If you’ve recently received an inheritance, congratulations! While it may be tempting to spend the money immediately, consider taking a moment to reflect on your financial situation and long-term objectives. Inheriting money can evoke strong emotions, especially if it comes from a beloved individual. By processing these feelings and planning carefully, you can make the most impactful decisions.

Key Insights

• Pause before making financial decisions to reflect on your options.
• Consider utilizing a high-yield savings or money market account to grow your funds temporarily.
• Understand the potential tax implications based on the form of the inheritance.
• Identify whether to use the funds for short-term needs or long-term goals.
• Adjust your investment strategy according to your timeline.

1. Take Your Time

First and foremost, resist the urge to act swiftly. Allow yourself the necessary time to evaluate your financial landscape. By remaining calm, you can cultivate a more thoughtful strategy for your inheritance.

2. Secure Your Funds

Before deciding how to utilize your inheritance, consider placing it in a secure account that can earn interest. According to financial planner Mari Adam, options such as a money market account or a high-yield savings account at an online bank are favorable choices, often offering about 4% interest.

3. Be Mindful of Taxes

Typically, inheritance money is tax-free for the recipient. However, keep in mind that the tax implications may differ if the inheritance comes from specific sources like an individual retirement account (IRA), which may have unique requirements. It’s essential to consult with a tax professional to navigate these complexities.

4. Examine Your Options

Consider the purpose of your inheritance. You may wish to allocate funds towards a significant future endeavor, like buying a home, your education, or planning for retirement. Alternatively, using it to eliminate high-interest credit card debt can also be a prudent choice. If you have the opportunity, don’t hesitate to treat yourself to something meaningful, such as a travel experience.

5. Tailor Your Investment Approach

Your investment strategy should align with your objectives and time horizon. If you’re planning to spend the inheritance on short-term goals like purchasing a car in a year, keep your investments conservative. On the other hand, if you’re saving for a retirement goal 20 or more years away, you can afford to explore higher-risk options, like stock index mutual funds.