The Bible states:
A good person leaves an inheritance for their children’s children, but a sinner’s wealth is stored up for the righteous. – Proverbs 13:22 NIV
We must note that some “good” people, due to unforeseen circumstances, will not be able to leave a financial inheritance to their children. But, a good person will leave some type of good inheritance, because their example will live on in the hearts of their family.
What if, though, a financial inheritance comes your way? Often, these are fairly significant amounts of money. Possibly a few thousand dollars, or maybe even significantly more. What should be done with that money?
2 Guiding Principles
Different experts are going to give different answers, of course, but two principles need to guide us no matter our circumstances.
First, this is still money that we are managing for God. We are stewards of any financial blessing that comes into our lives, even if it comes to us through the death of a loved one. We must still seek the wisdom of the Lord in how to handle this money.
Second, the money needs to be used in a way that honors the giver. Sometimes, the person will state how the money is to be used (pay for college, pay off debt, go on a vacation, etc.) but more often than not, it is left up to the receiver’s discretion. However, we need to consider the one who blessed us with this money. If they were known for saving money, it would probably not honor the giver to just blow it all on a huge “all out” vacation.
5 Things to Keep in Mind
With those two principles in mind, here are some things to consider when deciding what to do with an inheritance.
1. Complete a financial goal.
Would this one windfall finish off your emergency fund? Would it pay off all your debt (or a significant debt)? Would it help you build a very strong down payment for a house? While Dave Ramsey would walk his followers up the “Baby Steps,” I would deviate slightly from that if there were one significant goal that could be completely met by this one gift.
2. Don’t make a snap decision.
This is especially true if you were very close to the person who has died, and your emotions are still a bit on edge. It is easy to invest or spend even a significant amount of money right away, and then realize your mistake. Take a little time to grieve. Park the money in something very safe until your emotions are more stable.
3. If the money is very significant, do a couple of things.
If you are doing okay financially, and the money you are getting is a large amount, it is fine to allocate some to several different things. Maybe you max out a Roth IRA and buy a motorcycle, for example. You probably don’t want to spread yourself too thin, but it is fine to think of a few areas where the money could be helpful and allocate accordingly.
4. Get help.
This is, literally, a one-time decision. Should you invest? Pay off debt? Build up savings? Go on a cruise? Make sure you get help from people who are wanting to really help – as opposed to just collecting a commission check! Most financial coaches with good hearts have helped people in similar situations before, and would be glad to help you really think about the situation, not just the money.
5. Pray.
This must be included, because God provides wisdom to those who seek it, and the decisions made with this money must be wise decisions. Even if you choose to spend the money (and, often, that would honor the giver), you can be at peace with that decision if you have sought good counsel and spent time with the Lord in prayer.
As one final “tip,” I would add this: Any time we receive an inheritance, it should open our eyes to how that gift has blessed our lives. That should, in turn, provide us motivation to bless those we love, if at all possible, when the time comes for us to pass into eternity.
What is something wise you have done with inheritance money? Leave some ideas for others in the comments!
{ 3 comments… read them below or add one }
I have never received inheritance money, but I’ve observed some friends who did, and they used it to pay off their home. It was one of their financial goals (which you addressed in the article) and they felt that if they paid it off their mortgage, they’d be in a great position to do whatever came next in their lives.
I received my inheritance from my parents before they died. My mother was in the early stages
of Alzheimers Disease. They sold everything, including their house, and temporarily moved in
with my husband and I. My husband had become critically ill five years before that and couldn’t
work anymore. For those five years we had to live off of our savings, because I was only making
minimum wages. We decided to pay off our mortgage with my inheritance, considering the
situation we were in with my husbands health getting worse. Our house got paid off in fifteen years
instead of thirty. That “early gift” was truly a blessing , especially since my husband lived for a
total of 22 years with his many illnesses, until he passed away almost two years ago.
Well to quote the wealthy; ” NEVER spend your capital, spend income ” So the first question is, is this income or capital. My rule; all money not used to pay bills is marginal income, all marginal income is capital! This means your capital should be in trust and invested, diversley with lots of hedging. Hedging is like holding a percent in gold/silver ( silver right now is the better value ) to ” hedge against QE ” As paper devalues gold goes up expodentually. Income is the dividends/interest received on your trust’s investments. Bring all marginal income into the trust and income will rise.