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.
While it’s natural to be tempted by the prospect of splurging after receiving a windfall, indulging in certain purchases can quickly drain your newfound fortune. As a certified financial planner, I’ve seen all too often how impulsive purchases can deplete an inheritance rather quickly. Here are the six worst things to buy after inheriting money.
When you earn 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 that meets your needs. This way, you can save on maintenance, insurance, and fuel costs, allowing your inheritance to grow.
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Who wouldn’t want a sprawling estate with a pool, a home theater, and a personal gym? However, buying a house is one of the worst purchases after coming into an inheritance.
Inheriting money can evoke strong emotions, such as excitement and a desire to make big changes. However, making financial decisions based on emotions alone can lead to regret. Buying a house is a major commitment and should be approached with careful consideration and thorough research 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 can quickly eat away at your inheritance. Investing a significant portion of your inheritance in a house also ties up a considerable amount of your wealth in 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, such as 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 a house, it’s crucial to have a plan in place. This plan should consider your long-term goals, income, expenses, and other financial obligations. Rushing into a home purchase without evaluating your overall financial picture may strain your resources and hinder other important financial objectives.
3. Luxury Shopping
It’s tempting to treat yourself to designer clothes, expensive jewelry, or the latest gadgets when you suddenly come into money. While there’s nothing wrong with enjoying the finer things in life, it’s crucial to approach luxury shopping cautiously.
Impulse purchases can quickly spiral out of control, leaving you with a closet full of items you rarely use or wear. Before making any luxury purchase, take the time to evaluate its long-term value and consider whether it aligns with your financial goals.
4. 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 can lead to significant losses and jeopardize your financial security. It’s wise to seek the guidance of a professional financial advisor who can help you diversify your investments and create a well-balanced portfolio.
5. Supporting Friends and Family Beyond Your Means
Suddenly, coming into money can make you feel like a superhero, capable of solving everyone’s financial problems. While it’s admirable to want to help loved ones, setting boundaries and not overextending yourself is essential. Giving away large sums of money without careful planning can drain your inheritance and strain 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, such as education or entrepreneurship opportunities.
The Bottom Line
Inheriting a significant amount of money can be an incredible opportunity to secure your financial future, but it requires careful thought and planning. Avoid the temptation to make impulsive purchases that may 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