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Key Takeaways
- Experts often recommend waiting at least 30 days after an inheritance before making major financial decisions.
- Advisors generally suggest paying off high-interest debt, building an emergency fund, and then investing for long-term goals.
- With a clear plan, inherited money can be saved in ways that outearn inflation and move you closer to goals like a home or retirement.
An inheritance of $50,000 can be a powerful stepping stone toward long-term financial security. With thoughtful planning and expert guidance, this money can be worth much more in the future and help you close in on one or more financial goals.
If instead you act impulsively, the money could be lost in a fog of forgotten purchases and everyday expenses. Even if you do nothing with it, inflation can quietly erode its value over time.
Here are the intentional steps that experts suggest you take.
Think Before Acting
A sudden influx of cash can sometimes lead to bad choices. That’s why experts generally recommend waiting at least 30 days before executing any major financial decisions with inherited funds. A small celebration is fine. Just don’t go splurging with all of the money or lend it out recklessly.
While you evaluate your finances, priorities, and goals, stashing the funds in a a top high-yield savings account is smart, as you’ll earn interest on your money while you decide where it will go. This also gives you some time to see if the money will need to be shared with others.
Most inheritances of this size aren’t taxable, but there are exceptions. For example, if you receive a traditional IRA, 401(k), or other pretax retirement account, any withdrawals you make will be taxed as ordinary income. You could also owe capital gains taxes if you sell inherited assets that have grown in value.
Tip
A tax professional can help you avoid surprises, especially when inheriting retirement accounts or investments.
Solidify Your Finances
Scott Bishop, managing director and co-founder of Presidio Wealth Partners, said the priority after coming into money should be paying down major debts and building an emergency fund.
“Start by paying off high-interest debt like credit cards; that’s an instant, risk-free return on your money,” he said. “Next, tackle moderate-interest loans, then build a ‘boring but essential’ emergency fund to cover at least three to six months of expenses.”
These may not feel like glamorous choices. However, they will save you a lot of money over the long haul and put you on a better path to achieve your goals and handle any setbacks.
Determine Your Goals and Invest for Them
If you have money left over after shoring up your finances, it’s time to invest for your future. Write down your goals, whether that’s saving for a home down payment, a career transition, your kid’s college education, or retirement at a reasonable age. Then determine the investments that fit these time horizons.
Generally speaking, if you don’t need the money for five years or more, you’re better off investing it in low-cost index funds. However, if you’ll need the money sooner, it’s often wiser to use safer options like high-yield savings accounts, money market funds, or Treasury bills, which offer more modest returns but without any risk. The important thing is to use an option whose rate of return beats inflation, or at least comes as close as possible.
When investing, it’s crucial to diversify, minimize fees, avoid tinkering too often, and use vehicles that offer the greatest tax benefits. Examples include 401(k)s and IRAs for retirement and 529 plans for education costs.
Enjoy Yourself—A Bit
Paying off debt and saving may not seem exciting. And it’s reasonable to argue that whoever left you the money would want to see you have some fun and enjoy the present moment, particularly as the future isn’t guaranteed.
Experts know you’ll want to spend some of the money to enjoy yourself. They generally suggest a limit of 5% to 10%. For a $50,000 inheritance, that works out to between $2,500 and $5,000.
Important
If you’re unsure how to manage or invest an inheritance, consulting a fee-only fiduciary financial advisor can be worthwhile. The money they charge can easily be offset by the gains their strategy delivers.
Common Mistakes To Avoid
Used wisely, $50,000 can grow substantially in value. But it can just as easily disappear in the blink of an eye. Common mistakes to avoid include:
- Splurging all the inheritance on instant gratification
- Increasing your living standards until the funds are depleted
- Saying yes to many people in your life who want a loan
- Risking it all on a “hot” investment tip
- Letting the money sit idle for years
Avoiding these pitfalls isn’t about being perfect—it’s about being intentional. With a plan and a clear sense of priorities, you can use an inheritance to support your future rather than watch it fade into everyday spending.
