Receiving a financial windfall like an inheritance can be an emotional time — one that might stop you from seeing the bigger picture. As financial advisor Suze Orman said in a recent episode of her podcast, “I think it’s really important that we think about how we invest money today to make the most out of the situation that we have?”
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In her episode, Orman outlines the next steps to take if you’re receiving an inheritance for the first time and need help figuring out what to do with the money. Here are her recommendations below for the top three things to do.
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1. Take an Inventory of Your Debt
As tempting as it may be to immediately make a big purchase like going on a trip or buying a big-ticket item you’ve been putting off — it’s crucial to take a deep look into your finances. Orman recommends writing down everything that you have, starting with debt. Write down things like credit card debt, student loans, car loans, as well as personal and mortgage debt. Once you’ve categorized all of these, write down the average interest rate you are paying. This will allow you to create a plan for paying these off. If it’s a large inheritance, Orman suggests seriously considering getting rid of all debt in one swing.
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2. Build Up Your Emergency Savings
Once you’ve reviewed and analyzed your debt situation, Orman says having a solid emergency savings account for true emergencies is vital. These are especially important if your car breaks down or your fridge goes wonky and you must shell out $400. She says you want to rely on something other than a credit card for these kinds of scenarios. For that reason, she recommends having a minimum of $1,000 to $2,000 in that account.
3. Establish Your Must-Pay Savings Account
“What must you pay every single month?” Orman asked. “You must pay your mortgage, your rent, your car payment, your insurance premiums, things like that.” She says this is incredibly important to set up, especially if you’ve been living paycheck to paycheck. You must allocate eight months of must-pay expenses in a must-pay savings account.
The Bottom Line
Receiving an inheritance can be an unexpected blessing in many ways, but pausing and carefully analyzing the above three situations with a level head is essential. Keeping up with debt (or slashing it altogether), creating an emergency savings fund, and covering your immediate monthly expenses–will all set you on the right track for a healthy financial trajectory.
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This article originally appeared on GOBankingRates.com: Suze Orman Says You Must Do These 3 Things If You Receive an Inheritance
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