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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Jeff Rose as much as i would love to do that i really do not know anything about the market what to look for or anything thats why i would like some recommendations on what to read or anything like that so i can get the knowledge
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?
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.
It means if you spend your inheritance then you have to go make more money to pay your bills. If you do not blow your inheritance, you can use the money to coast a little and not worry so much when you are between jobs or you don't want to work at all. It means having a back up cushion of $250,0000 is more valuable than buying a super car so you have safety net to fall on.
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.
Gretchen Joy Hackett
Thank you for your story. After reading Total Money Makeover and Millionaire Mind, factoring in a person's financial literacy is one of the things I look at before considering a relationship with them now.
It was mostly being married to an unappreciative person who just left everything go to hell. I am finally getting my house back (after 2 years of a nasty divorce), which it’s utterly trashed.
Sorry to vent but treat your money as you do your health. It is (unfortunately) seems to be more precious than life itself, since you need it to maintain life.
Scary stuff!!! I have seen it too! This guy lost his mother and received 100k in insurance money. He bought a fancy car and blew the rest at the casino. Within two months he went trough all of it, even reselling is car to keep on gambling...no one should be able to touch inheritance money before he is 40.
Famicom Nintendo Why? Not all of us are dumb shits. I've seen tons of dumb shit from older people anyway. If you're over 40 and even think about an inheritance then you probably made some bad decisions anyway.
i am not sure i could do it justice explaining it... but it is an alternative to Youtube. With the whole Alex Jones Infowars thing... i don't wish to support the platforms that wish to squash freedom and free speech... Here is a video with a guy that i follow that has an interview with the founder... https://www.youtube.com/watch?v=koRP1rj8pkk
My sister recieved not one but two inheritances and blew both by trusting one stock broker, because it was her coworker's husband, during the dot com boom! Six stocks invested in at the height of the dotcom boom and all six went bankrupt! Best to buy some books on investing studying for that year to become somewhat of an expert, so you can do it yourself, as never invest in something you do not fully understand or have full control of! There are no guarantees in life! Life is based on decisions, but most when they make mistakes blame on someone else, because they still think like children!
Wow. 1 in 3.... My dad tells me a story about how one of his closest friend's nephew blew his inheritance on a decked out Hummer. Sad to see people do something like that.
Although I don't blame them, I blame the lack of education!
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