Getting an inheritance: what to do with a cash lump sum
30 August 2021
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If you’ve just received a lump sum inheritance or about to receive one, a parent or someone else close may have just passed away.
This is a particularly bad time to be making big financial decisions because there’s a strong likelihood you’re going through an intensely emotional time.
Pressuring yourself or feeling pressured by relatives and friends to do something with your money? Feeling overwhelmed as to what the best course of action is?
Read on for some of our top tips on what to do with your inheritance money.
Stay calm, don’t get excited, take your time
With such a large sum of cash suddenly placed into your pocket, the first thing you need to do is to stay calm. Especially if other family members or friends are aware of the money you’ve just received and are trying to tell you what to do.
Having just gone through an extremely emotional experience (or still experiencing it), you may end up doing things with the money you could later regret by being reactive.
The trick is to take a step back from everything and do nothing for a little while. Take a deep breath and get used to having the money in your pocket. Allow yourself time to think about what you want to do with your money and where or whom you want it to go to.
Consider options to financially position yourself for a better future
The knee-jerk reaction of many who have just received a lump sum inheritance is to spend all the cash they’ve just received. They go out and purchase fancy cars, fancy clothes, go on expensive holidays to exotic destinations and live out as many fantasies their inheritance money allows.
It’s okay to spend a little of the money you’ve just received because the person who gave it to you would have wanted you to enjoy it. However, the danger is to forget about your future and only live in the now.
By focusing purely on short-term happiness you may be eliminating longer-term opportunities to financially position yourself for a better future.
Instead of spending everything, you could —
Pay off some debts or eliminate them entirely
If you’ve had interest clocking up on outstanding debts for years, you could use some of your inheritance to whittle them down or eliminate them entirely. Debts such as car loans, student loans, credit card debt or even a mortgage are effectively a hole in your wallet.
By whittling down or eliminating debt, you’ll be taking a lot of financial pressure off your shoulders.
Contribute to your personal emergency fund
Negative life events occur without warning, to anyone and everyone. The possibility of serious sickness and injury, the loss of a job, financial market crashes and much more are always just around the corner. As we learned from 2020, even a worldwide pandemic is possible.
Putting aside enough inheritance money to live on for at least 9 to 12 months could help you weather life’s worst storms.
Make voluntary after-tax contributions to super to set up your post-working life
Growing your super is an incredible way to get yourself ready to live the life you really want after retirement. Your inheritance is a fantastic opportunity to make a voluntary after-tax contribution to your super to give it a real boost.
The sooner you have more in your super account, the sooner you begin compounding interest on top of interest.
Contribute cash towards a deposit on a home (with help from the First Home Super Saver Scheme)
If you don’t own the house you live in but eventually want to have your own place, you may want to contribute some of your inheritance money towards your deposit.
One way to do this is to put the money aside in a bank account and get some interest while it sits there. Another way is to utilise the First Home Super Saver (FHSS) Scheme.
Offered by the Commonwealth Government, the FHSS Scheme lets you build your deposit within your super account. This gives you a few advantages over a bank account —
- You may be able to reduce PAYG taxes through before-tax contributions
- You may be able to get a better return on investment than with a regular bank account
The FHSS Scheme lets you make voluntary super contributions of up to $15,000 per financial year. Your maximum lifetime limit is $30,000. When you eventually find your dream home, you’re allowed to withdraw up to $30,000 to put towards the deposit for your first home.
If you have a partner, they too have a maximum lifetime limit of $30,000. Together, you can put up to $60,000 towards your deposit from both your super accounts. When you’re ready to buy your first home, you can withdraw $60,000.
Just received an inheritance but not sure what to do with it?
This can be a difficult period for many, you’re not alone.
If you’ve spent a significant amount of time thinking about what to do next but still feel uncomfortable making a decision, it may be worth having a chat with a financial adviser.
A financial adviser may be able to help you see where you’re at financially, help you set financial goals and help you understand how your inheritance can contribute towards those goals.
If you want to speak to a financial adviser, just call 1300 162 348.
Alternatively, if you need help making personal contributions or more information about the FHSS Scheme, our Member Services team are happy to advise.
Get in touch with them by calling 1300 162 348.
