Inherited Some Money? Here’s How Not To Screw It Up

A loved-one worked hard their whole life, saved up a bunch of money, had plenty left over when they passed… And then left some of it to you?

Yikes, that’s a lot of pressure. Particularly when your gut reaction is to quit your day-job, buy about a million things and start travelling indefinitely. Take a deep breath. Money geek Rob d’Apice has eight simple steps to make sure you don’t end up in a deep pool of hedonistic regret.

#1 Honour the gift

That cash didn’t fall from a tree. Someone worked hard for it, and left it for you, because they loved you and wanted you to have a better life.

You should think of your benefactor every time you use a dollar of this inheritance – what would they want? Would you be making them proud in your decisions? If you manage to leave money to your relatives when you die, what would you want them to do with it?

(Hint: it’s not blowing it all on fancy cars and Apple products.)

#2 Death and taxes

Things that get more valuable over time, like houses or shares or art, are exposed to a (really complicated) kind of tax called Capital Gains Tax (CGT). This means that if you inherit something like this, it may come with a potentially large tax bill, and you might need to pay that tax bill with cold hard cash. Generally, this won’t occur straight away (unless you are living overseas), but you will need to pay it when you eventually sell the asset.

Did I mention it’s really complicated? It’s worth getting advice on this. If you inherit $20,000 worth of shares, for example, that could come with a liability to pay thousands of dollars in tax when you sell it. It’s important to know how much your asset is worth AFTER you cover the associated tax.

#3 Be generous

Someone worked hard for this gift, and they were extremely generous to leave it to you. Time to pay it forward.

Find a mix of charitable causes, and donate 5% of the inheritance. I personally love Kiva, where you can provide small loans to enterprises in developing economies (because I am basically a filthy capitalist). Or, use a site like GiveWell or CharityNavigator to find charities that are high impact and have low admin costs.

Also, make sure you keep donation receipts for claiming those sweet, sweet tax deductions.

#4 Do something really fun



What did your benefactor like to do for fun? Did you do anything special with them?

Set aside another 5% and do something that will create a great memory for you – a memory that you can attribute to your loved one when you look back on it. This is important, actually. It’ll make you appreciate the inheritance, respect your relative, and shake off the desire to blow it all on something ridiculous.

#5 Scrap your debt

OK, now what’s the best way this debt can help you financially? Pay off as much of your high interest debt as you can.

Personal loans, credit cards, loans from family – basically anything that isn’t a mortgage. If you’ve got yourself into inescapable consumer debt, it’s probably time you had a good hard look in the mirror – are you responsible enough to have a credit card?

#6 Create your emergency stash

All the finance pros say you should keep about three months worth of salary stashed away in cash – just in case shit gets cray. E.g. you get sick, or you need to travel for an emergency, or you spill iced-coffee over your brand new MacBook and it’s broken and you chose not to get insurance because you were sure nothing would happen to it because you are a really careful and responsible financial advisor.

Stash this cash in an online high interest savings account (and keep it out of sight so you can reap the rewards you get for not withdrawing from it).

#7 Invest the rest

Investing still seems so adult. It’s like high-stakes Monopoly except you have no idea what you’re doing!

There are basically three things worth investing in:

Shares tend to fluctuate in value, but (historically) have returned the most over the long term. You’ll need to hold them for at least a couple of years to make them a worthwhile option.

Again, property has done very well for Australian baby boomers, and consequently screwed our generation nice and good. No one knows whether prices will continue to climb, though, and anyone who tells you they do is completely full of sheizer.

Fixed Interest (e.g. your online savings account)
Low return, low risk.

If everything except step #4 makes your eyes glaze over, then proceed to step #8.

#8 Get help

If you have a sizeable inheritance (let’s say, more than $50k) – it may be worth seeking some advice. Financial planning, I’m afraid, is still a bit of a rubbery industry – fees are high, shonks are aplenty, and sometimes the advice you need at this stage is pretty simple. If you want to see someone, your best bet is a recommendation from family or friends, or speaking to your bank about what resources and help they offer in this area. Make sure you discuss fees upfront.

Alternatively, a bunch of 21st century options are now popping up in Australia. Companies like Stockspot and QuietGrowth (dubbed ‘robo-advisors’) will take your money and invest it algorithmically based on your specific risk profile. They charge similar fees to traditional financial planners (generally around 1% of your assets), but they are simple way to get started.

Rob d’Apice is a co-founder of Sage, a new way to save heaps without thinking about it. He has trained as a financial planner, worked as a management consultant, and struggled as a serial entrepreneur. Rob presented the money segment Insufficient Funds on FBi Radio. He is also a bit of a geek.