This couple spent a $171K inheritance in less than a year. How to make sure a windfall lasts

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Inheriting a windfall may seem like a dream come true, but it can cause tremendous anxiety and guilt, and it can even leave you financially worse off.

For instance, Mike and Noel, both 34 and recently married, burned through a $171,000 inheritance in about a year. You can imagine how that left them feeling.

“We are super screwed,” Noel told Ramit Sethi on an episode of his podcast, I Will Teach You To Be Rich (1).

And it’s not like they are in dire circumstances. Mike earns a six-figure salary and is supporting Noel while she finishes law school — but they have always struggled with debt and money management, even before the inheritance.

While they used some of the inheritance to pay off debt, they quickly accumulated more: Noel spent $30,000 on furniture, $10,000 on clothes and $10,000 on a trip to Mexico. Mike purchased a hair transplant and Pokémon cards, which he considered an “investment.”

Now, they have $30,000 in assets, another $30,000 in investments and zero savings after spending the inheritance, but they are also $244,000 in debt, leaving them with a negative net worth of roughly -$200,000.

Because of it, Noel said she regrets treating the money like “guilt-free spending,” while Mike said he feels anxious and stressed, leading to tension and fights over finances.

While there are a lot of issues to unpack here — from Mike’s anxiety around money to Noel’s addiction issues — their situation demonstrates how quickly a windfall can disappear without clear priorities, budgeting and an investment plan. It also underscores the risks of lifestyle creep and impulsive spending.

If you’re in line for a significant financial windfall, here are some tips to make that inheritance last.

Even if you aren’t in line for multigenerational wealth, large inheritances might become more common than you think.

Through 2048, Gen X and millennials are projected to inherit $124 trillion in assets — what’s referred to as America’s Great Wealth Transfer — with Gen X expected to receive the largest share of assets over the next decade, according to the latest Cerulli Associates report (2).

However, the problem is that some heirs treat inheritances like regular income rather than long-term capital.

Part of the reason could be psychological. Noel, for example, inherited the money from her dad, with whom she had a difficult relationship. “He was an alcoholic and addict and was really not in my life, and so I had a lot of guilt [about inheriting his assets],” she told Sethi.

And she’s not alone. A Harris Poll report found that inheritances come with complex emotions: A third (33%) of younger recipients feel stress managing larger or more complex assets, and a similar share (34%) worry about mismanaging those assets (3).

According to the same report, while most inheritors feel grateful and relieved by newfound financial security, 20% feel pressure, 18% feel anxiety and 15% feel guilt.

This phenomenon is sometimes called Sudden Wealth Syndrome, a psychological condition affecting people who suddenly acquire wealth — through an inheritance, lottery, legal settlement or other windfall. Causes can include feeling disconnected from one’s previous life or an intense fear of losing it all.

These feelings can lead to decision paralysis or poor financial choices.

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In short, inheriting a windfall can be overwhelming. While a large inheritance can help you pay off debt and invest for the future, it can also be very tempting to go on a spending spree.

Friends and family might also offer unsolicited advice — regardless of whether you ask for it.

That’s why having a plan in place — one tailored to your specific circumstances — can go a long way in helping you make your inheritance last. Without one, even a six-figure windfall can quickly evaporate.

FINRA also recommends holding off on any big moves — like quitting your job or making a major purchase — for the first six to 12 months (4). Consider it a cooling-off period.

Finally, it may be wise to seek guidance from a registered financial advisor, insurance agent and tax professional, especially when the windfall is substantial.

Finding an expert near you is now easier than ever with Advisor.com.

Here’s how it works: Answer a few basic questions about yourself and your financial situation, and Advisor.com’s AI-powered technology will match you with a vetted FINRA/SEC-registered expert best-suited to your needs.

The best part? This process is completely free. And since Advisor.com’s roster consists of fiduciaries, they are legally obligated to act in your best interests.

Still, hiring a financial advisor can be a lifelong commitment. That’s why Advisor.com lets you set up a free, no-obligation consultation with your match to see whether they’re the right fit for you.

Consulting an expert is not the only thing you can do.

During this time, you could set aside money immediately for taxes on your windfall. And if you don’t already have one, establish an emergency fund covering three to six months of income.

To do that, you could place cash in a safe account, such as a high-yield savings account or certificate of deposit (CD). If the sum is large, try spreading it across multiple accounts to stay within federal insurance limits (4).

A high-yield account, such as a Wealthfront Cash Account, can be a great place to grow your emergency funds, offering both competitive interest rates and easy access to your cash when you need it.

A Wealthfront Cash Account can provide a base variable APY of 3.30%, but new clients can get a 0.75% boost over their first three months for a total APY of 4.05% provided by program banks on your uninvested cash. That’s nearly ten times the national deposit savings rate, according to the FDIC’s February report.

With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, you can ensure your funds remain accessible at all times. Plus, Wealthfront Cash Account balances of up to $8 million are insured by the FDIC through program banks.

Once you have some advice and an emergency fund in place, you can start to think about what to do with the rest of that cash.

The first option to consider is not exactly a “sexy” one — paying off your debts. While it isn’t as exciting as going out and buying your dream car, it is the prudent choice if you have high-interest debt like credit cards or personal loans charging 20% to 25% interest.

Paying off your debts first “gives you an immediate guaranteed return that’s almost impossible to beat through any investment strategy,” according to Sethi (5).

One way of doing this is by consolidating your existing high-interest debt through one personal loan, ideally at a lower interest rate. This can help you save thousands of dollars in interest payments throughout the lifetime of each high-interest debt.

If that appeals to you, now there’s a way you can check the rates offered by various lenders on debt consolidation loans through Credible in just two minutes.

This way, instead of juggling multiple monthly payments, you’ll have one predictable payment to manage each month.

Credible’s online marketplace lets you shop around for the lowest interest rates with just a few clicks. You can get personal loans at rates as low as 6.25% APR.

Even better? This process is fast and easy, completely free and won’t impact your credit score.

And Credible offers a best rate guarantee — if you close at a rate lower than the one you prequalify for, Credible will give you a $200 gift card.

Of course, most people will want to invest some of their inheritance — and it’s hard to argue with that logic.

But Sethi warns against getting too fancy with investments.

“Boring index funds and target-date funds are perfect for most of your investment allocation,” he says, giving you broad market exposure without requiring you “to become a stock-picking expert overnight (5).”

You can also stay ahead of the market by putting your spare cash to work. Consistently investing even small amounts in index funds can add up over time — thanks to the powers of compounding interest.

For instance, investing just $30 each week for 20 years could grow to over $93,000 — assuming it compounds at 10% annually. That assumption isn’t far-fetched — the S&P 500 index’s compound annual growth rate (CAGR) over the past 33 years is 10.8% (6).

In other words, you don’t have to reinvent the wheel to make financial gains. You can start small.

That’s where platforms like Acorns come in. Acorns allows you to turn your spare change from everyday purchases into an investment opportunity.

It works like this: link your cards and Acorns will round up each purchase to the nearest dollar, investing the difference — your spare change — into a diversified portfolio managed by experts at leading investment firms like Vanguard and BlackRock. This way, your everyday purchases can start working for you behind the scenes.

The best part? You can get a $20 bonus investment when you sign up with Acorns today.

Assuming you’ve already invested part of your inheritance, the next step is figuring out how to fund your higher living expenses.

You can start by thinking about your financial goals. Are you putting away enough for retirement? Buying a house? Reducing work hours or retiring early? Starting a business, going back to school or traveling?

While these are all great options, you might want to keep lifestyle inflation in mind at the same time. For example, inheriting a windfall doesn’t necessarily justify buying a mansion or luxury car. Factor in ongoing costs such as property taxes, insurance and maintenance to ensure sustainability.

And that’s where you might try going back to the basics of personal finances: Sethi’s conscious spending plan recommends putting aside 50% to 60% for needs, 10% for investments, 5% to 10% for savings and another 20% to 35% for guilt-free spending (5). This, too, can be applied to a windfall.

By following this kind of structured spending, you can still have a bit of fun with your money — without going broke a year later.

If you’re looking for a way to structure your spending, you can consider creating a custom budget to track where your money is going at all times with Monarch Money.

Monarch Money puts all your finances under one roof, from your banking statements to your investments. Once you link your accounts — including investments and real estate — you will be able to view every transaction through one clean, searchable list.

This way, you can spot any unexpected charges, such as unwanted subscriptions, quickly and seamlessly. You can also get custom notifications regarding upcoming bills, allowing you to stay on top of your bills and reducing your chances of missing a payment or incurring late fees.

Monarch Money also helps you forecast your spending beyond just one month, as well as save for big goals along the way.

You can get a seven-day free trial to see if it’s right for you. And if you like the platform, you can get 50% off for your first year with the code WISE50.

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@ramitsethi (1); Cerulli Associates (2); The Harris Poll (3); FINRA (4); I Will Teach You To Be Rich (5); Curvo (6)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.