Inheritance During a Recession
If you are getting an inheritance, you may wonder whether the forecast recession should change how you handle it. Generally, we do not think that the recession should change how you handle any inherited money. Inherited money is always a great opportunity to pay off bills, build a nest egg, and splurge a little. A recession does not change that, but you may want to take a more conservative approach to how you divide up the money.
With a recession looming, most people need to be aware of the potential of a job loss. You could also expect to be out of a job for a longer period of time than usual. So, ideally you want to have six months of living expenses available in cash accounts. Most of us do not have that money. So, it can be a good idea to use an inheritance to build up that cushion.
However, while a savings cushion is great, it is not the only way to help protect yourself from a recession. Do you have a substantial amount of debt? If so, then you may not be able to access credit and use credit cards or even home equity in the event of an emergency. So, it may be smart to spend some of your inheritance paying down debt.
Save or Pay Down Debt?
Some things to consider when deciding whether to put money into savings or pay down debts with it.
- What interest are you paying?
- Are you behind on any loans?
- Would making monthly payments be difficult if you lost a job?
- Have you been struggling to make monthly payments?
With those answers, you can decide if it would be a better decision to pay off loans or to keep the cash and make sure that you have the cash available to make payments in the event of a job loss.
Inheritance & The Stock Market
One of the big things you have to consider is whether to invest any of that inheritance in the stock market. A recession combined with inflation means that cash may lose its value rapidly. In addition, banks pay very little interest on cash deposits. So, you may be tempted to make investments. However, a recession means that short term investments are likely to lose money. Therefore, you have to think about your goals and way short-term and long-term goals against each other. If you are in a comfortable position and have the cash reserves to weather a recession-related job loss, and your financial goals are long-term (10 years or more), then investing in the stock market can be a good idea.