Once the initial emotions surrounding an inheritance begin to settle, the next question naturally follows: what should I do with the money?
For many people, this is where uncertainty creeps in. Some feel drawn to spending – finally taking that holiday, upgrading the car, or improving their lifestyle. Others feel a strong pull to preserve the money, sometimes leaving it untouched for years.
The challenge is that both approaches, in isolation, can miss the bigger picture.
An inheritance is not just money, it’s an opportunity. And like most opportunities, it’s best approached with balance.
A helpful way to think about it is to divide your thinking into three broad areas:
1. Strengthening your financial foundations
Before anything else, it’s worth considering whether the inheritance can improve your financial position in a meaningful way.
This might include:
- Paying down high-interest debt (like credit cards or personal loans)
- Reducing your mortgage
- Building or topping up an emergency fund.
These steps may not feel exciting, but they can create long-term stability and reduce financial stress.
2. Investing for the future
An inheritance can also play a powerful role in building future wealth. Depending on your circumstances, this could involve:
- Contributing to superannuation
- Investing in a diversified portfolio
- Helping the next generation
What’s often overlooked is the time value of money. Even a modest inheritance, when invested thoughtfully, can grow significantly over time. On the flip side, large one-off purchases can have a lasting opportunity cost.
This doesn’t mean you shouldn’t spend any of it, but it does highlight the importance of understanding the trade-offs.
3. Enjoying the present
It’s also perfectly reasonable to set aside a portion of an inheritance to enjoy.
In fact, doing so can be an important part of the process. Whether it’s travel, experiences with family, or something meaningful to you, using some of the funds from a loved one, to enhance your life today can be entirely appropriate.
The key is to make that decision deliberately, rather than impulsively.
Avoiding common pitfalls
Two common mistakes with an inheritance can be:
- Overestimating what the inheritance can do. For example, $200,000 or $300,000 is significant, but it may not stretch as far as expected once spending begins.
- Treating the money as ‘untouchable’, leaving it sitting in low-return accounts for years, gradually being eroded by inflation.
A well-considered plan can help avoid both extremes.
Speak to your financial adviser
Ultimately, there’s no one-size-fits-all approach. The ‘right’ strategy depends on your goals, your existing financial plan, and your financial position.
But what’s consistent is this: the most effective outcomes tend to come from intentional decisions, not emotional ones.
This is where your financial adviser can add real value, helping you weigh up your options, understand the long-term impact of different choices, and create a strategy that feels both practical and meaningful.