While no amount of money can bring a lost loved one back, a large inheritance can make a huge difference to your life. You could use it to buy a house, travel the world, invest in the stock market or make your day-to-day expenses that little bit easier to afford.
If you’re wondering what to do with an inheritance after a friend or family member left you money or property in their will, read on.
1. Avoid counting on it
Inherited money can be a real cash injection…. But first here’s a word of warning.
Going through life counting on inheritance is a dangerous game to play. If this sounds relatable, you’re not alone.
According to research from The Co-op, at least 51% of UK adults are banking on inheriting money from a relative at some point in their lives. But experts warn that many people are likely to be disappointed, due to the lack of people who have a valid Will in place.
You should never presume you’re receiving an inheritance, even if you’ve got a great grandparent who’s 106 and on the brink of kicking the bucket. They might not even like you that much!
And while your family may be wealthy and have a lot of assets, don’t assume you can just sell their house to fund your retirement. Things can change over time. When your parents get older, they may need to sell their home to pay for their care.
Think of a potential inheritance a bonus—it’s nice if you get it but you shouldn’t rely on it for your future security.
2. Pay off your debts
Now that you’ve got past all of the red tape, let’s talk about what you should do with your inheritance money. First things first, it’s wise to pay off any high interest debts you have.
That might include rent or mortgage arrears, credit cards, personal loans or payday loans… the whole caboodle.
If you’re not sure which debts you should tackle first, check out our guide on priority debts.
Dealing with the debts that will cause you serious problems if you ignore them is the best move you can make. Should you avoid paying these back—for whatever reason—you may find that you lose your home, have your power cut off, or even have to go to court.
3. Create an emergency fund
Picture the scene: It’s five days before payday and you’re scraping the barrel when it comes to your cash-flow. Then—out of nowhere—your car breaks down. You’ve got no reserve, no backup, and nowhere to turn. Sounds like a nightmare, right?
If you’re living pay check to pay check, your inheritance could give you chance to flip the script. Having an emergency fund means that you can cover unexpected bills or expenses that crop up. That’s a major relief. It also means that you can weather the storm if you lose your job.
It’s recommended to have at least three months’ worth of outgoings as your emergency fund.
For example, if you spend around £1,000 on your rent, bills, and grocery shopping, you will want to save roughly £3,000. When you receive your inheritance, it’s worth setting aside that sum so that you can catch yourself should you fall.
4. Treat yourself
Itching to splurge? When you receive a large sum of money, you might fancy treating yourself to something special. After all, your loved one would have wanted you to do something for you. That’s why they left you the money—so you could enjoy it.
Once you know how much you will inherit—after tax—and how much you need to spend on any outstanding debts, you can take things from there. You might want to invest in a new sofa, a holiday somewhere nice, or simply buy that laptop you’ve been eyeing up.
5. Save for big goals
Do you need to save for any big life goals? Maybe you want to buy a house in a few years, get married, have a baby or start a business. Your inheritance could make a huge difference.
6. Don’t let inflation eat into your inheritance
Inflation is currently at its highest since the early 1990s and interest rates are very low. That’s bad news for your savings, as it means the cost of goods and services are rising quickly but the value of your savings is on a downward spiral.
So, although it’s wise to save for any short term life goals, avoid hoarding more cash than necessary in your current account or savings account.
This brings us to our next tip…
7. Invest your inheritance in the stock market
Investing at least some of your inheritance is a smart way to make it last long into the future.
If you’ve never invested before, don’t worry – you don’t need to be an expert.
Stock market smart arses want you to think investing is really complicated, but in reality, all you’ve gotta do is find yourself a good investment account, buy some index funds, and let your money grow in the background. This is often referred to as passive investing.
For most people, active investing (where you play a very active role in the management of your investment portfolio) is largely unnecessary. It can be riskier than passive investing too!
If you’re in the UK, I’d recommend taking a look at Money Saving Expert’s roundup of the best Stocks & Shares ISAs.
It’s a good idea to compare a few different options before picking an investment account, but don’t spend too much time obsessing over which one is the very best.
It’s more important to just get started! You could always open a different stocks and shares ISA the following tax year.
In the long run, the stock market tends to outperform cash most of the time. But the stock market can fall as well as rise in value, meaning you may get back less than you invest.
8. Use your inheritance to buy an investment property
Although investing in the stock market is Jenni’s personal favourite, some people prefer to invest in property.
Not only could your investment property generate an income from rent, if the property’s value increases over time, you may be able to sell it for more than you paid for it.
However, it’s worth considering the amount of time, effort and money it requires to be a landlord. Some people make it look so simple. Hiring other people to manage the property could be a good idea if you don’t want too much involvement, but this’ll cost you.
If you’ve received a large inheritance and can’t decide between property vs the stock market, you could always do both!
9. Watch out for scammers
In a perfect world, everyone you meet would have your best interests at heart. Sadly, it doesn’t work like that.
Scammers are out there and they target people who have just come into large sums of money, such as an inheritance. That means that you’re going to have to keep your wits about you when considering what to do with an inheritance.
While cryptocurrency and day trading can be legitimate ways to make money, crypto scams and trading scams are rife. The most annoying thing is it can be hard to tell what’s a scam and what’s not.
You may be approached by a so-called expert offering to help you double, triple, or even quadruple your inheritance. As the old saying goes, if it sounds too good to be true, it probably is. You need to be savvy here.
If there’s something that you don’t understand, don’t take a stranger’s word for it. Instead, talk to a trusted friend or relative before you make any big decisions. You may also want to reach out to an expert who has been recommended to you. Don’t rush. Sleep on it.
10. Seek financial advice
Here’s the golden rule: When you come into a large sum of money, chances are, you need some expert advice. By speaking to a financial adviser or financial planner, you can get an expert’s opinion on how best to use your money.
A good financial adviser will look at your personal circumstances and financial goals before helping you decide what to do with your inheritance. They’ll offer personalised investment advice – perfect if you’ve been googling different types of investments and you’re feeling overwhelmed.
Another benefit of independent financial advice is that your financial advisor will have a thorough understanding of tax rules. They’ll help you manage your money in a tax efficient way, so you can keep hold of as much of your inheritance as possible without losing a large chunk of it to the taxman.
How other people have spent their inheritance…
According to the Co-op research mentioned earlier in the article, here’s what people plan to do with their inheritance. Remember, this is before they even receive it or know for certain that they’re due a windfall.
1) Put it into savings (27%)
2) Invest it (22%)
3) Don’t know (20%)
4) Pass it to children or grandchildren/pay off mortgage/go on holiday (15%)
5) Home improvements (14%)
Over on Instagram, we asked @cantswingacat‘s followers this question: “If you’ve received an inheritance, what did you do with it?” You’ll find some of their replies below!
Louise: “I put it in a boring savings account until I had a big enough salary to get a mortgage. Then I bought a flat in London!”
Clare: “I was very lucky to receive some inheritance from a Great Aunt in my late twenties and put it towards a deposit for my first home. I felt obliged not to fritter it away 😊”
Elizabeth: “I inherited money from my grandad and used to go travelling for three months ✈️.”
Helen: “My mum split the sale of the house after my dad died between me, her & my sister. I spent £1k on a holiday to San Francisco & the other £30k I paid off our mortgage.”
Susan: “I inherited $50,000 CAD when my uncle passed away. I invested about 1/4 of it, spent $15,000 on school (which meant no student loans), got laser eye surgery, and paid for living expenses while in school, and furniture when I moved out of my parents. The education allowed me to triple my annual income so it was incredibly beneficial all around.”
Lani: “With my husband’s inheritance from his grandmother we paid off our debt, took a trip to Europe, and put a down payment on our house. Thanks, Granny. 🙏❤️”
Sarah: “I received a significant amount of money when I was 21, I invested it in a 1 year fixed savings account and then used it to put down a hefty deposit on my first house and used the remainder to furnish the house. It was the biggest blessing I could have ever received.”
Rachael: “I inherited a small sum from my grandmother about three years back. I used the majority as the deposit for a Help to Buy ISA, but I also spent some on trainers and a massage. She was a hobbyist masseuse who loved to take very long walks so it felt like an appropriate tribute.”
Sian: “I bought my second flat. I felt guilty spending it so soon but then my little sister got a boob job! Ha”
Anon: “My husband and I did when his mom passed. He had been unemployed for over two years. We paid bills and bought a new washer and dryer 🙄”
Anon: “Nothing exciting really inherited 25k and it covered half of our house deposit.”
Nona: “I inherited a bunch of investments worth roughly £30k when I was 18. I asked out about £2k every other year to help with my studies – buying a laptop and printer etc. The investments usually grew back up to £30k by the time I went back to withdraw more. Until I was 28 and looking to raise a deposit for my first home in 2009 – at which point the portfolio had shrunk to £17k 😱. I took it all and (luckily) scrounged the rest of my deposit.”
Pamela: “I spent the money left to me from my gran on driving lessons. Felt like a good investment.”
Natasha: “I just inherited £10,000 from my Nana. I’m putting it towards a house deposit which is currently slowly going through.”
Anon: “I bought a house using an inheritance from my grandma as a deposit. That house was actually horrible and I sold it after a couple of years but now we have a lovely family home that actually reminds me of my grandmas house when I was growing up so I think of her all the time. Wouldn’t have managed it without her xxx”
Amy: “I inherited some, used it to buy a buy-to-let. Considered a nice holiday/fancy car but my gran worked too hard for that money for me to ‘waste it.’”
Claire: “My husband and son have both just received a decent sized inheritance. The money is being combined and invested in property. My husband and son (who is only three) will be directors.* When our son is 18, he will have the option to take some cash out. But the idea is that the inheritance benefits him throughout his life and provides my self-employed husband with a pension pot.”
*If you buy an investment property, you won’t automatically be a director. But some property investors choose to set up a limited company to buy their investment properties, as this can be more tax-efficient. It can also protect them in the case of bankruptcy. But that’s a whole ‘nother topic for a different day.
To sum it up…
Deciding what to do with an inheritance can be a challenge. What’s right for you will depend on your personal circumstances, your goals for the future and what will simply make you feel good after the loss of a loved one.
It could be a good idea to find a balance between sensible and sentimental decisions.
You could invest a percentage and splurge the rest on a trip you know your relative would’ve loved.
You could use the money to buy a ‘forever home’.
But the end of the day, remember that the money is yours to do what you want with. There’s nothing stopping you getting that boob job – even if you’re not so sure granny would approve.
