Received A Large Inheritance? Here’s What You Should And Shouldn’t Do

If you’re a woman who has recently received a large cash inheritance, here are a few smart money- moves you should consider making. 

The Big Decision

If you’re married, you need to start by deciding whether you intend to continue holding the money in your own name or jointly with your husband. This is a sensitive issue and either decision could have long term ramifications. In the end, this is a personal call that will hinge upon your own beliefs and situation. Just make sure your inheritance doesn’t fall prey to divorce proceedings, as they sometimes do!

Before all else, clear your debt

Windfall gains are a great opportunity to pay off expensive loans. If you’re married, consider the debt that is held in both your name as well as your husband’s. Start with the most expensive forms of debt such as credit cards and personal loans (sometimes as high as 40 per cent per annum!) and move down further to outstanding car loans or home loans. Bear in mind that if you’re well into the EMI cycle for a car or home loan (for example, more than half paid already) it actually makes more financial sense to not prepay the loan.

Increase your emergency readiness

Having a solid emergency fund is critical. The actual size of the fund will depend upon your monthly fixed expenses. Once you’ve paid off your expensive debts, aim to put away at least 6 months of your fixed expenses in an emergency fund. Park this money in a liquid fund or a fixed deposit than can be liquidated with ease.

Buy a rental property

Even after considering that rental yields in most locations are just about passable, and a property will require time and effort to maintain, it would be wise to consider purchasing commercial property in a good location with low supply, high demand, and good infrastructure. Rent represents a steady source of income which will help you be financially independent. Quick tip: buy this property in your own name, singly rather than jointly with your spouse.

Asses your Risk Tolerance

Still got money left over? Take a risk profiling quiz to determine your optimal asset allocation. As a thumb rule, a high-risk taker can invest 75-80 per cent into volatile asset classes such as stocks and equity mutual funds. For a moderate risk taker, this number is closer to 50 per cent and for a low-risk taker, this figure would be closer to 20 per cent. Don’t be in a tearing hurry to invest, but at the same time don’t procrastinate. Remember that idle money doesn’t grow, and inflation will continue eroding the purchasing power of your money over the years.

The obvious one: don’t overspend!

A closing word of advice – avoid frittering away large inheritances on large purchases. Sleep on your buying decision rather than buying something expensive while window shopping. Often, the arrival of an inheritance fuels uncontrolled buying sprees that are followed with intense regret. Think before you spend! You might have more important financial goals to attend to.