Inherited Money? Here's What Dave Ramsey Thinks You Should Do With It
- An inheritance can provide a large sum of money.
- Many people do not use an inheritance wisely.
- Dave Ramsey has some advice on how best to use the money.
Don't spend your inheritance until you read this advice.
Millions of Americans will soon inherit money as wealth is transferred from the older generation to the younger one. In fact, as finance expert Dave Ramsey explains, around $68 trillion of assets are expected to pass onto the next generation within the coming 25 years.
Unfortunately, Ramsey is concerned about what people will do with this money, since around one-third of people who inherit either don't see their finances change for the better over the long term or actually find themselves in a worse financial situation.
To help ensure that doesn't happen if you inherit something, the Ramsey Solutions blog offers some helpful advice on how best to use inherited funds. Here are six suggestions that Ramsey makes.
Take your time to decide what to do with the money
First and foremost, Ramsey suggests not rushing into doing anything with the inherited funds.
"When a loved one dies, you’re not thinking clearly enough to make major financial decisions," the Ramsey Solutions blog reads. "But in most cases, you don’t have to make any major decisions right away. There is nothing wrong with letting your inheritance sit there for a while as you grieve."
Instead of jumping right into making choices, he suggests putting the funds into a money market account while you take the time to recover and then decide what to do with it.
Get professional help
Ramsey suggests working with professionals who can help you best consider all of the implications of the inheritance. He cautions against taking advice from people who may have ulterior motives and suggests working with investment experts; estate planning attorneys; accountants; real estate agents; and tax attorneys.
Of course, these experts will charge fees so it may be worth getting extensive professional advice only if you inherit a really large sum of money.
Gift some of the money
Ramsey stresses the importance of honoring the legacy of the person who left you the money. He also believes you should give away 10% of the inheritance to either your church or to a charity that is important to you.
Use it to bulk up your savings
When you get a lump sum of money from an inheritance, you can use it to improve your financial stability. To do that, Ramsey suggests potentially puting some of the funds into your emergency fund.
If you don't already have three to six months of living expenses saved, using a portion of your inheritance to achieve this important financial objective could end up saving you from credit card debt in the long run since you won't have to borrow for surprise expenses.
Repay your mortgage loan
Ramsey is a proponent of paying off mortgage loans early so he believes it may be worth using some of your inherited funds to pay off your home loan. Just remember that the return you get from early mortgage payoff is just the interest saved, and you could very likely earn a better return elsewhere if you keep paying the minimums on your mortgage and invest instead.
Spend some of it
Finally, Ramsey makes clear that it's OK to enjoy some of your inheritance. However, he suggests you consider your overall financial situation when deciding how much.
By following these suggestions, you can make sure any money you receive helps set you up for more financial security in the long run. This is a great way to honor the legacy of the loved one who left you the funds.
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