Published Article Details

Does inheriting wealth mean you don't need to save for your financial goals?

Posted by: Arti Bhargava on Nov 20, 2017, 06.30 AM IST

Thomas is in his late twenties and has been working for the past five years. He enjoys spending money on the good things in life and barely has any savings. He wants to get married in the next few years. His parents live independently and are fairly well off.

Thomas' argument, when he is advised to start saving money, is that he and his sibling will inherit their parent's wealth. The inheritance would be more than sufficient to fund his retirement and other goals. The money he earns is for him to spend as he wants. Where is Thomas going wrong in planning his future?

Thomas is compromising his financial security by depending on a source of funds the timing or quantum of which he is unsure of. The assets that his parents have built will first be used by them for their own needs. He must also realise that they are likely to leave a portion of their wealth to his sibling.

There is no way he can control or estimate what will come to him as inheritance and when. If he waits till he knows that and then starts his own saving plan, he could lose the benefit of compounding that an early start would have given his investments. He will then have to save much more to catch up, compromise on his lavish lifestyle or even cut back on his financial goals.

There is a high probability that he will be able to access/use the inheritance only at a later stage in his life. However, in the meantime, he will need assets to meet short and medium-term goals of his immediate family. Depending upon his parents for every large requirement of funds might not be a feasible idea. His other option would be to look for loans. However, very high-interest costs will further weaken his financial situation.

Thomas must not allow his expected inheritance to undermine his financial independence. He must have a saving and investment plan in place that suits the demands on his income and his goals. Since he is young and yet to start on his familial responsibilities, it is not too late for that.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.) This article appeared in Economic Times dated Nov 20, 2017, 06.30 AM IST

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