In a society where many of us are living month to month on our current pay cheques and salaries, coming into a lump sum of money can be a very much welcome shock to the system. Say you’ve recently inherited a windfall figure, your mind is no doubt racing with possibilities of what to do with it, from the blandest, most responsible ideas to ever exist right through to the most lavish and exorbitant spends.
Who do you listen to – the devil on your left shoulder or the angel on your right? That very much depends on your circumstances – your current financial state, the stage of life you’re at, the responsibilities you have and your plans and goals moving forward. All are tremendously important factors in defining the best move for your money and thinking on them carefully will likely lead you to place your money into one of these five groupings.
Pay off your debts
It’s probably best to start with the most boring, most miserable but arguably most important one, and that’s clearing any debt from your name.
Unfortunately, debt is a fundamental part of modern life for the average British citizen. Between us all, we owe a cool £1,684 billion in personal debt, with the average arrears per household sitting at £60,526 and £31,972 per adult (as of August 2020). With the cost of living and the housing market tougher to get on terms with than ever before, embracing debt has become the accepted method of getting by for many. It does, however, leave a rather dark cloud hanging over us, and one that needs to be cleared as soon as possible.
If you have debts to you name, especially ones that are accumulating as time draws on, your money is best spent getting rid of them. Despite it being a bit of a “nothing’s changed” spend, you’ll find it opens doors for you immediately by freeing up more of your earnings, improving your credit score and, arguably most importantly, removing the mental weight from your day to day life.
Invest in one of life’s big purchases
You may be strapped down financially by some of life’s bigger purchases i.e. a house, a car, wedding payments – all of which can lead to being in the sort of situation already mentioned. If you’re weren’t quite there yet but saving for something along those lines, your money could enable you to enter the housing market, buy a car or organise that dream wedding in a much more financially comfortable manner than you previously anticipated.
Inheritance money is often left with this sort of intention – to give you a key foothold in life that you were previously were unable to reach, so you’d be hard pressed to find a better option that to drop the money into a fundamental life improvement like this.
Invest in the future
While there’s always the option to save, there’s also the option to not rest on your laurels and try to grow the money you’ve received. At the very least, you shouldn’t be leaving your money dormant in a non-specified bank account, instead looking to build your funds through investment into an ISA allowance or a lifetime pension scheme.
Then there’s the next step – investing in an active market, such as property (buy-to-let if your budget stretches far enough) or learning, with absolute caution, to trade and grow via financial markets. These are steps that are not to be taken lightly and require your active participation – where the latter is concerned you’d want to start off using a forex demo account or similar to get to grips with potentially lucrative markets before your money is actually on the line.
Of course, where there is risk, there are greater rewards, so investing your money, if you know where and when to do so, could be the best bet for those looking to maximise their windfall in the long term.
Do the thing you always wanted to do
Perhaps you’re doing OK for money and you’re already set on the more boring stuff like the house and bills. Perhaps you’re just a live in the moment type. If so, then there is the option to spend your money on the ultimate trip, the dream car, an unforgettable life experience – whatever your dreams are made of, really.
Of course, this is far from the most sensible thing you can do in terms of investing the money, but that may not be your priority and that’s more than fair enough. We do spend most of our time chasing money in order to better our lives and be happy, so by that logic what better way to spend it than on something that will make you truly happy?
Life is for living, after all – perhaps it’s easy to forget that sometimes. Just make sure you have your other financial ducks in order before you blow the money.
Think of others
Ask people the hypothetical “what would you do if you won the lottery?” question, and you’ll find the first concern for many is how they’d divide up their winnings between their family and friends. Now, you’re probably not coming into a few million quid, but you may have that same desire to see your nearest and dearest better off before anything else, especially if you know the money could be more important to them. The same goes for giving to charity – you may value philanthropy as your biggest priority going forward.
That is, of course, a highly personal decision, and again one that very much depends on your circumstances. If you do choose to go down that route, you’ll certainly have the satisfaction of making an honourable and inarguably sound investment, even if it wasn’t for yourself.
So, five rather different routes of inheritance investment ranging from the super-sensible to full YOLO mentality. Remember, it’s down to you to assess your financial situation, your current responsibilities and your future and make a call from there. Whatever you choose to do, make sure it bears fruit for you down the line.