The Top Three Steps to Making an Inheritance Last
Have you recently inherited a sum of money and are unsure of how to save or invest it? Coming into a large or small amount of inheritance money unexpectedly can be very overwhelming – and also very tempting. You will most likely want to be able to splurge, but you’ll also want to have something to fall back on through wise saving and investing decisions. There are so many things to consider when it’s time to invest an inheritance. Here are 3 steps on what you could do with an inheritance and how to make your money last.
Build An Emergency Fund
An emergency fund1 is exactly what it sounds like, a fund for emergencies. If you are part of a dual-income family or you have had an established career for several years, then your emergency fund should have enough money in it to cover three months of all your expenses. If you are a single-income family, are self-employed, or earn a straight commission, then your emergency fund should have enough money to cover six months of all your expenses.
An emergency fund can be used for household expenses such as:
- A job loss or change
- Appliance or vehicle repairs or deductibles
- Emergency home repairs
- Medical expenses
An emergency fund should not be used for upgrading a TV, Christmas gifts, or for a vacation. You should set up a separate account for those types of ‘unnecessary’ expenses. If you have to use cash from your emergency fund, your first priority should be to build it back up ASAP.
Having this emergency fund fully funded can help you achieve peace of mind to invest the rest of your inheritance.
Pay Off Debt
Paying off debt equals investing in your future! Paying off debt will also save you money on the future interest that would be accrued and the hassle of paying the bill. To get started make a list of all your debt amounts with their interest rates. Sort your debts from smallest to largest. Then send all the extra money you can from each paycheck. Manage your debts like it’s a part-time job. Starting with small debts at a high-interest rate, like a credit card, is a great way to start building momentum to paying off all your debts.
As you eliminate the smaller debts, turn your focus to larger debts such as cars, student loans, and mortgages. Since interest rates are at record lows I would also look into refinancing your mortgage and consolidate your student loans. Becoming debt-free will help reduce your stress and give you greater options for your future.
Depending on your age, finding a place to park your inheritance is a big decision. To make your inheritance last you may want to set it up for growth into retirement and future income. If you are still working, maximize your 401k and IRA options. I recommend saving at least 10% of your income per year. If you need guidance please schedule a call with me here. I would be happy to talk with you and answer any questions. The sooner you start saving and investing, the less you’ll have to save each month to reach your goals, thanks to the power of compound interest. Compound interest means the deposits and interest you earn build upon each other to earn more over a time period. For more specifics on what to invest in watch my show on Ozarks Live, the video can be found here.
There are two types of taxes2 to consider when you receive an inheritance. Inheritance tax and estate tax.
Inheritance tax is a state tax on “assets inherited from someone who died.” The person who inherits is the one who pays the taxes. However, if you live in the state of Missouri, you do not have to pay inheritance taxes to the state as of 2021.
The estate tax is a tax on “a person’s assets after death.” These taxes are paid out of the estate. As of 2021 estate tax generally applies to assets totaling over 11.7 million. Estate tax rates range from 18-40%. If you are getting an inheritance, I would recommend consulting with a CPA first. It is in your best interest to ensure the money is moving hands in the most tax-efficient way possible to make the inheritance last.
Let Us Help
In addition to deciding what to do with your inheritance, there are many things to consider when planning your long-term financial strategy. Working with a qualified financial advisor can help you build your future. For a complimentary, no-obligation analysis of your situation please reach out online or give us a call at 417-882-1800.
Catch Bruce Porter’s show Dollars & $ense Tuesdays at 3pm on KOLR’s Ozarks Live Visit our YouTube page for more videos
Investing involves risk, including the potential loss of principal. The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.
We are not permitted to offer, and no statement contained herein shall constitute, tax or legal advice. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation. Our firm is not affiliated with the U. S. Government or any governmental agency. Investment advisory services offered only by duly registered individuals through (AEWM). AEWM and The Resource Center are not affiliated companies. The Resource Center, Inc. is an independent financial services firm that utilizes a variety of investment and insurance products. 911466 – 5/21