Did you know that the average American leaves almost $177,000 in inheritance to their heirs? If you get the call that someone close to you has passed away and left you a sizeable amount of inheritance, it is vital that you don't spend all of the inheritance once you receive it. Now is a good time to speak to a certified financial planner in order to discuss your financial situation and how you can best make use of the inheritance that has been left to you. This article will look at 3 common recommendations that most certified financial planners will make.
Pay Off All High-Interest Debt
It's unfortunate, but Americans have a lot of debt. The average household has approximately $16,061 in credit card debt and $132,529 in total debt when mortgage is included. The main problem with debt is the insane amount of interest that you are charged as time goes on. You could potentially save a significant amount of money if you pay off your debts instead of having to pay interest on your debt. With the amount of money that you would otherwise pay in interest, you could also save up enough to indulge in major purchases.
Your certified financial planner will want to take a look at the different types of debts that you have, as well as the amount of interest that is charged on each debt. They'll usually recommend that you pay off all high-interest debt first. However, depending on how much interest is on your other debt, your certified financial planner might recommend that you invest your money instead of paying the debt. If the interest you'd earn for your investments is more than the interest you'd pay for your debts, it's smarter to invest your money.
Budget and Create an Emergency Fund
It's not unusual for many people to spend all of their inheritance once they get the money in their account. You might think that you have a lot extra, but that might not be the case. You'd be surprised at just how quickly your money could dry up if you were to spend too lavishly. With that in mind, a certified financial planner will want to take a look at the type of lifestyle that you have right now and the type of lifestyle that you want to live. With this in mind, they can help you create a feasible and practical budget that will allow your money to last a long time.
In addition to creating a budget, your certified financial planner will also want to take a look at what your expenses may be should a terrible accident happen or should you get laid off from work. From there, they'll help you determine what your emergency fund should be.
Look into Investment or Saving Portfolios
If you still have a lot of money left over or if there are any funds that you don't need in the immediate future, your certified financial planner will also want to discuss different investment options with you or the type of savings account that will best suit your needs. They'll want to discuss how the market is doing right now, as well as the level of risk that you are willing to take when investing your money. The goal of a certified financial planner is not to sell you a product or a service, but to help you understand the different investment portfolios that are out there.
In most situations, you'll want to diversify your investment portfolio or the type of savings accounts that you have, so that your investments are spread out over different industries. This will help your portfolio withstand any shortfalls in the market.
Although it might be tempting to spend most of your inheritance after you've received it, it's best to stay safe so that you can keep yourself in a financially sound position. A certified financial planner can help you understand the circumstances involved with your financial situation, so that you make the best decision and choices possible.