Is it really a shocking statement to say that 1 out of every 3 people blow their inheritance?
I’ve seen this happen – someone inherits money and it is gone within 3 months to a year. All of the money is gone! It doesn’t matter if it is $25K or $1 million. Somehow these people find a way to blow it.
I got a subscriber question from someone that inherited a chunk of money and they want to make sure that they don’t blow it or lose all the money.
I wanted to be sure to answer their question but I also wanted to make a video for you. I wanted to share the information so that if you find yourself in this situation, you will be prepared to be able to put that money to work.
Not only do ⅓ of people blow their inheritance, but it’s not just average people. Statistics show that with wealthy people, OVER 70% of the wealth transfer doesn’t make it past the second generation.
Let’s find out what this reader had to ask:
“My spouse and I will be Inheriting about $750,000 to $80,000. The payoff balance of our mortgage is estimated at about $180,000 at 3.5% APR for 30 years. Would it be worthwhile to allocate some of the money we are inheriting to pay off the mortgage loan? ”
I told you this was a fat inheritance ¾’s of a million dollars!
The only inheritance I ever received was about $8,000 from my grandmother. I used most of that to pay off student loan debt, and some for saving and investing.
I can see how tempting it can be to go out and buy things when you get a chunk of money. A new house, new car, new clothes, new computers, etc. 💸
But for this reader the biggest question is regarding their mortgage. They are locked in with a great mortgage rate, they can continue to claim this mortgage interest on their taxes.
You are probably thinking that I have spreadsheets and I am crunching numbers to see what will be best over the long term. Considering things like investment returns, interest calculations, etc. There was a time when I would do exactly that.
Obviously there is risk involved. Now if they do pay off the mortgage, they are debt-free and the return is automatically that 3.5% interest. They still have well over ½ a million dollars that they could use to take a vacation, buy some of the things they need, and invest.
So while there was a time that I would crunch the numbers and do the spreadsheets; there are other things that we need to take into consideration. How much do they currently have saved, how much are they able to save, are they putting money in a 401K or Roth IRA?
What I have come to realize is that if someone is looking at paying off a mortgage or another large debt vs. investing the money and potentially making a net positive return – what it comes down to is what is your investment personality. What is your risk tolerance?
What happens if you make a small percent or lose money in your first year? 💸
I see a lot of people doing this. Then the reality is that instead of making a better return by investing, they end up losing and they have regrets.
If I were to put myself in their situation what would I do? 🤔 The funny thing is I am in the process of coming into a large chunk of money. It is not an inheritance but rather the sale of a business. I could use this money to pay my mortgage off and be completely debt free. Eventually, I will do that – but for the first year or so, I am going to sit on the money. I am going to put most of it in cash, maybe some short-term investments, maybe some in the market. For the most part, I am going to sit on that. I want to see how things unfold.
One thing to remember when you come into a large chunk of money through an inheritance or otherwise: You don’t have to make a decision today, or tomorrow. You can sit on the money and wait. The last thing you want to do is put your money into something that you don’t understand.
So what would I tell this person to do I would tell this person to wait. To sit on if for at least a year before making a decision.
You may think that you have it all figured out, but we all know that ‘life happens’ -things can change so quickly. Things may be completely different 6 months from now.
🤔 Take the time to make the best decision for you. You don’t have jump right away just because you are listening to what everyone else is telling you to do.
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The stock market is still a fantastic tool for building wealth, however, so it's wise to consider investing even if you don't have much money to spare
Pay off your Mortgage and invest the rest partly in Rental Real Estate and the other half in a vanguard index fund!
What a stupid question, " Should I pay off my Mortgage ?" It's only $180 thousand and you've got $800 thousand ! No Brainer Dude !
I would pay off the house and invest some of the other money.
What would be the best investment to make with inheritance so that you don't actually spend the principle, and can live off the interest earned?
I received a small inheritance a few years back. I sat on it for a couple years. Next week (Feb 2020) I close on my small 2 / 1 condo. I was able to put 65 percent down … and do a 20k remodel completely covered by inheritance. . Buying less than I could have (100k vs 200 k with a larger mortgage) .. and smaller than I could have … allows me to afford maintenance… remodels .. HOA fees / taxes / insurance . It will be PAID OFF in 3 to 4 years easy with extra payments as mortgage is so low – a few hundred lower than I paid renting. This is why I bought less "house" and smaller square footage than I qualified for.
With mortgage paid I can book retirement savings at $800 to 1k a month secure in knowing my home is paid for and it's easy for me to upkeep either as a main or secondary residence.
It is so easy to blow money you didn't earn because for a time .. no matter how much your inheritance … it seems like you can buy anything you want. Then you either buy too much or stuff you didn't need at all. .
Interest mortgage tax deduction on 3.5% on 180k balance. Lol yeah right. Not gonna forgo a 24k standard deduction for that unless they had a lot of donations or something
Yes, sit for a year and loose $24,000 dollars due to inflation…. SIGH
Not knowing what to do with a chuck of cash is a sign that one lacks financial education. I'm not saying jump in, but you don't need to wait more than half a year (that's overkill).
In order to claim inheritance other than by Blood relationship, and Birth Certificate, the claimant must achieve or equal the Education and Professional Licensure of the Diseased Relative. Otherwise, truly your inheritance will be blown away and if you claim a property without no blood relationship and similarity in profile surely you will Die of Embezzlement and FRAUD. It is like an African or Asians claiming heritance from an American Aristocracy in America. A Chinese or Pilipino claiming property in Korea/Japan with no blood relationship to the disease owner of the property and can not speak the language. Also, an Iraqi claiming property in Kuwait and Israel without any relationship to the disease aristocrat of the country. Truly that is conquering and illegal sequestration by deceit, lie and fraud.
I inherited like 300k & already blew like 100k can someone help me not be a statistic
If I had an inheritance I would split it into thirds. One third to pay down the mortgage as an overpayment, one third to simply hold as cash for emergencies etc., and one third to invest. This enables progress on three fronts and feels like a good decision to me.
Buy 400 shares of Amazon and sell covered calls.
I would invest some of it, since the mortage isnt a big one, 180k compared to 800k inheritence, take the profits from the investing and put it towards the mortgage. Im use to -15% to -40% days from Crypto so I have a huge risk tolerance
Jeff Rose – are you Italian ?
Hey what is a good course to learn about the stock market
Hey Jeff! How do you balance your firm's business and your GFC and YouTube business? In the sense of, you are giving out free financial advice on these platforms and recommending robo-advisors such as Betterment in your blogs, do you see that having a negative impact on you as a financial advisor?
This video make a lot of since and is educational i like it!
This video should have been 2 minutes long. Stop repeating yourself.
Why not pay off the mortgage and invest the remainder of the money and apart from that, the money that was being used to pay the mortgage can also be used as a savings or as a way to do other vestment.
You have to invest the money in CD's and other investments. Freedom is more valuable than being a slave for money.
Jeff, if you pay off the mortgage and you don't like that feeling you could always take out another. Plus, as soon as the mortgage is gone you could start putting the old payment amount right into either an investment or an emergency fund. I usually like the advice you gave for a widow as all the emotion going on at that time is too much for most. However, if the money you will be getting is a holy cow amount then your advice is golden. This is just my opinion, the ultimate goal should be to help the customer discover what they will be able to live with like you were doing. Sadly, still hypothetical for me.