Inheritance. Do we need financial advice?(17 Posts)
Dh's lovely mil died last month. Dh is youngest and one of his older sisters is sorting out the will etc. All good.
We do not know the exact sum of inheritance. It's atleast 50k, could be as much as 75k.
We are just considering our options right now.
We are not sure what to do with it. How do we find out what's best? Do we need financial advice and if so where exactly do we go to get it?
We could, build an extension. Get things like all our windows replaced, which do kind of need doing, but aren't urgent.
We have always had a 5 year mortgage. Last time we sorted it, we agreed to pay a bit more than we had been doing, to reduce the term. I need to check how much is outstanding and when it finishes, but I think it's due to finish in 5 years possibly? Im not sure it's enough to pay it off, but it would make s big dent in it - do we partly pay off the mortgage?
Dh will be mid 50's by the tone it's due to finish.
Or pay off a bit and leave a small lump sum? You never know what might happen in the next 5,10, or 20 years. We might just need a few 1000's one day?
Or , we took an interest free loan to upgrade our cars and upgrade our lounge suite/sofa, last year. We pay £200 a month for that. Should we pay that off first, to free up an extra £200 a month?
How are you supposed to know what to do? Neither of us will get another inheritance, so it's not like we could ever turn to anyone, if say we muck this up, pay off mortgage and then find ourselves needing to borrow £2k in 5 years time, we won't be able to.
We need to get it right.
You need to think about what your priorities are and how to cover them or take steps towards. In an ideal world you should clear debts first, then have an emergency fund set aside (general rule of thumb 3 months' income).
The only exception to this may be the mortgage..... check what penalties may apply if you make an early redemption.
Next will be short to medium term capital expenses - windows and other house maintenance. Plan how you're going to finance these. Could be that you set aside some money now and make regular savings from the surplus monthly income after cleared debts.
Similar for long term capital expenditure. And you could have a bit of a think about retirement planning - what investments have you got or other assets for generating an income in retirement.
Thank you sun seed.
I don't even know what our priorities are!!
Our early repayment penalties on our mortgage are 2%. So if we made a lump sum deposit of £25k, the fees on that would be £500. Or we can make payments of £1000 every calendar month, without any fees or charges. I could arrange a DD of £1000 every month, for the next 2 years, easily, couldn't we?
We have no real savings. We have £500 saved for emergencies. We spend everything we get every month. We put £100 into both ds's accounts (to be fair most of that is child tax credit).
We all know you are supposed to save enough for 3 months, in case you lose your job. But no one we know does this. We all spend what we earn each month. Dh has a reasonable job, not humongous salary and I only work part time.
I want to feel the long term benefits and the short term benefits. So that money isn't quite so tight on a month to month basis. But that we are benefiting ourselves by also improving the value of our home, or reducing the mortgage.
I just can't work out what is the best option for us.
Dh has a very very good pension, mine isn't much. His partly passes to me if he dies. We have no retirement planning done. We don't have a second home or a buy-to-let and realistically will never be able to afford one.
We happened to be talking to our financial advisor when my Dad died (as we were moving house / taking on a new mortgage).
The advice he gave us was a bit contrary to what I would have instinctively done (which is paid off most of the mortgage). He said 'Are you managing now?' We said we were, and he said that if you pay of all/most of your mortgage, then you will just increase your monthly spending, and very quickly get used to having your new spending money each month, and then never really have a 'lump sum' to do anything particular with.
We're pretty cautious / careful with money, and though we'd invest it and see how we went for a couple of years. Now the dc are (almost) grown, and we've paid off our mortgage with our own endeavours / overpaying anyway, it's really nice to still have that lump sum of money to make choices about now.
Sorry - rambling on a bit here - I'm just saying I'm glad he gave us that advice.
How you invest it of course - you might invest in a buy to let, or you might want a FA to help you with that.
Oh, and treat yourself to something with some of it - be that a holiday or new windows.
We paid off our mortgage with a windfall. Then had two very difficult periods of redundancy, for some years.
It was such a relief to know our house was safe.
£500 is not enough of a cushion when you are in your fifties minimum of 3
Months living expenses in cash ISA or similar
Pay off any debts bar mortgage credit cards store cards etc
Do you have enough years of NI contribution to get full state pension you can buy tears, l believe you need 30
I do not think it is sensible to put £200 in children's accounts when your savings are not enough to cope with even a minor blip of a large car repair or break in central heating
Yes Tea, you are if course right, £500 is not enough. We need to look at this, majorly.
I'd use half to reduce the mortgage, most of the rest into savings and do some home improvements with the remainder.
That way you reduce your monthly outgoings (more towards reducing car debt?) and have a buffer for emergencies.
I inherited a moderate amount which we just stuck in a savings account until we decided what to do. Good job as DH had an accident leaving him unable to work. Not sure how we'd have managed otherwise.
Either way I'd try and stick to your spending levels now whether it be saving your increased disposable or using it to reduce debt. That way the money will be working hard for you "behind the scenes".
It's a decent amount but not a life changer you know?
I had a similar inheritance earlier this year.
The first thing I did was pay off the mortgage. Mine was just under £40k so half the money went.
I had an early redemption penalty but remember you are accruing interest too. I paid around £400 penalty but would have accrued £600 in interest if I'd waited until the end of the tie in period.
I then put £15k into my pension, £15k into an ISA (through a financial adviser), £4k into a children's isa for DD and I'm going to have a new bathroom.
I also let DD choose how to spend a couple of hundred on something special to remember her great aunt. She chose a really good DSLR camera. I chose some lovely hardwood garden furniture.
I am now paying the amount my mortgage was into my pension each month so I don't get too used to it!
It has been a life changing amount of money for me, coming out of years of a part-time salary as a single parent. I feel financially secure for the first time. It's fantastic!
If you have the option to overpay penalty free by £1k a month on the mortgage then it is a good idea. Gives a good half way house between having the money and using it. We did this for a while but didn't commit to a monthly dd as then we still had flexibility.
If you are already in your 50s then pension saving makes sense because you get the tax relief and can access the funds from age 55. I wouldn't invest by lump sum but rather a fixed monthly amount. You can invest £3,600 a year gross regardless of income and putting it in your name would give more scope to use your personal allowance when you retire.
If windows and such need doing then having the lump sum already there gives more flexibility to do the work as you want and when you want.
Oh and I agree with buying / doing something to remember your MIL tangibly.
I have inheritances which are invested and also I paid off the vast majority of my mortgage. I was given similar advice to BackforGood and as I tend to spend money easily that was the best option but just cleared vast majority of mortgage and invested the rest in savings etc.
I also have the savings tied up in 30 day notice accounts etc apart from 2 easy access accounts and the investments which are too easy to get the cash from so I just don't touch those now.
Anything eating up interest like credit cards I paid off, I still use them but clear monthly balances.
I was relieved I'd done this because a couple of years ago my DM wanted to get a BTL with me and DB (but DB had no or small savings so wouldn't contribute to the deposit) - I had more than enough to go halves on the deposit with my DM. It's also meant with my flat i have the money spare so I can convert the attic which is what I'm doing now. That wasn't necessarily something I wanted to do straight away not due to money but more due to if I'd moved, and the hassle involved (attic very big space) and also effects on neighbour in same building.
Before I had inheritances and had loans, I did what the financial adviser in Backforgood scenario did and just spent that spare money when it was paid off, didn't save it!
The good thing OP about your scenario is you're asking "real life" scenarios and not just trusting a FA, some are great but there are some (I know one) who was only after his interests re his clients. Strangely enough now he's nowhere to be found! And he was regulated.
Yes thank you. Lots to think about. And yes, it's not a huge amount, not life changing. But a nice 'problem' to try and solve. Dh has already decided to buy himself something, a watch or something small . I think this is very important. He loved her so much, he was totally devoted. All her children were. She was lovely. To me, as my mil aswell.
Lots to consider. Thanks all.
If no penalty fees I would pay off the most expensive debt, and pay some additional into the mortgage each month. I would make sure I've got an emergency fund of at least £15k in as high a savings account as possible. I would put a few £k into ds's savings account. The monthly debt payments I no longer needed to pay would go to a savings account.
The balance I would use for next car/big household maintenance/holiday etc.
Buying a keepsake is a lovely idea.
I agree with the keepsake idea too.
I inherited items as well as money but some are not my taste (nana's sovereign medallion on chain which I'm currently thinking of selling not for any monetary reason but because it's not my idea of a keepsake) she did wear it though.
It's a shame I didn't keep one of her pussy cat bow blouses though, they were very "her"!
Given that interest rates are low and you've got an early repayment penalty, I'd use the money to do work on the house
You need to look urgently at your living beyond.means problem. One job loss or illness and you are in big trouble. So the inheritance is your safety net but things still need to change.
That said - a small keepsake is a lovely idea. Something that will hold value.
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