By Antonio Porretta
Warren Buffet said, “If you cannot control your emotions, you cannot control your money.” So when emotions and money collide, it can be a risky combination. If you’ve recently acquired an inheritance, it’s likely that you are experiencing a mix of emotions; losing a loved one is painful, but inheriting money can be a blessing. An inheritance can improve your financial situation and bring peace of mind—it can also be a reminder of your loved one’s legacy and their love for you.
Those who receive an inheritance sometimes don’t know how to manage it properly. In worst-case scenarios, the inheritance is depleted in just a few years—or even months—sometimes leaving the inheritor in more debt as a result of overspending.
It’s vital to approach your inheritance thoughtfully and strategically. You want to use these new funds wisely, and, more importantly, you don’t want to risk losing the legacy your loved one left behind. Allow yourself time to process this transition and explore the options available to you.
Process The Loss Of Your Loved One
Before making any decisions about the money, you need to process the loss of your loved one. Failing to deal with your grief can result in emotional spending that compromises the money you’ve just received. If you give yourself some time, you may become more sensitive to your loved one’s wishes or have the chance to clear your head of complex emotions.
If your loved one spent their life building and protecting their wealth, they probably hoped you’ll do the same. Letting your inheritance sit for a minute can help you overcome the initial temptation to splurge on something like a fancy vacation or expensive new home. If it’s important to you to honor their legacy, don’t forget to take care of your own emotions to protect the wealth they’ve gifted to you.
Understand The Type Of Inheritance You’ve Received
It’s also important to consult a professional so you understand what type of inheritance you’ve received. Common types of inheritances include:
- A trust account or cash
- A retirement account such as an IRA or 401(k)
- A house or other property
Knowing the category of inheritance you’ve received impacts how you access the inheritance, any taxes that may be associated with it, and what your options are to move forward.
For example, if you inherit a home but don’t want to live in it, you may need to learn more about the local real estate market and recent sells in the area before deciding to sell the property. If you find that a capital gains tax would be too costly, you might explore another option, such as renting out the house or living in it temporarily as you assess your situation.
Likewise, inheriting a retirement account comes with its own set of obstacles, including potential penalties for failing to take required minimum distributions. Regardless of the inheritance you receive, it’s best to contact a financial professional who understands the intricacies of inheritance situations.
Evaluate Your Financial Situation
Once you understand the type of inheritance you’ve received, you’re better equipped to align your plans for the inheritance with your other financial goals.
For example, if you have high-interest debt to pay off, you could improve your financial situation by paying down that debt with money from the inheritance. If your emergency fund could use a boost, set aside a portion of the money to better protect yourself from unexpected life events.
If you’re debt-free and already have a comfortable emergency fund, there are other areas in your life you may need to catch up on, such as:
- Contributing to your retirement account
- Paying down your mortgage
- Saving for your children’s college education
- Giving to a charity or foundation you care about
And finally, it’s okay to treat yourself to a little bit of a splurge when you inherit money. Of course, it’s probably not a good idea to quit your job or purchase property you couldn’t comfortably afford otherwise. Ultimately, your lifestyle shouldn’t change too much when you receive an inheritance. Instead, your inheritance should complement and contribute to your overall financial goals.
Consult With A Professional
At any financial fork in the road, it’s wise to consult with a professional—and especially when emotions come into play. The objective advice from a knowledgeable financial advisor can help curb temptation to overspend or spend unwisely, and ensure you’re not misusing your inherited funds. A professional can also help you review your options and optimize your inheritance to develop an overall financial plan designed to connect you with your future.
To maximize your confidence in your future, we strongly believe money is a tool, not a solution. Our goal at Blackbridge Financial is to help you use your inheritance to increase financial security and execute your holistic plan so you can achieve sustainable long-term, real-life returns that meet your financial goals and objectives.
If you want to partner with a financial advisor who has your best interest (and your future) in mind, contact us today by emailing me at firstname.lastname@example.org or calling 704.960.9646.
Antonio Porretta is an independent wealth manager at Blackbridge Financial with over 20 years of experience. He specializes in helping people create, distribute, and preserve their wealth. Antonio received an executive MBA from Saunders College of Business at Rochester Institute of Technology in 2007 and also holds the Accredited Asset Management Specialist (AAMS®) designation. Originally from Rochester, NY, Antonio has been a resident of Harrisburg, NC, since 2007. Outside of work, he enjoys playing soccer and tennis, coaching, and spending time with his wife, Laura, and their children, Cristiano, Victoria, and Matteo. To learn more about Antonio and how he can make a difference in your financial life, visit www.blackbridgefinancial.com.
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