Breaking the mental barriers upon receiving an inheritance
Receiving an inheritance can often come with plenty of baggage attached. The most obvious is that someone has had to die, usually someone very close to you, for you to be the beneficiary of this financial gift. But the challenges don’t end there.
Many of the clients I work with engage us following the receipt of an inheritance. We often have discussions around an awareness that a close relative worked hard to build this wealth and as the recipient, there’s a weight on the shoulders to not blow it, to not be frivolous.
For many people, an inheritance is the first time they have had to make decisions about what to do with large sums of money. Until now all they’ve had to do is manage their cash flow, pay off the mortgage, perhaps check their super statement once a year, and that’s about it.
Now they’re being asked to make decisions on hundreds of thousands of dollars. It’s not surprising that people often get stuck in a state of inertia. Whilst grateful for the gift they have received, the pressure to not screw it up can become overwhelming.
If this is a situation you’ve faced, take heart that you are far from alone. Here’s a couple of ideas that might help you overcome your challenges and get your inheritance working for you, as your late relative would have hoped.
I should mention, this is something of a companion piece to a previous post, What to do When You Receive an Inheritance. You might want to take a look at that one too. Also, we have a downloadable checklist that you might find helpful. You can grab that here.
Take your time
Whilst it’s true that you don’t want your inheritance sitting in the bank earning nothing for years, if it sits there for six or 12 months that’s typically no major catastrophe. If upon receiving your inheritance you feel a bit overwhelmed, step away and allow time for you to get comfortable. Trying to make rushed decisions can make you vulnerable to the likes of properties sprukers and get rich quick charlatans.
Take your time, and only move forward with your plans for your inheritance when you feel comfortable.
You need to be able to sleep at night
Most people upon receiving a significant inheritance will seek out professional advice. Be sure to engage someone who you feel comfortable with. Someone that you can ask the silly questions to. Once you have a plan in place it’s essential that you can sleep easy at night. An important piece in making this a reality is having a relationship with someone that you can trust. If you have a meeting with a financial planner who you don’t feel has understood you, perhaps move on and speak with someone else.
Get clear on what you want this pool of money to do
When you do sit down with your planner, a key thing they will need from you is clarity on your goals. What is it that you want this money to do? Are you looking for extra income to improve your quality of life? Is it money that you want to grow for your future? Are you looking to be a custodian of this money so that it can be handed down to the next generation upon your passing? Maybe you want to see some or all of it flow to charity.
Your financial planner has a broad array of solutions available, but the appropriateness of each is dictated by the objectives that you set. Your planner has no chance of building a strategy that is right for you if you can’t tell them what you want the money to acheive.
Another key input in the development of this strategy for your inheritance will be the degree of risk you want to take. Inheritance money can be particularly tricky in this regard. There’s an added pressure when dealing with money that a loved one as worked hard over a lot of years to build.
For clients I work with that are feeling the weight of this pressure, I often suggest we start off with the portfolio being at the more conservative end of the spectrum, with the intention that we then move up to a more sensible long-term risk allocation over a period of perhaps two or three years. The money is invested and doing more than simply sitting in the bank. And it gives more time to get comfortable with the inheritance and feel that it is your money and no longer the person’s who gifted it to you.
This leads back to something I regularly remind clients of which is that your financial plan is not set in stone. Your financial plan is about moving you in the right direction. But there is an expectation that there will be course corrections and fine tuning along the way. Appreciating this can take quite a bit of pressure off, and especially in an inheritance scenario can be a great way to get the ball rolling.
You can spread things out if need be
Along similar lines, it’s not essential that you invest all the proceeds at the outset. It might make you more comfortable to invest some proportion at the beginning, then invest some more a year later, and perhaps the final amount a year after that. Sure, mathematically that is not going to get you the highest return. But it can be a good way to get things moving without putting too much stress and pressure on yourself.
It’s a well known function of the economic settings that have been in place for the last several decades, that the wealth of our nation is concentrated in the hands of older Australians. The redistribution of this wealth as our older generations pass will be crucial to the financial security of a great many of us. Yet so many people are unprepared for this transition of wealth. Hopefully this piece helps you in some small way.
We have an Inheritance Essentials Checklist that you might find helpful. You can grab that here.
You might also be interested in: What to do When You Receive an Inheritance.Back to All News