Receiving a large inheritance may be a happy daydream for many people, but the reality is not always so pleasant.

Managing money isn’t easy for many people, especially if they are used to living on very little.

Thomas Shortreed, a behavioral financial advisor in Cortland, Ohio, tells Fidelity, “Money is very emotional. It feels good in the short run to buy things you haven’t had or always wanted” [1].

This is the situation that Cleo, 36, is faced with after her mother passed away suddenly, and she has been left as sole beneficiary of her assets. Cleo has debts and doesn’t make much, working low-paying, seasonal jobs. She wants to use the newfound money to improve her footing, but she’s afraid of making bad choices.

As she deals with her intense grief, she is also trying to figure out how to use the inheritance wisely, and doesn’t feel she understands all the options available to her.

Here’s our advice for anyone in the same situation, who needs clarity on managing a financial windfall.

Cleo, who works seasonally in hospitality, has a car loan of $25,000, and also owes $75,000 in medical debt. She tries to live as simply as possible to pay down her debts, but her earnings are small and she has very little left over at the end of the month.

As sole beneficiary, she’s inherited all of the assets from her mother’s estate, according to the instructions in her will. This includes her childhood home, which has been appraised at $625,000, and her 401(k) accounts, totaling $500,000. She will also eventually receive a payout from her mother’s life insurance, which she estimates will be $175,000.

In total, Cleo will inherit about $1.3 million. While she doesn’t expect to retire and live on the sum indefinitely, she does want to shore up her income, pay off her debts and also to start her own retirement fund.

Cleo has met with her grandparents’ financial advisor, a great first step, but she still has some choices to make.

In her 20s, Cleo racked up several credit cards, which it took her a long time to pay down with the help of debt consolidation. Her current debt has left her credit score in poor shape, and she knows the temptation of replacing her current car with a flashier model will be strong. She wants to lock onto a solid plan that can help her keep her head when the urge to spend strikes her.

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The Pew Research Center reports that only a little more than half (54%) of U.S. adults rate themselves as knowing “a great deal or a fair amount” about personal finances [2]. There are 13% who claim to know nothing at all, and the rest, 33%, rate themselves somewhere in the middle. These figures should comfort Cleo — she’s not the only one who feels confused about money.

She should also forgive her past mistakes, and allow herself to believe that a bad track record in her early adulthood doesn’t mean that she’s doomed to be “bad with money” forever.

Mary Ann Marriott, a licensed insolvency trustee, recommends these five steps to help break bad money habits [3]:

Face your finances with confidence and commit to staying on top of your balances across bank accounts, investment accounts, credit cards and other debt.

Retail therapy isn’t real. The instant gratification can be fleeting, giving way to feelings of despair later. Commit to treating yourself better — you deserve more than just a rush of happiness in a department store.

Many people use their credit cards like an emergency fund. Instead, look to create a debt repayment plan that works for your individual circumstances and enjoy living debt-free.

Investing in your future is self-love. Set clear timelines for meeting your goals, and get the support you need to plan and commit to them, including a financial advisor and any other professionals who can help you along the way.

A windfall, in this case in the form of an inheritance, can come with feelings of guilt, shame or fear — especially for those who have lived with little. Dig deep into your mindset and release the negative feelings. You are worthy of abundance in all areas of your life.

Cleo is smart to be concerned about the temptation to overspend. Studies show that lottery winners, for example, are more likely to declare bankruptcy than the average person, even if their winnings were relatively small [4]. Coming into a lump sum of cash can give people the false impression that the money will never run out.

Here is a plan to help Cleo secure her finances now — and for the future:

Sell her mother’s home and use $100,000 of the $625,000 asking price to pay off her debts.

Since Cleo is in a seasonal job, she should also set aside 6 months of expenses in an emergency fund.

She can roll her mother’s $500,000 401(k) into an IRA, thereby avoiding any early withdrawal penalties. Her withdrawals will be taxed as income, however.

Slowly drawing down this $500,000 may be a smarter choice than, say, dividend stocks, which often pay out just 2.5% annually. For example, investing that amount would mean dividends of just $12,500 per year.

Cleo should look to invest the remaining funds from the sale of her mother’s home and the life insurance payout in a balanced and diversified portfolio of investments for her own retirement, on the advice of her financial advisor.

Maximizing her retirement contributions is the best plan for Cleo, as she still has decades left for her money to grow. A large emergency fund would also mean that she could weather any major changes in her finances without derailing her overall financial plan.

Finally, she can act on the advice of her financial advisor and a tax professional to look towards her own goals, which may include starting a family or buying a home of her own. Working with a financial professional can help Cleo feel confident in her decisions, learn more about money so that she feels more in control — and help her avoid impulsive money decisions like those she has made in the past.

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[1]. Fidelity. “‘Where’d the money go?’ How to handle a windfall”

[2]. Pew Research Center. “Roughly half of Americans are knowledgeable about personal finances”

[3]. CAIRP. “Breaking up with bad money habits: A love letter to your future self”

[4]. MIT Press Direct. “The ticket to easy street? The financial consequences of winning the lottery”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.