I have just found out that I have inherited the sum of €65,000 from a deceased relative, which I was never expecting to receive. I am in my mid-30s, single and have a steady job (my salary is €55,000).

I have owned my own apartment for the past five years, and am paying the mortgage and all my bills, which leaves me with a small amount to save (I haven’t built up much savings yet though!) I signed up to a work pension but not sure I’m putting enough in. What should I do with this money? 

 

Congratulations on your surprise inheritance. It’s great when something good comes out of a sad situation.

There are several uses to which you can put this cash.  Over the long term, it’s true that maxing out your pension contributions will give you the most attractive financial return. In the short term, your beneficiary surely would have wanted you to have some fun with this money.

A question of balance

It’s not all bean-counting. You might have a long-held ambition to change career, or climb Mount Everest, or invest in a qualification. This money could provide the chance.

I’ll assume you can figure out that aspect yourself, and return to practical applications for your new found funds.  Here’s a five-point plan.

Immediate savings

Firstly, bag the immediate savings available. Clearing any non-mortgage debt is a no-brainer and delivers immediate savings. Paying off a credit card balance of €1,000 would save you around €220 of annual interest cost for example.

Cut your tax

Next, put your arms around the easy tax savings.  Boosting your pension will generate a tax rebate, enjoy tax-free investment growth, and have many years to compound so that you have income in retirement.  If you didn’t pay into a pension last year, you could make a lump sum payment of up to €11,000.  You’ll the be due a refund of €4,400 of income tax, meaning the after-tax cost to you is €6,600.

Increase resilience

Thirdly, increase your financial resilience by setting some of this cash aside in a cash fund.  Depending on how secure your job is, I’d suggest holding between three and six months of after-tax income as a rainy-day fund.  That’s between €10,000 and €20,000 in your case.  This cash would give you enough time to find a new job without undue pressure if the need arose.

Write a will

On the same theme, consider the financial implications if something were to happen you. They may be relatively minor if you’re single and no-one depends on your income. But some life insurance to that income would be prudent – even if only for your own needs.  As you’ve seen, a will can make a great deal of difference to those who come after you. Time to write one.

Invest

Lastly, unless you actually are climbing Mount Everest, that should leave some change for investment purposes. Place a lump sum in a professionally managed fund, with scope for growth over the medium term.  Add to it monthly if you can, sit back, and raise a glass to your generous relative.

 

This article is adapted from a Moneycube column which appeared in the Sunday Times in August 2024.