How it works
An inheritance changes everything except the discipline it demands. This planner sequences the money through your goals as a waterfall with finish lines rather than scattering percentages everywhere: each bucket has a defined target, dollars flow in guaranteed-return order, and whatever remains is deliberately undecided rather than invented into urgency. The sequence follows financial logic. A small guilt-free slice comes off first ($3,000 on defaults) because planned enjoyment is what makes restraint sustainable for the other 95%. Then the emergency gap fills — insurance against selling investments in the next crisis. High-interest debt dies next because paying a 19% APR card is a risk-free 19% return no market offers; here that eliminates $14,000 and permanently saves about $2,660 of yearly interest. Retirement top-ups follow, then genuine leftovers stay liquid for goals you have not sized yet — deciding later beats fabricating a target today. The waterfall table shows every stage's application and running remainder so the whole estate lands somewhere intentional. This differs fundamentally from percentage-split windfall tools: targets create natural stopping points, guaranteed returns create the ordering, and the leftover is honest slack instead of forced allocation. Inheritances also carry emotional weight — many planners suggest waiting thirty days before any decision, letting this calculator run while grief settles.
Formula
Waterfall: slice → emergency gap → high-APR debt → investing top-up → leftover | Interest saved/yr = debt applied × APR | Each stage stops at its target or when money runs out
Tips
- Wait thirty days before deploying anything; clarity rarely arrives with the check.
- Order stages by certainty of return: insurance first, then interest rates, then growth.
- Keep the leftover unallocated on purpose — forced decisions create regret.
- Confirm tax treatment (usually income-tax-free in the US, but retirement accounts differ).
- Fund something joyful visibly — inheritances should honor life, not only balance sheets.
Frequently asked questions
- What should I do first when I receive an inheritance?
- Park it untouched for thirty days, confirm tax treatment, then fund by certainty: fill your emergency gap first (this defaults to $10,000), eliminate high-interest debt second — a 19% APR payoff is a guaranteed 19% return — before considering any investment product anyone offers you.
- Should I pay off debt or invest an inheritance?
- Compare rates honestly. Eliminating 19% APR debt here saves about $2,660 yearly, guaranteed — no portfolio reliably matches that. Low-rate mortgages under ~5% are different: investing the equivalent often wins long-term. The waterfall handles both automatically by ordering on APR.
- Is an inheritance taxable?
- Most US inheritances escape federal income tax entirely — estates above ~$13M face estate tax, and a few states levy inheritance taxes. Exceptions matter: inherited retirement accounts like traditional IRAs distribute as taxable income, and inherited assets' cost basis steps up at death. Confirm specifics before allocating.
- How do I split inheritance money between multiple goals?
- By targets, not percentages: define each goal's finish line, fund them sequentially by return certainty, and leave true leftovers unallocated. On these defaults the waterfall sends $3,000 to enjoyment, fills the emergency gap, kills $14,000 of debt, invests $15,000, leaving $18,000 for considered decisions.
- How long should I wait before spending inheritance money?
- Thirty days minimum is standard advice — grief distorts both splurging and hoarding. Park funds in a high-yield account earning while you think, run numbers through this waterfall calmly, and beware anyone pressuring decisions inside that window, including well-meaning relatives with opportunities.