What to do with an unexpected inheritance

After my aunt passed away and I'd been home from the funeral for a few months, I was surprised to find an envelope from my uncle in the mail. Inside was a note and a check for my share of a life insurance policy she'd taken out and left to my cousins and me since she had no children of her own. I didn't know she was planning to leave me anything, let alone so much. The amount was more than I'd made all year from my student job in grad school.

While I'll never forget the surprise of receiving that check, I won't forget my uncle's accompanying note, either. In it he wrote about my aunt, how she loved us, and how this policy was part of her plan to leave us something. He then transitioned to how, as a couple, they prioritized aggressively tackling debt, and how he thought we should use this opportunity to do so, too.

At the time, him specifically telling us not to use this "unexpected windfall" to plan a "five-star trip to Fiji" was a little off-putting. I remember thinking, "Why would you give a gift and then tell me how to use it?" Now I see the suggestions as wisdom instead of a nag. When I received the gift, I'd never received inheritance before. How would I have known how to use it wisely?

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If this happens to you, here are a few ways you can prepare to use your money to its fullest and get ahead financially.

Assess your financial situation

Before you get overwhelmed with your new wealth, take a step back to assess your financial situation. Do you have debt? Are you approaching any life milestones you need funds for? Is there a need you should meet financially? Without proper planning, there's a good chance your inheritance will be spent before you realize it.

Now is also a good time to think about your financial goals and practices. Are you budgeting? Are you making your money work for you? If you're feeling really disorganized with your current financial state, adding extra funds to the mix won't help you as much as it should. Taking some time to think about your finances before you make any sudden moves could save you big time in the long run.

Pay off debt

While I may have rolled my eyes at my uncle's note initially, paying off debt with an unexpected inheritance is a smart move that could save you thousands in the long run. After all, how can you move forward financially if you still owe money to someone else? If you have high interest loans, paying them off early can save you big time, maybe making your inheritance worth substantially more than its initial amount. Once your debts are paid off, you can reap the rewards of your pragmatism and take the funds you were previously assigning to your debt payments and use them instead for other things you care about, like retirement, a down payment for a house, or a once-in-a-lifetime vacation.

Prepare for unexpected expenses

If you haven't already established savings earmarked for emergencies, using some (or all) of your inheritance to do so could save you from bankruptcy in the future. A Money Pulse survey from Bankrate.com found that nearly 60 percent of Americans don't have enough emergency funds to cover an unexpected expense of around $1,000. Life is unpredictable, but car troubles, medical bills, and vet visits are bound to happen. While most financial advisers recommend saving between three to nine months of living expenses in an emergency fund, simply sticking some inheritance money out of reach can give you financial security and peace of mind.

Grow your money through investments

If you're free of debt and feel comfortable with the amount of savings you have, consider using your unexpected inheritance to grow more wealth for your future. If the thought of investing makes you nervous (it is a big step!), reach out to a trusted financial planner at one of your banking institutions. He or she will be able to steer you in the right direction while taking your future goals into consideration.

Pay tribute to your benefactor

Another way to consider spending your inheritance is to use it in a way that honors the memory of the person who left you the funds. My friend's grandmother left her money along with a note that detailed some of her favorite memories traveling with her grandfather. So my friend and her new husband decided to use the money to travel, too. Receiving unexpected inheritance can also be a way to preserve the memory of a loved one through making new memories of your own.