If you have inherited a large sum of money, you might be tempted to decide how to spend it straight away. However, you may not be in a stable frame of mind while you are grieving, especially if you were close to the person who has died. It is best not to rush into any important decisions at a difficult time. The Financial Services Compensation Scheme ensures that an inheritance of up to £1million is protected for six months, so you have time to consider your options.
When the time comes when you are ready to put the inheritance to use, you may already have a long-held ambition or plan for what you will do. In some cases, however, it can be difficult to decide what to do for the best. You want to ensure that your loved one’s gift is used in the best possible way, but what is best? To help you get started, here are eightsmart ways to spend your inheritance.
1. Enjoy some of it
You may not have access to a lump sum of money like this again, and there is a good chance that your deceased loved one or friend left you the money so that you could improve your life and/or enjoy it. Set some money aside for a holiday, a new car, or something else that you will enjoy. You can then put most of your inheritance towards a more long-term investment.
2. Pay your debts
If you have debts (loans, credit cards, or other debts), use some of your inheritance to clear your debts. You should clear the high interest debts first as these will cost you more in the long run. Becoming debt-free is a fantastic feeling, it gives you more disposable income, and leaves you free to start putting more into savings, towards your retirement, and/or enjoying your leisure time.
3. Put some into an emergency fund
When you have enjoyed some of the money and cleared past debts, you can start to think about your future. A sensible idea is to put aside enough money to cover between three and six months of your living costs (for example, rent, household bills, and car expenses). This emergency fund could prove invaluable if you find yourself in a difficult financial position,need to carry out repairs to your car or roof, or have topay for any unexpected bills that arrive out of the blue.
4. Buy a property
If you do not own your own home, now may be the time to seriously consider buying a home. Being a homeowner is regarded as a major milestone for many people, but it can be incredibly difficult in the current financial climate to raise enough money for a deposit. If you already own your own home, you may want to buy a second property which you can rent out to increase your income. At some point in the future, when the property has increased in value, you can sell it for a profit.
5. Invest in funds and stocks
While it may not be the right call for everyone, some may choose to invest in funds and stocks. This is a long-term option as the money would not be available as cash, and there are risks involved in any investment, but you may be able to generate a significant profit when you come to sell. It is usually best to diversifyyour investments, i.e. not to place all your eggs in one basket.
6. Give it to a loved one
Some people decide that the best use for their inheritance would be to invest in future generations. If you are in a comfortable financial position and do not need to use the money, consider giving it to a loved one via a deed of variation.
7. Save it
Savings are important at every time of life, so placing at least some of your money into a savings account is a good idea. However, placing all the money in an ISA, which you can access at any time, is not going to generate much interest. Instead, place some money into an easy access ISA and then place the rest into a fixed rate savings account for one to five years.
8. Get professional advice
If you are in any doubt as to what to do with your inheritance, or you want confirmation that you are making a sensible decision, seek advice from a professional. A financial adviser can look at your personal finances and advise you on the best way to invest. Most financial advisers will offer a free introductory meeting so you can get a sense of their expertise and the help they can provide, so you have nothing to lose by making some calls .