I’m a Financial Planning Expert: 5 Worst Things To Buy After Inheriting a Ton of Money
Inheriting a substantial amount of money is exciting. Suddenly, you find yourself with a significant windfall and the possibilities seem endless. But it’s never been more important to exercise caution when deciding what to do with your money.
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While the prospect of splurging after receiving a windfall is tempting, indulging in certain purchases quickly drains your newfound fortune.
Here are the six worst things an expert financial planner advises buying after inheriting money.
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Car
When receiving a large sum, it’s tempting to splurge on a high-end vehicle. However, luxury cars are notorious for their high depreciation rates. They lose value rapidly and the maintenance costs can be excessive.
Instead of blowing your inheritance on a fancy car, consider investing in a reliable, fuel-efficient vehicle. You’ll save on maintenance, insurance and fuel costs, helping grow your inheritance.
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House
Who wouldn’t want a sprawling estate with a pool, home theater and personal gym? However, buying a house is one of the worst purchases after coming into an inheritance.
Inheriting money evokes strong emotions, like excitement and the desire for big changes. However, making financial decisions based on emotions alone leads to regret. Buying a house is a major commitment and should be carefully considered rather than being driven solely by the euphoria of newfound wealth.
First off, owning and maintaining a home is expensive. Property taxes, insurance, maintenance and utility bills quickly eat away at your inheritance. Investing your inheritance into a house also ties up a considerable amount into a single asset.
While real estate can be a sound investment, diversification is crucial for long-term financial stability. By allocating your inheritance across various investment vehicles, like stocks, bonds and real estate investment trusts (REITs), you can spread your risk and potentially generate higher returns.
That doesn’t mean you should scratch a home off your wish list. Before investing a significant portion of your inheritance in housing, it’s crucial to have a plan in place. Consider your long-term goals, income, expenses and other financial obligations. Rushing into a home purchase without evaluating your overall financial picture strains your resources and hinders other important financial objectives.
Luxury Shopping
It’s tempting to treat yourself to designer clothes, expensive jewelry or the latest gadgets after coming into money. While there’s nothing wrong with enjoying the finer things in life, you should still luxury shop cautiously.
Impulse purchases can quickly spiral out of control, leaving you with a closet full of rarely worn items. Before making any luxury purchase, evaluate its long-term value and consider whether it aligns with your financial goals.
High-Risk Investments
With a large inheritance, it’s natural to want to multiply your wealth through investments. But preserving the capital you’ve inherited should be your top priority. High-risk investments carry a substantial chance of loss.
It’s essential to be careful and not succumb to get-rich-quick schemes or high-risk investments. Investing in a high-risk venture typically requires a deep understanding of the industry, market conditions and risk management strategies.
Unless you possess extensive knowledge and experience in a specific field, jumping into such investments hastily is unwise. Such ventures lead to significant losses and jeopardize your financial security. Instead, seek the guidance of a professional financial advisor who can help you diversify your investments and create a well-balanced portfolio.
Supporting Friends and Family Beyond Your Means
Suddenly, coming into money makes you feel like a superhero capable of solving everyone’s financial problems. While it’s admirable to help loved ones, it’s essential to set boundaries and not overextend yourself. Giving away large sums of money without careful planning drains your inheritance and potentially strains relationships.
Consider setting aside a portion of your inheritance for charitable giving and helping family members responsibly rather than giving away large sums of money without proper planning. Create a budget for supporting friends and family, and explore ways to provide long-term financial assistance, like education or entrepreneurship opportunities.
The Bottom Line
Inheriting a significant amount of money is an incredible opportunity to secure your financial future, but it requires careful thought and planning. Avoid the temptation to make impulsive purchases that deplete your wealth.
Make sure to seek help from a professional, develop a well-rounded financial plan, and focus on making smart long-term investments to provide lasting financial security. By doing so, you can ensure that your inheritance continues to benefit you and future generations.
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This article originally appeared on GOBankingRates.com: I’m a Financial Planning Expert: 5 Worst Things To Buy After Inheriting a Ton of Money