Appreciating An Inheritance

Appreciating An Inheritance

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You’ve received a great inheritance, but want it to last. What should you do? 

Coming into an inheritance may seem like the end to all your problems and the beginning of all your dreams. Depending on the size of the inheritance, this may indeed be the case. No matter what the sum is, though, an inheritance needs to be approached with caution and must be managed wisely to ensure that its potential is maximised.

An inheritance, by definition, is a gain that comes with a loss — the loss of the benefactor. This loss may be painful if the benefactor was a close family member or friend. In such cases, the inheritance will be received amidst feelings of grief and possibly shock, especially if the death was unexpected.

In this type of situation, wait until the worst is over and you have recovered your composure before you make any decisions, because those made when one is in an emotional state are seldom sensible. Even if the inheritance is not tempered by a sense of bereavement, receiving an unexpected inheritance can be overwhelming and confusing. Once again, wait until emotions have subsided before making any decisions.

Avoid hasty decisions

Keep in mind that not all inheritances are equal. Some can be life-changing, such as inheriting millions after years of scrimping and saving. Others are more of a welcome windfall, helping to pay off a mortgage or making a dream family holiday possible.

The first step in managing an inheritance is to assess the amount involved and to understand its potential.

If the sum is large enough, you may want to stop working and live off the interest generated by this. In this instance you will need professional advice to make sure that this is really possible. Even a large amount of money will need to be invested well in order to ensure that it lasts as long as you do.

If the interest from the inheritance is to be your sole income, then it may need to be invested conservatively – and conservative investments do not yield the highest interest. Bear this in mind when doing the calculations.

You may also want to consider still working on a part-time basis, both to buffer your savings and to keep you occupied. Consider all these issues carefully before leaving your job or closing down your business. You need to be very sure that your inheritance will be sufficient to stretch to the end of your life before taking the drastic step of early retirement.

 

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A key issue is your mortgage

There is no point in continuing to make mortgage payments to the bank, along with the high interest involved, when you have cash in hand. This is even truer if the interest you would receive on the money invested after tax is less than that of your mortgage.

The added upside to using the money to settle your mortgage, is that the money is wisely spent and you no longer run the risk of spending it indiscriminately. Similarly, if you do not own your own home, this may be the time to use the inheritance to purchase a property.

Once you are clear of debt, make a list of other priorities: Footing the bill for a family wedding, children’s education or even a dream family holiday. Allocate money according to your priorities and the time constraints of the obligations — a university education may lie further in the future, giving you more time to save, as opposed to other issues which might be more pressing.

No matter what the size of the inheritance, you and your finances will not remain un-changed. Remember that someone worked hard to give you that money, and they wanted you to benefit from it. Use it to improve your quality of life and manage it wisely.

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Bryan Hirsch
BRYAN HIRSCH has been in the financial services industry for 47 years and is a director of Bryan Hirsch Colley & Associates. He has written two books, the first Bryan Hirsch’s Guide to Personal Finance and more recently, Steps to Financial Freedom. Bryan has written for many of South Africa’s top financial and business publications, has been a weekly guest on Radio SAFM for 18 years, and has his own weekly TV show You & Your Money on Summit TV.