Inheriting money can bring mixed emotions. On the one hand, you most likely lost a loved one. On the other hand, your new financial windfall could help you accomplish your goals. Here are six steps to managing your inheritance so you can make it work toward your long-term dreams.

Understand What You Inherited

There are lots of different types of property you can inherit: real estate, cash, tax-advantaged retirement accounts [e.g., 401(k), IRA, Roth IRA], business interest, common stock, precious metals, collectibles, and much more. It’s important to learn how an asset is taxed after you inherit it and if there is any way to avoid taxes on the asset.

For example, one common planning technique for tax-advantaged retirement accounts is to create a “stretch IRA,” also known as an inherited IRA. A stretch IRA will allow you to spread out the taxes owed on the account over your lifetime. Meanwhile, you will continue to earn tax-free interest on the account’s invested principal.

Buy Nothing for 3 Months

After you have a good idea of the type of asset you inherited and how it’s taxed, you need to decide how you will manage it. It’s always wise to hold off on major purchases for a few months. A new boat, car, or house may seem appealing when you are grieving, but those types of purchases are a great way to send your inheritance down the drain.

We have found that clients end up with more satisfaction when they use their inheritance to accomplish long-term financial goals. Some examples would be paying down debt like student loans or credit cards, building an emergency fund (a savings account with three to months’ worth of expenses), or investing toward a retirement dream.

Consider Your Goals

While you are sitting around not spending your financial windfall for three months, start thinking about your goals and dreams.

Do you want to pay down debt? What about starting a business? How is your retirement picture? Does it make sense to purchase a new house? What about a vacation home?

Have a good understanding of what will make you financially happy, and then decide how you can use your inheritance to accomplish it.

Invest Toward Your Goals

Once you have a good idea of what you want to accomplish with your inheritance, you should put together a plan that will help you achieve those goals.

A typical goal we see from our clients is using an inheritance to pay off a home mortgage. To determine if this idea makes sense for you, compare the interest rate on your mortgage vs. the expected rate of return from investing the money in a globally diversified portfolio. The option with the higher rate is what you should choose.

For example, let’s pretend the interest rate on a home mortgage is 3.50%, and you have 12 years left on the loan. Over that same time, the expected rate of return on an investment portfolio is 7.50%. You would get a higher rate of return by investing in the portfolio and continuing to pay a monthly mortgage payment.

Sometimes, the decision isn’t so easy, and you’ll have to consider additional factors. For example, are you getting any tax benefits, like a Schedule A itemized deduction for the interest on your home? If you are, then you probably don’t want to lose that benefit by paying down your mortgage.

Hire a Professional

If all this seems confusing, don’t worry—it is!

If you are unsophisticated with money, it probably makes sense to find a professional to help you put a plan in place for your inheritance.

If you need detailed tax work, consider hiring a CPA, and on the financial advisor side, hire a CFP® professional. When you are interviewing prospective advisors, make sure they are fiduciaries! You can check by heading over to the National Association of Personal Financial Advisors (NAPFA) and doing a zip code search.