Have you ever received an inheritance? Inheritance can take many forms. It can be a home, land, motor vehicle, a business, and the most liquid of all inheritance is cash. Because money can be easily spent, it can disappear rather quickly. Prudence is necessary to preserve the value of an inheritance.

The beneficiary of an inheritance has a responsibility to be a good steward. If the deceased owners had squandered their assets there would be no legacy to pass on.

Today’s column places the spotlight on cash inheritances.

Money can change the lives of beneficiaries, both negatively and positively. The person who is not mentally prepared to handle or manage a windfall of cash can become broke in no time. But the individuals who understand financial literacy, and who practise living below and within their means, are better able to invest funds wisely and not yield to the temptation to splurge.

Last week I met with a minimum wage earner who has inherited millions of dollars. She often listened to the financial programmes hosted by BPM Financial Limited on the radio. According to her, she learned a lot about investing from these programmes, but would procrastinate on starting her investment journey. The passing of her husband presented the opportunity to invest proceeds from his retirement fund and the life insurance payouts.

Though saddened by the loss of her husband, she is grateful that he had put a financial plan in place for her future. This low-income earner has decided to finally start a pension plan. She has to ensure, now more than ever, that there is guaranteed income to replace her salary when she retires. Because of the longevity risks faced in planning for retirement, she sought the necessary financial advice regarding her financial security.

Her husband, who was also a low-income earner, wisely made both basic and voluntary contributions to his pension fund, which was also matched by his employer’s contributions. At the time of his death, he was a vested employee. The many years of contributing to a pension fund provided a sizeable nest egg for his widow.

His pension benefit statement outlined the death benefit options available to his spouse. Not only has his widow started a pension plan, but she has chosen to invest all proceeds from the death benefits. This is indeed commendable. All that she had learnt about investing, she could put into practice.

She has created an emergency fund while diversifying her investments to support her medium-term and long-term goals. There is a saying, “When the student is ready, the teacher will appear.” The death of a loved one was a teachable moment. The widow was ready to learn how to wisely invest her fortune.

All the financial lessons that she had learnt before were brought to the fore. The teacher appears. Like an enthusiastic student, she was eager to learn more about the different types of financial products available and what are the steps to take in securing her financial future.

In interviewing this widow I was impressed by her high level of financial self-efficacy. Her attitude to investing was a reminder that our behaviour towards money has nothing to do with how learned we are, but instead is dependent on our mindset.

This widow’s income is a mere $60,000 monthly, and she doesn’t have a tertiary education. Self-efficacy is a psychological concept that speaks to an individual’s confidence in their abilities to take the necessary steps to achieve their goals. It’s more than financial education.

She was determined to put her financial knowledge into action. What if she lost her job? The earnings from her investments can help meet recurring monthly expenses until she is able to work again. Major medical bills can prove very costly, but her financial plan covers any eventuality.

Financial literacy and self-efficacy go hand in hand in wealth preservation from one generation to the next. In the United States, research shows that 70 per cent of wealthy Americans lose their wealth within two generations.

Renowned financial expert Dave Ramsey said some people’s lives are made worse after receiving a “financial windfall”. He advised inheritors to take time to mourn and not make hasty investment decisions.

Ramsey recommends that people “honour the legacy” of their loved ones who worked hard and made sacrifices to create an inheritance. Depending on the nature of the inheritance, inheritors should seek advice from professionals such as a financial advisor, insurance agent, attorney, accountant, or real estate agent.

Cash inheritances can serve many purposes, such as clearing debts, paying down mortgages, creating an education or retirement fund. A portion of an inheritance can be used for leisure or travel, while being mindful of your priorities. Your mental and physical well-being are important in enjoying a balanced lifestyle.

Whether you inherit cash or earn lots of it, this quote by Ramsey is very instructive: “Earning a lot of money is not the key to prosperity. How you handle it is.”

Grace G McLean is a financial advisor and retirement specialist at BPM Financial Limited. Contact her at gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at livingaboveself@gmail.com.