What Happens When You Inherit A Large Sum Of Money!

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We all dream of suddenly getting a large sum of money, I mean who hasn’t asked the question, ‘what would you do if you won the lottery.’

Some of us know exactly what we would do, like paying off the mortgage, going on holiday, buying that car you’ve always wanted. Others have slightly different dreams like backpacking round the world or starting their own business.

The point is, no matter how everyone plans to use that money; they do have a plan for it.

And so did I until actually inherited that large sum of money we all dream about!


Let’s rewind a little bit

I was in my second year of university, about 21 years old, when I inherited just over £300,000 (that’s about $415,000).

It was completely unexpected.

My family have been financially ‘comfortable’ since I was a child, but we’ve never been rich (no super yachts for us!) So whilst I logically knew there would be some inheritance when the time came, I was thinking a couple of thousand pounds max.

The £300,000 was a complete shock and I had no idea what to do with it.

My parents made it clear that the money was mine to do what I wanted with. They hoped I would use it wisely but fundamentally if I had chosen to spend it on a gigantic shopping spree that was my choice.

And that was a lot of choice for a 21 year old.


So what did I immediately do?

Basically nothing and that was half the problem.

I used a small amount of the money to buy a sensible car (which I still have) and put the rest of the money in a bank account that was giving me 1.10% interest…

Then a year later when that savings account matured and the interest rate dropped to 0.10% I just left the money there because the fear of doing the wrong thing with the money, or somehow wasting it, had paralyzed me into inaction and indecision.

You see whilst £300,000 is a seriously lot of money, it wasn’t that million pound lottery win that everyone mentally prepares for and means you never have to work a day in you life.

Honestly what it felt like to me was that someone had hit fast forward on ten years of my life, I had the spending potential of someone who had been working a good job for ten years, but I hadn’t developed any of the experience and knowledge along with it.

I spent hours googling ‘what to do with a large inheritance’ or ‘what should I spend £300,000 on’. As you might imagine everyone had a different opinion from you only live once so spend it all, to start a business, pay off the mortgage and even retire early.

I felt even more overwhelmed. The problem was realistically I had no idea what I wanted to do with the rest of my life and spending that amount of money seemed like a major life decision!

Once I had finished university and I was living with my boyfriend I decided, like many people would, that buying a house would be the best financial decision. About a year and a half later the remainder of the money has allowed me to start my blogging business and live a life that I 110% enjoy each day.

I don’t regret my choices at all because I absolutely love my house and my life, but realistically I could have made better decisions with the knowledge I now know.

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So if I could step back in time and re-inherit that money again this is what I would do (now that I’m older, wiser and most importantly know so much more about personal finance):

A mini step-by-step guide I wish someone had already written back when I first saw that 6 figure number in my bank account.

1) Celebrate and give gratitude

Whilst the circumstances of you receiving this wealth may not be the happiest (which is often the case with inheritance) you should still make time to celebrate.

Not many people get an opportunity like this so get excited and be grateful about all the doors this has opened for you!


2) Make sure you put the money somewhere safe where it’s working for you

If you are unsure what you’re going to use the money for then you need to put it somewhere safe where it’s working for you.

If you think you won’t want to use the money for five to ten years plus then the best bet is to invest it.  If you’re are a complete newbie to investing then I would check out Mr Money Moustache’s blog post for an excellent introduction.

For perspective, if I had had invested my money for the 3 to 5 years before I used it, rather than letting it sit in a savings account with no interest rate, I could have potentially made nearly £50,000 assuming a 5% return. Now obviously it’s a bit more complicated than that but what I’m trying to say is take a few hours to make sure your money is working for you, I missed out on a potential £50,000 because I buried my head in the sand!

If you would like your money to be a bit more accessible because you plan to use it in the short term then make sure you put it in a savings account with the best interest rate you can find. Even if I had put my money in a savings account with 1% interest rate for 3 years that would have still been £9,000 I could have earned!

So if you don’t know what to do with the money, or if you don’t need the money right now, then make sure it’s working for you by either investing it or at least putting it in a savings account with the best interest rate you can find.


3) Get educated about personal finance.

If you are not already a personal finance nerd now is the time to become one.

You just can’t make an informed decision about your money if you don’t understand personal finance or how to manage your money well (think things like budgeting, emergency funds, etc, etc.)

The fact that you’re reading this a personal finance blog suggests that you have at least started your personal finance education. But make sure you pay particular attention to these three personal finance topics:

  • Early retirement (the math is the same whether you want to retire early or at the normal age so make sure you understand it)
  • General money management (can you budget, know what sink funds are, have a full emergency fund…)
  • Investing (this one seems complicated and scary at first but it’s really not as bad as it first looks!)

Good places to learns about these topics are:


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4) Pay off any debts first

My personal opinion is that if you have any debts, such as student loan, credit cards, car loans, you should definitely use the money to pay these off first.

The only possible exception is your mortgage. Sometimes it can make more financial sense not to pay off your home!


5) Consider whether you want to buy a home

If your debts are paid and you don’t yet own your home, now would be a good time to consider if this is something you want to do.

Just make sure you do the math because depending on where you live you may reach financial independence and be able to retire early if you rent rather than buy!!!


6) Have you got kids or are planning to have them soon?

I would say the next thing to consider spending your windfall money on is your children.

Consider putting some of the money away for their education or just to give them a good start in life. This is very much a personal decision but definitely something you need to consider.


7) If there anything you super want to do that seemed impossible before?

Now the more practical things to spend your money on have been covered it’s time to consider if there are any once in a lifetime experiences or dreams you would like to do. I’m a firm believer that you should enjoy your money as long as you’re responsible in doing so.

So if you’ve always wanted to travel the world then now is the time to do it. But don’t do a once in a lifetime type experience because you think you should, that is just a waste of money.

I personally didn’t have a burning desire to do anything in particular, and I want you to know it’s okay if you feel the same way.

Not spending that money then allowed me to set up my business now!


8) Still don’t know what to do with that money?

Then invest it wisely.

Don’t force yourself into figuring out what to do with your money right now if you truly don’t know! Just invest your money well in an index fund with a company like Vanguard and let it grow. You might end up being able to retire early without even realizing!!!

Just know there is no right or wrong way to use that money. Make sure that what ever you do with it is true to you and what you want from life.

Remember that it’s okay not to use it at all and instead just let it grow for when you are ready to make that decision!

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