Maximize an inheritance

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Although the circumstances surrounding the receipt of an inheritance are saddening, the windfall can often alleviate financial pressures and provide security for the future. However, it’s very important that beneficiaries make a financial plan before reacting hastily, in order to maximize the potential of this monetary gift.

Typically, an inheritance is money that you did not initially factor into your life, so it’s essential that you consider what this money means and how it can impact your life for the better.

At Fort Pitt we recommend that when formulating a financial plan clients think about their short, medium and long-term goals. Managing and creating a plan for an inheritance is no different. Some items that might fill each bucket include:

  1. Short-term: First, make sure that you have an emergency fund. If you do not have a cushion it’s necessary to allot some funds here. You have to also consider paying off debt, with the caveat of identifying good debt vs. bad debt. Some might think paying off their mortgage would be wise, but if you have a low interest rate, you should allocate the money elsewhere, particularly any high-interest credit card debt!
  2. Medium-term: Depending on your age, this area could include a number of items. If you are close to retirement, amp up savings. Alternatively, if you have children, this could be an opportunity to start a college fund or increase contributions to an already established 529 plan.
  3. Long-term – Retirement is often in this bucket. Maximize contributions to employer-sponsored retirement accounts and if you are already maxing out, consider starting a Roth or Traditional IRA as a supplementary vehicle. Lastly, if you have already checked all your financial obligation boxes, look at items like the vacation home you have always wanted to purchase or the European adventure you have fanaticized about.

Managing a sudden windfall is about taking full advantage of the benefit it offers you and your family, but it’s also about balancing. Make sure you have a plan and are making smart decisions, but it’s ok to budget in a family vacation or home item that is needed.

Ultimately, people achieve the greatest success when working through a plan. Creating a roadmap will help you reach your goals successfully, but remember to form a balance and have some fun along the way!

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