Lump Sum Millionaire
Do you ever dream about winning the lottery? I think many of us have. It’s fun to think about how we might use the money. Would you buy a new home, travel around the world, or give to charity? So many options and not a terrible problem to have!
What if I told you that an October 2019 study by Coldwell Banker predicted that Millennials will inherit over $68 trillion dollars from their parents! Yes, that’s trillion with a ’t’. The circumstances might not be ideal, but this is a lot of money and is quite similar to hitting the jackpot. Not to mention, much more likely. If you find yourself receiving a large amount of money (for all intents and purposes, we will assume any taxes due have been paid), here are ways you may (smartly) consider using the money - in priority order.
1. Pay Off High Interest Debt
If you find yourself with credit card debt, personal loans, even student loans, the first consideration should be to pay off or pay down that debt. It will save you thousands of dollars in future fees and interest and also free up cash flow so you can work towards more meaningful goals.
2. Fully Fund an Emergency Savings Account
After many hard-working folks lost their jobs last year due to the COVID crisis, they found themselves unable to pay their bills. Why? They didn’t have a back-up. The rule of thumb is 3-6 months of expenses in a liquid, high(er) interest savings account. Whether it’s 3, 4, 5, or 6 months depends on your situation. Some experts say as high as 12. Maybe you feel comfortable with 9? A single earner with no back-up partner or income should have at least 6 months. A two-income household with no children may be able to get away with only 3 or 4. Bottom line is, get this funded as soon as possible. Like insurance, you realize how valuable it is only after you need it.
3. Catch Up on Retirement
If you have been neglecting saving for retirement, it’s time to catch up. I don’t care if you are 21 or 51, the time to start thinking about retirement is the day you get a job. Time is your friend and something you can never get back. The more years you have to save, the better off you will be than someone who waits until later in life. I promise! There are several graphs that explain this concept. If you do not know where to start (accounts, amounts, etc.), a financial planner can help.
4. Start a Big Hairy Audacious Goal or Any Goal For That Matter
If you have 1-3 taken care of, perhaps you have a goal to buy a home, take a sabbatical, save for your children’s college education, or start a business? All of these cost money. How much? You will want to ensure you define your goal in this way: Specific —> Measurable —> Achievable —> Realistic —> Timely (SMART). Start with questions such as, how much home do you want to buy? How long will the sabbatical last? How much do you want to contribute towards your children’s college? What are the startup costs of my ideal business? This money should be kept in a savings account as well, and uber important: separate from your emergency savings.
5. Have Fun!
There is a good chance that you received this money due to unfortunate circumstances. Do not forget to set aside some money for fun, or if you have everything else covered, heck, buy the sports car! Other options could be to help out another family member or donate to a special charity. Just give yourself time to grieve before you make any big moves. If you do not have 1-4 covered, your first inclination may be to get the sports car and neglect the rest.
Bottom line, there is a good chance there will be some inheritance money in your future. However, I do not tell my clients to rely on that money. Why? Things can and do change. Consider hiring a financial professional to help you with goals 1-4 first so you are not in a situation where you made a poor assumption and ended up with nothing. Only you control your financial future. Take meaningful steps now to set yourself up for success, even if someone close to you leaves you out.