Yahoo Finance 5 Mistakes Your Parents Made That Wasted Your Inheritance
Everyone makes mistakes — including your parents. And some mistakes are more expensive than others.
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“Growing up, I saw my parents make some big financial mistakes,” said Rhett Stubbendeck, founder of Leverage Planning. “They lost a lot of money and wiped out a significant portion of their savings.”
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Too Little in Emergency Savings
Everyone needs an emergency fund. Exactly how much depends on the stability of your expenses and the stability and security of your income.
Set aside too little for emergencies and they’ll derail your finances when they inevitably strike.
Andy Ellis from Posh UK saw this firsthand with his parents. “The main lesson I have learnt from my parents and their financial mistakes is to always have savings, even if it’s just a little bit to fall back on when times get tough.
“My parents weren’t bad with money, per se, but they lived life to the fullest and didn’t really think about savings or backup plans,” he said. “They didn’t think about how things could go terribly wrong and we enjoyed a comfortable life. They worked for themselves and they worked hard and what they made they used to make our lives good and give us the things they didn’t have.
“But when my father got sick, it changed everything,” Ellis said. “My mother and father did equal amounts of work for the business they had, but they had only just hit their very early 30s and suddenly, my father was going to be bedridden for the remainder of his life, with no hope of getting better. It turned everything upside down for all of us and it financially ruined my family for a long time.
“They had no savings or backup plans and everything fell apart pretty quickly,” he said.
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Loaning Money to Family Members
Far too many people fail to save enough for retirement. They spend up to the limit, living paycheck to paycheck.
But not always. Some people simply give too much of their money away.
“Don’t get me wrong, my parents were great people,” says Nojan Rahimi, mortgage broker and director of Blutin Finance. “However, one mistake they made was to be too generous in trusting other people.
“They lent a lot of money to my relatives, were always there in need and supported everyone financially, so often they didn’t have money for themselves,” Rahimi said. “While I think it’s great to be altruistic, one must also keep their own needs and wants in mind because spending on others completely threw their budget out of the window and we had to face many hardships because of this.”
Bad Investments
Even when you save enough of each paycheck, you can still lose everything on bad investments.
Rahimi’s parents ran afoul of this as well. “When we were young, I remember my father invested a lot of money into a business his distant cousin suggested.
“Although it’s a good idea to invest … the mistake my dad made was that he didn’t do any research or homework regarding the business and blindly trusted the cousin,” Rahimi said. “The business didn’t turn out to be that successful and we lost a huge amount of money. This could have been avoided if a little research had been done beforehand and they would have known that the product had no target audience.”
Of course, investing in nothing at all can be just as costly as making mediocre investments. “After the business debacle, my parents became so risk-averse that they didn’t even invest in anything, they were too afraid of losing the little money that they had. I think generally, boomers are risk averse and do not try out different investment avenues that could have yielded great returns,” Rahimi said.
“This is one of the reasons why I became a financial expert. I wish there had been a financial advisor who could have advised my father on how to spend his money.”
Inadequate Insurance
Ellis blames a lack of insurance for part of his parents’ financial woes.
“There was no life or disability insurance to fall back on when my father became sick. While my mother (who is an incredible woman and a credit to mothers everywhere) was able to bring the family back to stability and general comfort, it took a very long time to get back there,” he said.
Stubbendeck saw the same calamity take place in his own family growing up. “Another mistake was not having enough insurance coverage. When my father had a severe health crisis, the medical bills piled up quickly. Without proper health and life insurance, the financial burden was heavy on our family. This taught me the importance of comprehensive insurance,” he said.
Lack of an Estate Plan
If you don’t create an estate plan, you leave your children with a tangled mess to clean up on their own.
Renee Fry, CEO of Gentreo, spells out the scope of the problem. “If your parents didn’t write a will or otherwise plan their estate, there is a good chance you lost a significant portion of your inheritance to court and legal fees.
“The amount one will lose depends on the size of your inheritance and the estate’s complexity, but you could lose anywhere from 3% to 8% of what could have been yours. Plus, you have to wait until probate is over to access assets, which can take months, or even years,” Fry said. “The lesson learned should be to get your parents to do their estate planning no matter what their net worth is, so as to save you time and money.”
If you want to build wealth for generations of children and descendants, plan in terms of decades, not months or years.
“Set aside at least six months worth of living expenses,” Stubbendeck said. “This buffer provides financial stability during tough times.
“Protect against unexpected events by having good health, life and disability insurance,” he said.
Follow that simple advice and you’re well on your way to avoiding the mistakes your parents made.
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This article originally appeared on GOBankingRates.com: 5 Mistakes Your Parents Made That Wasted Your Inheritance
