The funeral service is over and the ‘wake’ has been held with many family & friends in attendance, celebrating the life of your granddad. In the following days, there was the subsequent ‘Reading of the Will’, and low and behold it turns out that you were his favourite grandchild, who has just inherited quite a bit of money – so what to do now?
Many people find it quite daunting after they’ve inherited some money, shares, property or even valuable collectibles. Should they keep the inheritance intact or sell some portion and take a long holiday or even re-train for a new career? There are usually competing goals such as short-term versus long-term priorities and different approaches to ‘risk’ taking, usually determined by your ‘stage in life’ and even personality.
Some of the important decisions you could be faced with may include:
- Save it all, take a holiday or pay off debts?
- Pay off the mortgage first or maybe other pressing debts?
- Invest in shares, property or term deposits?
- Pay into your Super fund or simply save it in a bank?
- Use a managed fund or manage it yourself?
Save or pay off your debts?
If you have credit card or personal loan debts, it’s normally better to use your inheritance to pay these off first, rather than save. The interest that you pay on this outstanding debt is usually a lot higher than any interest you earn on a savings account.
Once you’ve paid off these debts, you’re in a better shape to save. You could even start building a ‘rainy day’ or ’emergency fund’ to protect you even more.
Pay off the mortgage first or any other debts?
It’s tempting to use your inheritance to pay off your mortgage first. But you may find that you’re then struggling to pay off your other debts.
The higher interest rate on credit cards and personal loans makes these debts more expensive in the long run. In comparison, mortgage interest rates are typically much less than a typical credit card. It may pay to start at the higher interest rate ‘end of town’ and pay down these debts.
Invest it or save?
Investing may seem risky, but with careful planning, you could have a steady return from investing in various asset classes such as property trusts or directly in shares.
Alternatively, you could put your inheritance into an easy access savings account. This is a good idea, especially if you think you may need to get your hands on cash quickly in the near future.
You should shop around to find a savings account that best suits your needs.
Pay into your Superannuation or save it in a bank?
With so many Superannuation products to pick from, it may seem easier to put your inheritance in a savings account for when you retire.
But if you do this, you’d lose out on the tax reduction you’d get from putting it into your Superannuation.
Use a managed fund or manage it yourself?
Many people invest in a managed fund to help them make the most of their inheritance. Others prefer to manage it on their own.
If you find it difficult to research and work out which managed products are best for you, it’s a good idea to speak to an independent financial adviser. They can explain the many subtle variations and help you find the right financial product to suit your needs.
As you can easily see, there are multiple options available to you and if you’ve never dealt with this kind of situation before, it would be wise to seek professional advice before making any quick decisions.
Do you need a financial adviser?
If you’re looking to invest, buy a financial product or plan for the longer term, whether or not you need financial advice will depend on a number of factors such as what product you are looking for, how complicated your finances and personal circumstances are and your short and long-term goals.
Please use our Business Directory Search facility, to find a Financial Planner near your location.