Question:
I recently learned that an elderly Aunt has left me some money. This has thrown me into a bit of a quandary as I wasn’t expecting it and I can’t yet make up my mind whether it is a lovely surprise or an onerous responsibility. Can you give me some advice please?
Answer:
Without knowing more about your personal financial situation, I can’t recommend any specific course of action in this blog, but here are a few pointers.
Before you do anything, park the money in a high-yield savings account so your money can earn a bit of interest while you take some time to consider the emotional and financial ramifications of receiving it.
If it is a small to medium Inheritance that isn’t really going to change your life, you should think about your current financial situation:
- Do you have any debt? If so it would be a good idea to repay or reduce this to improve your monthly Cashflow position.
- Do you have at least 3 months of normal expenditure allocated for an emergency fund? If not set aside a suitable amount for your peace of mind.
- Is there anything you need to repair or replace – white goods, car etc? Write a list of what you NEED to spend.
- Is there anything you would really like to do – a special holiday, help a relative etc. Write a list of what you WANT to spend.
If you still have money left over that isn’t going to be needed in the short term, this can be invested appropriately for your future taking into account risk and flexibility.
- Are you maximising your ISA allowance?
- Have you any scope to increase pension contributions?
- Perhaps you just want an investment that is flexible and easily accessible?
If it is a much larger inheritance that could be significantly life changing, you should take some time to consider and write down your financial goals.
- Could the Inheritance mean that you can retire early, or send your children to private school, or pay off your mortgage completely, or buy a holiday home or facilitate any other of your life dreams?
If this is the case, we advocate making a list of these financial goals and consider engaging a financial planner to help you navigate through your financial priorities and create a long term forecast for your security and happiness.
Some other things to think about:
Inheriting money will add to the value of your own estate and might mean significantly higher tax consequences in the future.
It might be possible to “divert” your inheritance to your children if this is relevant, thus reducing future tax.
In any event you should ensure that your own inheritance and estate planning is properly organised so you don’t leave any difficulties for your heirs. Wills and Lasting Powers of Attorney are very important here.
If this blog resonates with you, please do get in touch, and/or feel free to share it if you think it might be useful to someone else.