SAN FRANCISCO (09/08/15)--One in three Americans who receive an inheritance blow it within two years. An inheritance might seem like fun money, but it’s best to give serious thought to how you’ll use it (MarketWatch Sept. 3). 

Use this advice to put the money you inherit to good use and take the amount you’re receiving into consideration: 

• Pay off credit card debt--It’s smart to pay off accumulated credit card debt. But, experts recommend an additional step: Figure out how to avoid building up “new” debts. Talk with a counselor at your credit union for help setting up a spending plan. 

•  Pay off student loans--Generally the interest on student loans is low, it might be tax-deductible, and the payment schedule is flexible. Consider putting your windfall to better use such as paying off higher rate credit card debt. 

•  Pay off your mortgage--Again, your mortgage is a low-rate, tax-deductible debt. Paying it off locks up your money in your house--an investment that usually requires time and money to sell. You might be better off putting your windfall into liquid investments that earn a higher rate of interest.

• Establish an emergency saving account--This account should be used to cover emergencies such as medical bills or job loss. The general advice is to set aside enough reserves to cover three to six months of living expenses, but you may even want more.

•  Make sure you’re saving enough for retirement--If you haven’t been maxing out your 401(k) at work, start now. If you’re already putting the maximum into tax-deferred vehicles, consider opening a Roth IRA (individual retirement account), if you meet the income restrictions. A Roth IRA isn’t tax-deferred at the front end, but it’s tax-free when you withdraw the money--both contributions and earnings. 

If you still have money left, work with an adviser who knows you, your goals, your timetable, and your risk tolerance--not just someone who sells investments.  Then:

• Splurge--a little: Experts say it’s fine to go ahead and spend a little of your windfall for fun. Realize though the difference of things that will make your life better in the long term and those that are just for fun right now. Balance the two.

For related information, read “Don’t Let a Windfall Become Your Downfall” in the Home & Family Finance Resource Center.

Other Resources:

Home & Family Finance Resource Center

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