7 Tips for Investing Your Inheritance

So, you’ve recently been notified that you’re going to be a beneficiary in the will of one of your deceased relatives or friends, and your mind is racing with ideas about what you’re going to do with the money?

While the loss of a loved one is never an exciting time, as you begin to heal from the emotional wounds, you’ll inevitably come to the realization that your inheritance should be used wisely in honor of the person who left it to you. If, for example, you now have inherited property, you will be able to decide whether or not you wish to keep it for yourself as a home, rent it, or sell it on. Coming into a large amount of money, however, is slightly different and you are going to want to make sure you don’t get over-excited about this significant boost to your bank balance.

Thus, investing your inheritance will undoubtedly become a key concern as you look for ways to build upon the wealth you’ve been given. With that said, here are seven tips you can use to invest your inheritance quickly and wisely.Investing Tips

1. Use a Local Probate Lawyer to Speed Up the Inheritance Process

While you could sit there and come up with business ideas all day, you can’t actually invest your inheritance until the funds are available in your account. If you’re still waiting on the inheritance to come through, you could speed up the process by hiring a local lawyer to take care of the probate process. Waiting it out without a lawyer isn’t the best route to take if you’re in a hurry to receive your inheritance.

Typically, it can take 4 to 8 months, or longer, for beneficiaries to obtain their payouts. However, hiring a local lawyer who specializes in the probate process may help you significantly reduce the time it takes to receive and start investing your inheritance (learn more about this shortcut). While you could still wind up waiting a few months or more, it will usually be faster than if you were to proceed without the assistance of an attorney.

2. Avoid Excessive Initial Splurging

When you first receive an inheritance, it can be tempting to start spending left and right with the simple justification that you didn’t have to work for the money, so it doesn’t hurt much to spend it. Before you know it, you’re dropping thousands on extravagant shopping sprees and putting down-payments on vehicles or properties that are going to bog you down financially.

Think twice before you set yourself up for any long-term commitments that will continually drain your inheritance for years to come. As a general rule of thumb, it’s best to give yourself at least 1-2 weeks of planning and deliberation before you start making expensive purchases just because you can.

3. Leave a Reserve of at Least 50% Untouched

While you should be investing the majority of the funds that you spend out of your inheritance in the beginning to generate some form of residual income, even after the return starts to pour in, it’s never a good idea to leave yourself with less than 50% of what you inherited.

Going all in and spending every penny on an investment that appears to be going well may be a tempting way to increase your wealth faster, but it’s simply not worth the risk of losing it all or being stuck without cash flow. Of course, the percentage you should leave in the bank may vary depending on how much you’ve inherited, as someone who received $1 million might not fret about only keeping 25% of that because they’d still have a quarter million left.

4. Obtain Proof of Concept Before Dumping Money into an Investment

Proof of concept is a topic that every novice investor should become familiar with. Essentially, it just means you need to have proof that an investment will generate a return before you dump funds into it. Proof of Concept (PoC) is also a key factor considered by investors who may be interested in funding one of your businesses.

The world is full of good ideas, but always be cautious when proceeding in the initial stages of an endeavor until you’ve started to observe that it’s paying off. Even after you see your business plan take off, it’s still best to set aside a designated reserve in the event that things start to go south unexpectedly.

5. Don’t Forget to Consider Taxes

Overlooking taxes is a common mistake made by people who are in a rush to spend and invest their inheritance. You might think to yourself, “oh, I’ll just take care of the taxes later on” and then you wind up with an absurd tax bill and all sort of fines and fees.

As soon as your inheritance hits your account, be sure to consult with a financial professional who can inform you about your tax obligations. It may be wise to set aside about 20% of the inheritance in a tax/emergency funding account just to make sure you’re prepared to deal with any mishaps along the way.

6. Don’t Fall for the Debt Trap

If you’ve inherited a sizeable amount of money, you’re probably going to take steps to improve your credit if you haven’t already. With all that extra money sitting in the bank and a credit score that will gain you approval for most loans, it can be difficult to avoid the debt trap.

While you don’t necessarily have to buy everything outright, go easy on the amount of lease and loan obligations you commit to early on. A good rule of thumb is to base your finances on how much you’re currently earning, not how much you have stashed in your bank account.

7. Become a Knowledgeable Investor and Entrepreneur

While all of the above tips will provide a layer of protection from dwindling your inheritance and position you nicely for optimal investment outcomes, there’s really no shortcut to becoming an experienced entrepreneur and investor. You’ll simply have to take the time to do the research and put in the work on your way to becoming a better businessperson in general.

As the inheritor of a significant amount of money, in many ways you have a great responsibility and opportunity to make the most out of what you’ve been given. Use some of the money to invest in training courses, and other educational programs that will enhance your ability to make better investments.

Investing an Inheritance Can Be Fun and Fulfilling

While there will always be a feeling of sadness when you think of the person who left you the inheritance, it feels great knowing that you used what they left you to the best of your ability. Conversely, you don’t want to feel the guilt and regret of knowing that you squandered your inheritance, so be sure to take the steps above and strive to become a better investor and entrepreneur.