How do I avoid wasting my surprise $4 million inheritance?

dear penny

My mother passed away last year and I am to inherit her large house (worth $2.5 million) plus about $1.5 million more. Her husband, daughter and I already live in this house because I took care of her mother before she died.

My husband and I both live frugally, so obviously this inheritance will make a big difference to our family’s financial security. However, we did not expect to make this much money, so we want to invest responsibly for the long-term benefits of our lives and our daughter’s future. .

I feel like I don’t know where to start thinking about making smart investments. real estate? KK? Just keep everything in a high-yield savings account or CD? Where or who to go for the most reliable advice on what to do with this money?

Of course, this is the best problem, but I don’t want to ruin everything with unnecessary spending.

— A.

Dear A.

When receiving a large inheritance, people often feel pressure to make big decisions right away. But this kind of urgency is rarely needed. You don’t have to make a big decision right away. In fact, acting too quickly can lead to emotional decisions that aren’t in your best interest.

Since you asked for advice on investing in your inheritance, here’s what to do when you receive an unexpected stroke of luck. I keep enough money in a high-yield savings account to cover me for a year or two. spending. Then invest the rest in low-cost index funds that track most of the U.S. stock market, such as the S&P 500 fund.

But that’s what I do based on my own goals and risk tolerance. Once your mother’s fortune is finalized, the first thing to do is find a financial advisor who can determine the best investment for you. Look for advisors who are compensated using a commission-only model, not commissions. This means that you pay for the services you provide, not the products you sell.

A typical advisor fee is around 1% of assets under management, but for larger amounts the fee may be lower. Some advisors charge an hourly fee rather than a fee based on the assets they manage, but these structures are common when seeking advice on short-term goals rather than long-term financial planning. target.

National Association of Personal Financial Advisors (NAPFA) website A good resource for finding an advisor. Includes a directory of paid advisors searchable by zip code. All Member Advisors are fiduciaries and must act in the best interests of our clients.

We recommend meeting with several advisors and hiring the one you feel most comfortable with. Think of it like looking for a doctor. You want someone who will listen to you and take the time to understand your goals. It’s important to find someone who can explain things to you in a language you understand. If you feel pressured in any way, consider it a sign that your advisor isn’t a good fit.

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You raised concerns about investing your money wisely, but keep in mind that investing is just one element of financial planning. A sudden increase in net worth often changes your insurance needs. You can also update your estate planning documents. For example, if you and her husband plan to leave most of your assets to your daughter, you can set up a revocable living trust to set boundaries on how her daughter receives her inheritance.

Give yourself permission to dream a little bit beyond the heart of financial planning. You say you don’t want to squander your inheritance on “silly expenses.” But after years of living on a modest income, you are about to receive a life-changing legacy.

Back when you never imagined your name would be seven digits, what did you dream of doing? Spending money or buying expensive cars and clothes just because you have money in the bank? I do not agree with But going on the vacations you’ve always imagined and pursuing your favorite hobbies isn’t a silly expense.

When money comes in unexpectedly, it often seems like it doesn’t matter. But inheritance can come with emotions. Some people feel guilty about their newfound financial freedom as a result of the death of a loved one.

Focus on spending with intent. If you think carefully about whether you are using it in line with your values ​​and goals, I don’t think you should worry about wasting this money.

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Robin Hartil is a Certified Financial Planner and Senior Writer for The Penny Hoarder.Send your tough money questions to Ask a questionPenny@thepennyhoarder.com.