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My friend lost her father a few months ago, and she was going to be receiving a significant inheritance. She was excited about the prospect of having all this new-found cash, as she has struggled financially for many years.
While she would rather have her father than the money, she began to tell me all the purchases she was going to be making in the coming weeks. A bedroom set, a new car, a trip to the Bahama’s – just to name a few.
While I don’t typically offer unsolicited advice, I couldn’t help myself but speak to her frankly about her plans.
You see, my friend has enormous credit card debt, some remaining student loans from grad school and a few personal loans she’s never repaid.
When I started the conversation, I expressed to her how much this money, if used properly, could ensure her financial security. I encouraged her to think about what she was doing and to instead pay down her debt, develop a savings strategy, look at putting some towards her retirement and set herself up for greater financial security.
Her first response to me was, “But I deserve to buy these things.”
While I understand that kind of thinking, the type that tells you, you’ve worked hard – go ahead and reward yourself. I also know it’s that kind of thinking that got her into her current mess, and it would be that same thinking that would keep her in the mess.
Because we’re close friends, I eventually distanced myself from the situation and instead pointed her in the direction of few trusted financial advisors.
If you find yourself winning the lottery, inheriting money, or getting some other windfall, and you’re in debt, have little in the way of savings and investments then I encourage you to do a couple of things.
What You Should Do If You Recently Inherited Money
1. Start dealing with your money issues immediately
Stop burying your head in the sand and start taking responsibility today to ensure your financial stability. You can’t continue to go on thinking that you deserve to spend money recklessly when you’re in debt and owe others. You’ve been given a tremendous gift via this inheritance. Now’s the time to make sure you take care of the outstanding debt you have so you can ensure a secure financial future.
2. Hire a money coach
A money coach can help you uncover all the emotional mindset issues that have plagued you your entire life so you can create a new, healthy relationship with money. I’ve worked with countless people on their money issues, and the one thing I know for sure is unless you uncover the psychological reasons you spend recklessly, you’ll never have a secure future. It’s worth the investment to hire a coach who can work with you to uncover these mindsets and roadblocks and help you create a new, healthy relationship with your money.
3. Hire a good financial advisor
A good financial advisor can help you come up with an investing strategy based on your risk tolerance and comfort level. He/She can help you look at the bigger financial picture, and help you save so when your ready for retirement you can still live comfortably. They can help develop a plan based on your values, goals, and desires too. Hire an advisor as soon as you get the money so they can help you plan right from the start.
4. Hire a good lawyer
A good lawyer will help you protect these assets for you and your family. You want to make sure the money you’re receiving will be protected. You also want to make sure you establish a will and trust, power of attorney, and health care proxy. All necessary parts of your overall plan. Don’t skip this step.
5. Hire a good accountant
If you don’t already use an accountant, get one on your team. An accountant will walk you through all the tax implications of this money and what happens if you invest it, spend it, use it to pay off debt and other relevant issues.
My friend is now working on all of the above and is working her way down the road towards a better financial future. It won’t be easy as she has many past money demons she needs to battle, but she can win the war and you can too.