Have you ever daydreamed about receiving a windfall from a long-lost relative? Maybe you’ve imagined what you’d do with a sudden influx of cash—pay off that nagging credit card debt, take a dream vacation, or finally start saving for retirement. According to recent data, the average inheritance in the U.S. is around $46,200, a figure that might surprise you. It’s not exactly a lottery jackpot, but it’s enough to make a real difference if you use it wisely. So, what’s the best way to handle an inheritance? Let’s dive into some practical, human-centered strategies to make the most of this opportunity.
Why Inheritances Matter More Than You Think
Inheritances, big or small, can be a game-changer. That $46,200 average might sound modest, but it’s skewed by the ultra-wealthy passing down massive estates. For most of us, an inheritance is a rare chance to reset our financial trajectory. Whether it’s a modest sum or a life-altering amount, the key is to approach it with intention. I’ve always believed that money is just a tool—it’s what you build with it that counts.
Clear Out High-Interest Debt First
If you’re carrying high-interest debt—like credit card balances with 20% APR or more—an inheritance is your golden ticket to freedom. Paying off debt isn’t glamorous, but it’s one of the smartest moves you can make. Why? Because eliminating a $10,000 balance at 20% interest saves you $2,000 a year in interest alone. That’s money you can redirect to savings or investments.
Paying off high-interest debt is like giving yourself a raise—it frees up cash flow for your future goals.
– Financial advisor
Start by listing your debts, focusing on those with the highest interest rates. Use your inheritance to wipe them out, or at least make a serious dent. It’s not just about the numbers—it’s about the peace of mind that comes with less financial stress.
Build a Rock-Solid Emergency Fund
Life has a way of throwing curveballs—car repairs, medical bills, or a sudden job loss. An emergency fund is your safety net, and an inheritance is the perfect opportunity to build one. Experts suggest keeping 6 to 12 months’ worth of expenses in a high-yield savings account. Why so much? Because it gives you breathing room during tough times without forcing you to dip into investments or rack up debt.
- Calculate your monthly expenses: Include rent, groceries, utilities, and other essentials.
- Aim for 6-12 months: If your job is unstable, lean toward 12 months for extra security.
- Choose a high-yield account: Look for accounts offering at least 4% interest to make your money work harder.
Personally, I think there’s something incredibly empowering about knowing you’ve got a cushion. It’s like having a financial lifeboat ready to go, no matter what storms come your way.
Supercharge Your Retirement Savings
Once your debt is under control and your emergency fund is set, it’s time to think long-term. Boosting your retirement savings with an inheritance can set you up for a comfortable future. If you’re in your 30s or 40s, even a modest contribution now can grow significantly thanks to compound interest.
Consider a Roth IRA for tax-free growth or max out your 401(k) contributions. For example, investing $10,000 in a diversified stock portfolio at a 7% annual return could grow to over $76,000 in 30 years. That’s the power of time and smart investing.
The earlier you invest, the more your money works for you. Time is your greatest asset.
– Wealth manager
Not sure where to start? A financial advisor can help you choose investments that align with your goals. Or, if you’re a DIY type, research low-cost index funds for a simple, effective strategy.
Invest in Your Future Self
An inheritance isn’t just about numbers—it’s about opportunity. Use it to invest in yourself, whether that means going back to school, starting a business, or saving for a down payment on a home. These choices can transform your life in ways that go beyond dollars and cents.
For example, putting $20,000 toward a degree or certification could lead to a higher-paying career. Or, using it as a down payment might get you into a home sooner, building equity and stability. What’s something you’ve always wanted to do but thought was out of reach? Now’s the time to make it happen.
| Investment Option | Potential Benefit | Time Horizon |
| Education | Higher earning potential | 2-5 years |
| Home Down Payment | Build equity, stability | 5-10 years |
| Start a Business | Financial independence | 3-7 years |
Honor the Person Who Left You the Gift
An inheritance often comes with emotional weight. It’s not just money—it’s a legacy from someone you loved. One meaningful way to use it is to honor their memory. Maybe they were passionate about education, animals, or a local charity. Donating a portion to a cause they cared about can keep their spirit alive.
I once knew someone who used part of their inheritance to fund a scholarship in their parent’s name. Every year, they’d get letters from students whose lives were changed because of it. That kind of impact? It’s priceless.
- Reflect on their values: What causes or passions defined them?
- Research meaningful options: Look for charities or projects that align with their legacy.
- Make it personal: A small, thoughtful gesture—like a commemorative plaque—can go a long way.
Treat Yourself (Just a Little)
Let’s be real—after tackling debt, savings, and investments, you deserve a little fun. Using a small portion of your inheritance for something special can be a great way to celebrate the moment and honor the person who left it to you. Maybe it’s a weekend getaway, a new piece of furniture, or a fancy dinner with loved ones.
The key is balance. Set aside a specific amount—say, 5-10% of the inheritance—for a treat. That way, you get to enjoy the moment without derailing your financial goals. After all, life’s too short not to savor the good stuff sometimes.
Navigate the Tax Maze
Good news: most inheritances won’t trigger a federal estate tax. In 2025, estates under $13.99 million are exempt, so the average American doesn’t need to worry. But here’s the catch—some states have their own inheritance taxes, with rates ranging from 1% to 16%. States like Pennsylvania, New Jersey, and Maryland are among them.
If you live in one of these states or receive a large inheritance, it’s worth chatting with a tax advisor. They can help you understand your obligations and avoid any surprises. Nobody wants to lose a chunk of their windfall to taxes they didn’t see coming.
The Emotional Side of Inheriting Money
Let’s talk about something that doesn’t always make it into financial guides: the emotional rollercoaster of receiving an inheritance. It’s not just about spreadsheets and savings accounts—it’s about processing loss, gratitude, and sometimes even guilt. I’ve seen friends struggle with the feeling that they don’t “deserve” the money or worry they’ll squander it.
My advice? Give yourself permission to feel whatever comes up. Talk to a trusted friend, family member, or even a counselor if the emotions feel overwhelming. And remember: using the money wisely is a way to honor the person who left it to you.
Putting It All Together: A Plan for Your Inheritance
So, you’ve got an inheritance—now what? Here’s a step-by-step plan to make the most of it, blending practicality with a touch of heart:
- Take a breath: Don’t rush into decisions. Park the money in a savings account while you plan.
- Pay off high-interest debt: Clear out credit cards or personal loans to free up cash flow.
- Build an emergency fund: Aim for 6-12 months of expenses in a high-yield account.
- Boost retirement savings: Contribute to a Roth IRA or 401(k) for long-term growth.
- Invest in yourself: Use part of the money for education, a home, or a business venture.
- Honor their legacy: Donate or create something meaningful in their name.
- Treat yourself (a little): Set aside a small amount for something fun or special.
- Check for taxes: Consult a professional if you’re in a state with inheritance taxes.
This approach balances immediate needs, future goals, and emotional well-being. It’s not about being perfect—it’s about making choices that feel right for you.
Final Thoughts: Make It Count
An inheritance is more than just money—it’s a chance to reshape your future and honor someone’s legacy. Whether it’s $5,000 or $500,000, the principles are the same: clear debt, build security, invest in your dreams, and keep the person’s memory alive. What’s the one thing you’d love to do with an inheritance? Maybe it’s time to start planning.
By approaching this windfall with care and intention, you’re not just managing money—you’re building a life that reflects your values and aspirations. And that, in my opinion, is the best way to make an inheritance truly count.
