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What Should You Do with an Inheritance?

Everyone dreams of receiving a windfall. Sometimes I think it would be nice if someone just dropped $10,000 on me — I don’t even dream about $1 million. However, I’m pretty sure there aren’t any long-lost uncles waiting around to leave me any sort of inheritance. Others, though, do end up with a windfall in the form of an inheritance.

The question of what to with the money is one that everyone has to answer. After the government takes its cut, you need to decide what you are going to do with the money. If you are smart about what you do with an inheritance, you can secure your financial future. Without a solid plan, though, you could quickly find yourself worse off than before you received your inheritance.

First Things First: Get That Money Working for You Safely

The most important thing to do is to avoid making any quick decisions about what to do with your inheritance. You need to grieve properly, and you need to consider your financial situation and your options. However, the fact that you should take a little time to consider your next money move doesn’t mean that you should let your money just sit there. Put the money in a safe place that is relatively liquid.

Consider putting the money in FDIC-insured high yield savings accounts, short-term CDs or money market accounts. If you are confident about U.S. Treasuries, you can consider short-term Treasuries as well. However, many people prefer the liquidity and accessibility of high yield savings accounts [3]. Your money is safe, it is earning interest (even though the yield is low), and you have some time to get your bearings.

Ideas for Your Inheritance

Because personal finance is so, well, personal, it is vital that you consider what would be best for your situation. Consider your financial situation, and what would help you reach your goals. Here are some ideas for your inheritance:

While it can be tempting to blow all the money on fun stuff, stop and think. There’s nothing wrong with treating yourself, but you want to make sure that you are on solid financial footing first.

What would you do with an inheritance?