At some point in everyone’s life they will have a relative that passes away. When this happens they are often given something that their loved one once owned. It could be as small as their favorite watch, or as large as the family fortune. In any event, an inheritance comes along to many people. Most of the time you expect it, but there are times when the amount that comes in is unexpected and you need to consider carefully how to handle the inheritance. While the psychology of how the individual feels at the sudden influx of money is similar to that of other windfalls, they are often treated very differently.
When a person has a wealthy relative, they usually expect to see some of that wealth come their way at the passing of the relative. And long before it even happens, the individual needs to think about what they will be doing with the inheritance to honor their loved ones by not squandering their hard earned money.
Many other windfalls are sudden and unexpected. Often they are small (rebates, tax refunds, small gambling winnings, etc.). If they are spent on frivolous items it is not a real big deal since there was not much to begin with, and often the money was won instead of earned or received as a gift. Inheritances, on the other hand, are the result of someone else’s hard work. Psychologically the heir feels they should use the money wisely. In the end, the result should be the same as with all money that comes in. It should be planned before it is even seen, and something as simple as 50% to savings, 25% to investing, and 25% on something spent now should be followed.
For some the inheritance is too important to them to simply use on themselves. Many people store the money away in savings or investments, and do not even use it. They feel they do not deserve the money, and instead pass it along to their heirs. There really is no wrong way to treat the inheritance money. Keeping it in the family, passing it to heirs, or treating yourself to something nice are all acceptable. The one caution is that if the amount is large, it can have the same effect as lottery winnings. The recipient suddenly feels they have no care in the world, and they end up blowing all of it and bankrupting themselves.
These large influxes are important to our psychology as humans. What is even more important is the satisfaction that the money has not been wasted, and we have been able to use it wisely. Inheritances are often very personal, unlike windfalls such as gambling winnings. They are often treated with much more respect, and not blown. By making a plan on exactly how to handle inheritances, long before it is even seen, the recipient will help that to make sure the money is used as wisely as possible.