inheritance as an opportunity for wealth building and personal development. Something I’m sure your loved one will be proud of.
An unexpected inheritance can help you achieve financial freedom, improve your life, and become debt free. Use the lump sum wisely, and you can make your money go further for many years to come.
I promised a bonus 3
In addition to the contributed post, I have a few other ideas for ways you can sensibly spend an inheritance:
Build Your Assets
The secret to wealth is not just spending less and earning more. To really get a good amount of money for retirement, you’ll need to start investing it. Gaining an inheritance is a perfect opportunity to start working on this.
Stocks and shares, property, bonds and gold are all possible options to get started, and they work well together to keep your portfolio well diversified. Start doing your due-diligence, and research how to get into these market in a safe and sustainable way.
Get an Emergency Fund
One of the things that kill off wealth faster than anything is an unexpected emergency. I am a firm believer in the benefits of an emergency fund (which has covered my butt plenty of times). Start with £1000 in a basic savings account, then add in 3-6 months worth of basic living expenses. In the event of you getting ill, needing to quit work early for whatever reason, or taking sick leave, you know you have money stored away to cover you. This takes the pressure off, and plugs the gap until you return to work, or pension benefits kick in.
10% for fun
Ok, so everything above is very sensible and necessary if you want a decent retirement, and financial security. However, human nature dictates that we will want to do something fun with a big lump sum. This is fine to do, as long as its in a controlled way. Why not limit it to just 10%, and use the rest on one or more of the above points. You’re not allowed to spend it all on fun, but I think 10% for something you want like a car, or a holiday will give you the incentive to look after the other 90% properly.
So there you go! 8 things you could do with the money that isn’t just spending it on something useless that doesn’t help you in the long term. Trust me, your future self will thank you for reading this post.
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