What should I do with my inheritance?
Now that you’ve inherited some money, shares, property or even valuable collectibles, there are many things that you can do with it. From taking a long holiday to even re-training for a new career. You’re also probably thinking of what you can do in the short-term versus long-term.
We’ll try to help you make this important decision by answering the following questions of should you:
- Save or pay off the debts?
- Pay off the mortgage first or the other debts?
- Invest it or save?
- Pay into a pension or save it in a bank?
- Use a financial adviser or manage it yourself?
Save or pay off the debts?
If you have credit card or personal loan debts, it’s normally better to use your inheritance to pay these off than save.
The interest that you pay on this outstanding debt is usually a lot higher than any interest you earn on a savings account.
Once you’ve paid off these debts, you’re in a better shape to save. You could even start building a ‘rainy day’ or emergency fund to protect you even more.
Pay off the mortgage first or the other debts?
It’s tempting to use your inheritance to pay off your mortgage first. But you may find that you’re then struggling to pay off your other debts
The higher interest rate on credit cards and personal loans makes these debts more expensive in the long run. In comparison, mortgage interest rates are typically, for example, less than half the APR of a typical credit card.
Invest it or save?
Investing may seem risky. But with careful planning, you could have a steady return from investing your inheritance.
To help you pin down what you need from your investments, use our Complete money fact find.
Alternatively, you could put your inheritance into an easy access savings account. This is a good idea, especially if you think you may need to get your hands on cash quickly in the near future.
You should shop around to find a savings account that best suits you.
Pay into a pension or save it in a bank?
With so many pension products to pick from, it may seem easier to put your inheritance in a savings account for when you retire.
But if you do this, you’d lose out on the tax reduction you’d get from putting it into a pension instead.
Use a financial adviser or manage it yourself?
Many people use a financial adviser to help them make the most of their inheritance. Others prefer to manage it on their own.
If you find it difficult to research and work out which product is best for you, it’s a good idea to speak to an independent financial adviser. They can explain the many subtle variations and help you find the right financial product.
If you like to control your finances more closely, you can learn how to make your inheritance pay off.