If you have received money as a result of an inheritance, you may have mixed feelings about it. On one hand, you have money that you never expected to receive, a windfall. On the other, you have lost a loved one. This puts a burden on you to do act responsibley with whatever they have left you.
- spend 10 to 15 per cent
- pay high interest rate debt
- create a cushion
- top up retirement savings
Any money you get as an inheritance is going to have some emotional ties for you. You may want to buy something to remember your benefactor, perhaps something for your home, or a trip you have always wanted. You could set aside 10 to 15 per cent of this inheritance for spending without compromising your need to save. When you look at that painting in the hallway or the pictures of your trip, you will think of the person who made it possible for you to buy it.
Seek financial advice
Before deciding what to do with the bulk of your inheritance, you should seek the advice of a member of Advocis. This is a good opportunity to establish or review some financial goals. A qualified financial advisor can help you set priorities.
Whenever you have a windfall, you should pay down debt with high interest rates. Paying off credit card debt or a line of credit is always the first priority, because it comes with high interest rates. Your advisor can help you decide whether to pay off money owing on your car or home.
Set some aside
In a complete financial plan, you should have a cushion - money that is set aside for emergencies. If you have paid off your debts, your advisor may suggest you set up this cushion, a pool of money that you will not otherwise touch. It can help your peace of mind as it will be there in a family emergency or if you lose your job.
Another priority should be retirement savings. If you have RRSP room contribute the full amount. A financial advisor can help determine what type of RRSP investment is appropriate for you. If you are one of the lucky few who are up to date with RRSP planning, consult a qualified financial advisor to help you select an investment that fits in with your overall plan.