One of the most challenging things to process in anyone’s financial life can be the sudden windfall of a life-changing amount of money. Whether it’s because of a lottery or inheritance, if you receive enough money to turn your life upside down completely, it can be difficult to manage.
For one Redditor posting in r/personalfinance, this is all too true, as they knew they would receive some money from a grandparent but not the exact amount they were expecting. Looking to inherit upwards of $700,000 with millions more on the way, this Redditor has to make some quick financial decisions.
Suddenly Very Comfortable
For a Redditor accustomed to earning $65,000 per year in a high-cost-of-living city, inheriting $700,000 at 26 years old is life-changing. Even if the Redditor made more money or lived elsewhere, it’s still a considerable amount of cash.
What’s more notable is not just the initial inheritance, but also the expectation to receive around $4 million more as beneficiaries of other investments. Wait, there’s more, as other relatives will take advantage of the annual gift exclusion and likely present the Redditor with anywhere between $50,000 and $100,000 per year in gifts.
As someone who is generally living month to month, spending $3,500 out of a take-home pay of $3,500, it’s not surprising the Redditor is feeling overwhelmed. The amount of money aside for a moment, they are struggling with the emotional side of losing a grandparent, all while being surprised with an inheritance far greater than expected.
The hope is that they can find someone who can help them, who isn’t related or associated with any family, to figure out how to manage this money best. They know this isn’t enough to secure a dedicated, big-money advisor, but there is no question that this money requires professional management, especially if they don’t know how to manage it on their own.
What To Do Next
At the very top of the list of what to do next is not to tell anyone. Outside of family who already know what’s taking place, this Redditor shouldn’t tell anyone at all what is taking place. There is mention of a spouse or partner, so assuming someone else doesn’t exist, they shouldn’t disclose financial information to anyone.
Even if a new love affair enters their life, they should keep the financial situation private until the relationship progresses to a point where it appears to be permanent. Any indication that you received a sudden windfall is likely to prompt family members who didn’t receive money and friends who haven’t spoken to you in a while to come out and ask for help.
Aside from not telling anyone, this Redditor also needs an opportunity to grieve. They need to come to terms with everything taking place emotionally, including the death of a loved one and the sudden windfall. There is every reason to think that a therapist would be a good person to speak with, at least for a little while, to help the Redditor come to terms with these life-changing moments.
Don’t Overspend
The Redditor also mentions using some of the money to update their lifestyle, but I would advise against it, as would a financial advisor. Yes, you can look to use some of the money to buy a home, but a new sports car or a sudden new wardrobe is a waste. At 26, this money can be life-changing in retirement, even if no other money arrives.
Let’s say the Redditor wants to spend $50,000 on miscellaneous purposes, such as a vacation, lifestyle enhancements, and a healthy emergency savings fund. With $650,000 invested at a conservative 6% annual interest rate, this amount would now be $3.7 million after 30 years. Add in the potential for the other millions they could inherit, and all of a sudden, you have a far more comfortable retirement.
The bottom line is that the Redditor should consult a fiduciary financial planner to determine the next step. Whether that involves putting the money into VTI as they suggest and simply holding it, or spreading it out in a diverse portfolio, consulting a professional is the best approach.
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