Saving Money When You Get An Inheritance

You’ve had that dream, right? You know, the one where great Uncle Harold had a billion dollars tucked away under a (very lumpy) mattress, and it’s all for you. He enjoyed your rendition of ““Twinkle, Twinkle Little Star” so much when you were three that he’s decided to leave his wealth to you. His seven own ungrateful children, of course, aren’t happy about it, either.

Your debt from credit cards, bad credit history, and ramshackle living conditions will all be a thing of the past. If only it were true.

Unfortunately, Uncle Harold is in decent health (or he doesn’t exist). So, when the time comes that your relatives start passing away, chances are you’re going to wind up with less than $1 billion in an inheritance.

Something morbid to consider

Someday, however, you are likely to be facing an inheritance. On average, once your dearly-departed relative’s final expenses are paid, you can expect somewhere between $10,000 and $30,000. (That average is changing rapidly today, especially with rising medical costs).

While you’re not anxious for that day to happen, you need to plan on spending that inheritance the right way. You need to put it to good use, rather than simply blowing it.

How not to waste an inheritance

Here are some priorities you should consider when you come into a chunk of change:

  • Start with your credit cards. Your credit cards very likely have significantly higher interest rates than any other type of debt that you carry. Those cards play an important part in your credit score, as well, because the amount of debt you owe on them versus your credit limit factors in heavily. If you pay off your credit cards first, you’re in good shape to take the next step. Ideally you’ll pay off your horrible credit credit cards.
  • Keep good debt. There really are few types of good debt, but there are some. Your mortgage, unless you’re paying a high interest rate, is usually “good” debt. That is, you pay a relatively low interest rate compared with other debts.
  • Don’t forget retirement. Whether or not you already have a retirement account, it wouldn’t hurt to put a few extra bucks away. If you have a 401(k), for example, you may be able to add something like a Roth IRA to your retirement portfolio.
  • Avoid the temptation to spend it. Your instinct is to sign up for a cruise or buy a new car. Avoid the temptation to drop that cash all at once. Instead, try to look over the long haul.
  • Don’t nickel and dime it away, either. If your inheritance sits in your checking account, it’s going to slowly disappear. If you’re not ready to spend it right away, consider putting it into an investment that you can’t get to quickly.

If you’re smart, you can turn an inheritance into a nice boost to your lifestyle, or use it to help secure your future by raising your credit card score. If you’re not careful, however, you’ll wind up in a couple of years with maxed credit cards, bad credit history, and nothing left to show for it all.

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