Why you must not depend on an inheritance

Sujoy is a management graduate in his late 20s and has been working with a telecom company for the past seven years. Sujoy enjoys spending money on the good things in life and has barely any savings. He has no dependents but wants to get married in the next couple of years. His parents live independently in their own home in Bangalore. They live an upper-middle class life and have a married daughter too. Sujoy’s argument, when he is advised to start saving some money, is that he will inherit his parents’ assets and that is more than sufficient to fund his retirement and other goals. The money he earns is for him to spend as he wants. What is Sujoy missing in the way he has planned his financial future?

Sujoy is compromising his financial security by placing his dependence on a source of funds that he neither knows when he will receive or how much he will receive. The assets that his parents have built will first be used by them for their own needs. With longer and fuller lives, a great part of the wealth will be used by them in their lifetime. They may even choose to not to leave their entire wealth for him. Sujoy can neither control nor estimate what will come to him as inheritance and when it will come. If he waits till he knows that and then start his own saving plan, he may be losing the benefit of compounding that an early start would have given his investments. He will then have to save much more to catch up or even cut back on his long-term goals. Even if Sujoy was sure of getting a good inheritance, it is something that he will probably be able to use only at a later stage in his life.

He will need to build assets for the short and medium-term goals of his family. Depending upon his parents for every large requirement of funds will be a difficult choice for both sides. His other option would be to look for loans. But without assets against which he can borrow, his borrowing will be at a very high cost and will further weaken his financial situation. Sujoy must not allow his expected inheritance to undermine his financial independence and must have a saving and investment plan. Since he is young and yet to start on his familial responsibilities, it is not too late for that. The inheritance that he is expecting should give him the security to take more aggressive decisions with his investments but not stop him from building his wealth. When he gets his inheritance, it can help him accelerate his goals and leave him with surpluses that he can enjoy.


Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.