My grandfather, George Marotta, died a year ago in July. I have missed him every day since.
He left me a small amount of money in his estate. My first reaction was numb grief. My next reaction was that I was undeserving and should do something magnanimous with the funds. After that, I thought of the ways I could make my life better. But in the end, I’m glad I took my own advice and didn’t spend any of it for twelve months.
Over the years, I personally have coached heirs through the behavioral finance of inheritance, so I intellectually knew what to expect. However, I found I still needed to coach myself.
When you receive a windfall, the temptation to do something with some of the new money is strong. In my own experience, the mixture of grief and possibility blended into strong, untethered ideas.
As an heir, it is easy to feel undeserving and want to spend the assets to help someone else. It is also easy to feel in need of comfort and want to spend the assets to improve your life.
Common expenses I’ve seen heirs tempted by over the years are home repairs, vacations, paying down a mortgage or student loan, or gifting a portion to another family member or charity.
I was tempted by several of these too. Although, one of my oddest impulses was to purchase an arcade game called “Break the Plates.” My family first encountered it at a Dave & Busters while on vacation in Texas several years prior. You throw real physical balls at a video game screen to shatter digital pictures of plates. When you hit one, there is a convincing plate shattering sound effect and seemingly real plate shards temporarily explode before the screen in just the right spot.
Looking backwards, I can tell I wanted to recreate the joy my family experienced on vacation playing this game together, I wanted the convenience of being able to escape into that space on a whim, and I wanted to break some plates.
But the rule of inheritance is:
After you have inherited the assets, ignore the inheritance for at least twelve months.
The advice to wait at least twelve months before spending the inheritance is the right advice even if your spending goals are more reasonable than mine.
Why wait? Because small expenditures from big windfalls impoverish you in the long run. When you spend even 5% of your inheritance, this increases your standard of living to levels which your inheritance does not actually support.
Why twelve months? Twelve months is typically long enough to make the windfall feel normal. Once the funds are settled in your accounts and feeling like yours, you’re better prepared to make intentional spending decisions.
What if I can’t wait? If you cannot wait, then permit yourself to spend the assets only in one of two ways: either 1) to pay off a credit card debt while resolving never to get into credit card debt again or 2) by spending less than 3% of your inheritance over a full 12 months.
When can I spend it? After twelve months, I recommend collaborating with a financial planning to create a safe withdrawal rate from your inheritance. When we do this service for heirs, we look at all your financial goals and circumstances to create a best fit spending and savings plan.
I’m outside my twelve months now and while I’m unlikely to purchase Break the Plates, I do plan to take my family to the nearest Dave & Busters sometime so we can break some plates together.
To the heirs reading this, I hope it is comforting that all of us — even financial planning super savers like myself — are tempted to spend windfalls. I also encourage you to take heart and wait twelve months.
Photo by Anita Austvika on Unsplash. Image has been cropped.
