Should You Spend, Save, or Invest Your Inheritance?

Receiving an inheritance can often cause us to have mixed emotions. It may come during a time of grief, when financial decisions are the last thing on your mind. Alongside the memories of a loved one, you now have the responsibility of managing the money they left behind. And in some cases, this financial windfall can be pretty sizable. According to Federal Reserve data, on average, American households inherit $46,200.¹

The question that many people then ask is, “Should I spend, save, or invest my inheritance?” The answer depends on your personal circumstances, financial goals, and the size of the inheritance. However, thoughtful strategies can help you honor your loved one’s legacy while improving your financial future.

Pause Before Deciding

The first step in managing your inheritance is to avoid making impulsive decisions. It’s natural to want to use the inheritance right away, perhaps to ease financial stress or purchase something meaningful. Yet, it's essential to give yourself time to process both the emotions and the financial options.

Placing the funds in a safe, easily accessible account, such as a high-yield savings account, can provide some breathing room. This allows you to grieve, seek advice, and map out a long-term strategy without the pressure of acting immediately.

Consider Your Financial Foundation

Before thinking about investing or splurging, assess your financial basics.

Do you have an emergency fund that covers at least three to six months of expenses? Are you carrying high-interest debt, like credit cards or payday loans? Using inheritance money to create financial stability can be one of your smartest moves. Paying off debt can relieve stress and free up future income, and strengthening your emergency savings ensures that you won’t be forced into difficult choices if unexpected expenses arise. Half of Americans expecting an inheritance consider it "critical" or "highly critical" to their financial security.²

These foundational steps may not feel as exciting as investing in the stock market or buying a new car, but they lay the groundwork for long-term security.

When Spending Makes Sense

Spending part of your inheritance is not always irresponsible. In fact, many people choose to use a portion of the funds to create experiences or memories that honor their loved one. That could mean taking a family trip, purchasing a home, or even pursuing further education. The key is to spend intentionally rather than letting the money slip away on short-term indulgences.

If spending helps you heal, creates joy, or enhances your quality of life, it can be a healthy part of your financial goals.

Saving for Short-Term Goals

If you have goals for the next three to five years, saving may be a better option than investing.

For example, if you want to buy a home, start a family, or launch a business, putting your inheritance into a secure savings account, certificate of deposit, or money market fund may be the most financially savvy move. This way, the money grows modestly but remains accessible when needed, without the risks of market volatility.

Aligning your savings with your timeline ensures that your inheritance supports your life transitions when the moment is right.

Investing for the Future

For long-term goals, investing your inheritance can be a powerful way to grow the gift you’ve received. Investing allows your money to compound over time, whether you choose stocks, bonds, mutual funds, or real estate.

This approach is particularly beneficial if you already have your short-term needs covered and feel confident about your financial stability. Investing can help you build retirement wealth, support future generations, or fund larger dreams that would be difficult to reach otherwise.

To make the most of this strategy, consider working with a financial advisor who can guide you in balancing risk and reward based on your goals and time horizon.

Balancing All Three

The good news is that you don’t have to pick just one path. Many people find that a balanced approach is the best way forward. You might use part of the inheritance to pay off debt, another portion to invest for the future, and a smaller piece to enjoy in the present.

This mix allows you to address immediate needs, honor your loved one through meaningful experiences, and build a stronger financial future. By dividing the money thoughtfully, you maximize both the practical and emotional benefits of the inheritance.

There’s no one-size-fits-all answer to whether you should spend, save, or invest your inheritance. The right choice depends on your current financial situation, future goals, and personal values. What matters most is making intentional decisions rather than letting the money fade away without purpose. An inheritance is a chance to create the kind of life your loved one would have wanted for you.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.