So someone close to you has passed away and you will miss them dearly, however, they’ve also left a few inheritance policies around the place.
With some surprise to you, you may find yourself inheriting a large sum of money. Unfortunately though, Many times people lose control and spend their inheritance in all the wrong ways.
So what should you do if you inherit $150,000?
The first thing you need to do after you inherit $150,000 is find out how much taxes you have to pay. After that you should focus on paying off any debts that you may have and then remember to put some money aside for retirement.
Only after all of that should you look at indulging in things you wouldn’t normally purchase.
Usually, people that get large sums of inheritance unexpectedly forget about the long-term problems that they may have.
Instead of focusing on small things you’ve always wanted, it’s important you learn how to control your spending urges or things could go south quickly. By gaining control of your spending urges, you’ll quickly ensure that you are not losing your inheritance money before it even hits your account.
$150,000 is A LOT of money, so take a few deep breaths and don’t act on impulses.
What is the Smartest Thing To Do with an Inheritance?
While it may be easy to know what you should do with the inheritance once it finally shows up in your bank account, the allure of going wild has made people entirely lose control of their urges. Knowing exactly what to do and how to best use your inheritance will greatly impact how long it lasts and what the total effect it has on your life is.
As I just mentioned, remember to breathe, I know it sounds funny but whenever you feel overwhelmed by this sum of money, just breathe.
Not only will this slow down your heart rate, but it’ll make you think more clearly. Before doing anything with your money, think first. Think about what the best use of this money is. Inheritance or not, you always want to think before you spend.
4 Things to Spend Your $150k Inheritance On
1. Pay Your Taxes
Depending on where you live, you might have to pay taxes on your inheritance, so make sure you do your research, talk to people you know who know about this and reach out to a professional. The last thing you want is to be hit with a big tax bill at the end of the year.
2. Pay Off Debts
While paying off debts might not be the sexiest thing you can do with your money after paying the taxes on your inheritance, it’s probably the smartest. Paying off your debt will instantly increase your net worth by however much you pay off and it’ll free up your future income for things OTHER than debt payments.
3. Invest Your Money
Invest, invest invest. If you paid your taxes and all your debt, the next best thing you can do is start investing. Not only will investing your money also increase your net worth, it will also start to have a compounding effect and could potentially provide you with passive income for the rest of your life.
Related Financial Geek Article: How to Invest While Living Paycheck to Paycheck
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4. Splurge With Limits
It is totally okay, and even recommended to spend some of this $150,000 inheritance on yourself! Now how much you splurge really depends on how much taxes you had to pay, how much debt you had and how much you decided to invest. But don’t be afraid to treat yourself! “Goodbye 08’ Pathfinder Hello Tesla!”
What is Considered a Large Inheritance?
On average in the US, it is expected that retirees will leave around $177,000 for their children and family after they die. The median that is usually being left behind is only $69,000.
However, these amounts do not account for the costs of paying for lawyers, funerals or any remaining debts of the deceased individual. With that said, we can infer that anything over $100,000 is a large amount of inheritance for just one person to receive.
So if you’re receiving an inheritance of $150,000, it’s important to remember that this is no small amount of money, while you won’t be able to live on it forever, it can be life changing if you put it to good use.
How Do You Protect an Inheritance?
The easiest way to protect an inheritance is by having the person place it in a trust as this will ensure the money doesn’t go through probation before being distributed.
Not only will the trust handle who gets what amount of money, but it will also ensure that the money is not taxed too heavily, allowing everyone that should be receiving some inheritance to comfortably receive what they’re rightfully entitled to.
Furthermore, a trust can be locked in even before someone dies, by using an irrevocable trust the grantor (trustee) first has to die before the assets can be redistributed. This is why you and the other inheritors of the will can safely rest if the grantor is aging or simply suffering from a disease that impacts their ability to think rationally.
It’s a sad truth, but as people age, they are more likely to be influenced to change their wills or give money to people that probably don’t deserve a single penny of it.
Fortunately though, trusts are controlled by separate companies that will ensure that the money is spread throughout the family in the most appropriate manner possible.
Inheriting $150,000 is a lot of money, and with this money comes huge responsibility.
While you may be tempted to spend it all, you need to try and control your initial urges. Controlling your spending urges now will give you the ability to responsibly splurge on some of the finer things in life AFTER you take care of things like taxes, debt and retirement savings.
I had a friend one time (true story), who won nearly $2,000,000 playing the lottery. When I asked him what he did right after, he said turned off his phone and went to his cabin for 3 days. What a great idea.
If you spend before you think, you might find yourself in a worse situation financially then you were in before receiving the inheritance.
So whatever you do, do not go to the nearest mall and start buying everything your heart desires, treat yourself and someone close to you to a nice meal and then take care of the things that really matter.
Additionally, you should never forget that the real cost of receiving an inheritance is the loss of someone special and significant to you in your life.