Some people are lucky enough to be given a gift by a family member. A lot of times, the recipient doesn’t even know too much about what the inheritance is, or how to begin deciding what to do with it.
It’s important to have some idea of what to do with your newfound wealth. Almost 20% of US households receive some type of inheritance. That inheritance goes on to make up 23% of their net worth! An inheritance is a huge deal, so make sure you have a plan to manage it.
We can go into more detail about several types of inheritances another time. Let’s assume this inheritance is in stocks or semi-liquid assets. A lot of people who receive an inheritance are anxious about its concentration. It could be in only one or two stocks, it could be a single real estate property.
Depending on your level of confidence in managing investments, there are multiple ways to approach your new inheritance. In my mind, the number one goal is to be comfortable with your investments.
The Bottom Line
I’m a big advocate of investing as much of your inheritance as you can while being realistic with any large financial commitments that are coming up. Planning on going to grad school soon? Maybe keep a little of that inheritance in a savings account so you can easily access it and avoid paying capital gains taxes.
You should be investing around 80% of your inheritance. The other 20% can be split between saving for a big purchase and adding to your emergency fund. The more money you can have working for you the easier it will be to lead a financially freeing life.