Receiving a big inheritance doesn’t guarantee that you will become wealthy. Some people squander their windfall and end up in a deeper financial hole, while others use the inheritance productively and reach their financial goals.
Inheritances are free money, but you have to use that money responsibly in honor of the person who left you the money. That’s why a 28-year-old turned to Reddit for advice on how to make the best of a $500,000 windfall.
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“Previously, one bad expense would have floored me, so I want to be responsible with this,” the Redditor explained.
Several people shared their advice in the comments.
Establish An Emergency Fund And Don’t Make Quick Moves
One Redditor suggested that the 28-year-old put the money into a high-yield savings account for six to 12 months. While the stock market can produce higher returns in the long run, it’s important to avoid making any rash decisions with the windfall.
The commenter also encouraged the 28-year-old to stay away from unnecessary purchases.
“What I wouldn’t do is buy things, including a house. That’s a quick way to blow your future. Let that money sit and generate returns for 20 years, and you have $2 million,” the commenter said.
Setting the money aside and acting as if you cannot touch it will give those funds more time to grow. Then, the 28-year-old will be in a better position by the time they retire.
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Pay Off Debt
Getting a windfall gives you the opportunity to pay off debt and other financial obligations. Getting rid of balances puts an end to interest accumulation, especially for high-APR debt like credit cards.
Letting debt go unaddressed can create a challenging situation where all of your monthly payments go toward interest and don’t have any impact on the principal. Using the inheritance for this purpose can give the 28-year-old’s budget more wiggle room.
Then, it’s easier to invest more money instead of allocating a portion of each paycheck toward interest payments.
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Invest In An Index Fund
Some Redditors suggested that the 28-year-old put any money that’s not needed for the next five years into an index fund. Some people recommended an index fund that tracks the S&P 500.
This benchmark is a standard choice since it tracks the 500 most valuable publicly traded corporations. It also has a few criteria, such as profitability. A few underperforming stocks are removed from the benchmark each quarter, and they get replaced by rising stars.
Index funds also make it easy to start investing and generating returns. You don’t have to follow individual stocks or know too many things about the broader economy to invest in index funds. They are very beginner-friendly, and it’s good for the 28-year-old to take that route with the windfall. While some stocks can produce higher returns than others, it may not be necessary to take those types of risks with the inheritance to reach long-term financial goals.
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