From paying off high-interest debts to investing into your pension, in this article our financial planning experts explain some of the best ways to use your inheritance money.
Paying off Debts
You might be tempted to use your inheritance to clear off all of your debts, but this isn’t always the smartest option. If you have any high interest debts like credit cards or personal loans, these should be cleared as a priority.
Other debts, like your mortgage, have a lower interest rate which means that paying them off quickly doesn’t always yield the best returns. With low interest debt, the money you’ll spend on repaying them is usually a lot less than the money you can make from savings and investments. Therefore, it makes more sense to pay these debts off gradually and make bigger returns on your savings or investments instead.
Investing your inheritance
Once you’ve decided which debts to clear, you may be wondering what to do with the rest of your money. Usually this is a choice between saving it or investing it depending on how much risk you are comfortable with. Investing can give you better returns than a savings account, but you can also lose money with the wrong investment.
Before you decide to invest your inheritance, you first need to understand how investing works. Once you understand the basics, the next step is to find a reputable financial advisor who will help you to choose the right investments.
Should I add my inheritance to my pension?
Another alternative to saving your inheritance is to add to your pension pot instead. This is a more tax efficient way of saving and is usually less of a risk than investing. When you pay into your pension, you’re also usually eligible for a tax reduction the following year depending on your tax thresholds.
Inheritance money that is invested into a pension fund can also be passed on to your beneficiaries without any further tax implications. You’ll be able to withdraw a 25% tax-free lump sum from your pension when you retire too.
Make a charitable donation
Some people choose to make a charitable donation from their inheritance. This is a great way to support charities that are close to your heart and enables you to support those that are less fortunate.
Enjoy your inheritance
Most people hope that gifting money will give their loved ones a better life. This could be by paying off debts and investing for the future, or it could be spent on experiences and material possessions too. As long as you stick to your plan and use your money wisely, you can leave yourself some room to enjoy it too.
If you’ve recently received an inheritance and need financial planning help, give us a call on 01926 405883.
