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Do THIS when you receive an inheritance!

June 17, 2021

When you receive an inheritance from the passing of a loved one, it can be overwhelming, intimidating, and stressful. Dealing with attorneys and CPAs may often leave you with more questions than when you walked into their office. Everyone’s first thought when a lump sum of wealth is passed on to them is, “What do I do with the money?” In this blog, I will be illustrating a checklist that will guide you through optimizing your inheritance to its fullest potential. If you are stuck on any of these steps, be sure to consult with a professional.

  • Get out of debt.

There are two types of debt: good debt and bad debt. Debt that puts money into your pocket is good debt and is acceptable so long as the bearer understands the risks involved. Bad debt is what we want to get rid of. This debt takes money out of your pocket. Some examples of bad debts include credit card debt, financing for cars, and overleveraged real estate. Again, the determining factor on whether debt is good or bad comes down to the cash flow it is producing.

  • Get out of renting.

There is a time and place for renting, such as when you are living in a temporary situation. However, as soon as you have the means to buy a house, do it. The issue with renting is that the funds spent never come back. Instead, look to purchase a home so that even when you are paying down a mortgage, you are building equity concurrently.

  • Invest

Once you are wiped clean of your bad debt and you are a homeowner, it is time to start looking to the market. Having extra money sitting in a bank is acceptable for funding that may be needed in the short term; however, money that is being saved for the long term should seldom sit in cash. The issue with cash is that it loses about 2% of its value per year due to inflation.[1] That means, if you received $500,000 from an inheritance and hold it in cash for 20 years, by the end of that 20-year period, it would have a future value of around $334,000.[2] Instead, it is a much better idea to have your money go to work for you. For example, if you invest those funds into the market and receive an average return of 10% per year, in 20 years, your $500,000 investments would be worth around 3.3 million![3] Almost 7 times your original investment! How does this happen? Thanks to the incredible power of compound growth. Of course, as with all investments, there are risks involved; but chances are, investing for the long term will usually produce a positive result if your investments are based on sound investing principles!

Having cash may make you rich temporarily, but wealth is built by investing. Instead of viewing cash in today’s dollars, see it through the perspective of its future value. By seeing money through this lens, it can also help deter you from making an unnecessary lavish purchase. For example, that new car that you do not need is costing you much more than $50,000. Not only will the vehicle lose value the second that you drive it off the lot, but you are also losing the money that you could have potentially made by investing. Had you invested the $50,000, at an 10% annual return, in 10 years it would be worth almost $130,000![3] 

An inheritance can be an incredibly powerful and lifechanging gift. It bears the potential to change the fate of your family for generations to come. However, actualizing this potential takes discipline and stewardship. Call TODAY to learn more about how you can optimize your inheritance by having your money work as hard as you do.

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Remy Jacobson is a Registered Representative Offering Securities and Investment Services through United Planners Financial Services, Member: FINRA, SIPC. JWM and United Planners are independent companies.

[1] Inflation may fluctuate above or below 2%. The 2% rate used in this blog is a hypothetical inflation rate based on the Federal Reserve’s target inflation rate.

[2] The $334,000 reflects the buying power of the $500,000 cash after 20 years with an assumed inflation rate of 2%. It does not reflect the dollar amount you would have in your account.

[3] The 10% annual growth rate is a hypothetical growth rate similar to the 30-year inflation adjusted average rate of return of the S&P 500 Index. The S&P 500 is a benchmark index and cannot be directly invested into.