Debt is often a fact of life for young adults. According to the Office for National Statistics (ONS) more than one in four (28%) of people aged 25-34 said that keeping up with debt repayments was ‘somewhat’ of a financial burden, while 9% said it was a ‘heavy’ burden.

Of course, not all debt is ‘bad’, and most people start out on adult life with some kind of debt or another. But if you’re fortunate enough to receive an inheritance in your 20s, you should consider paying off your high-interest debt first. This can include credit cards, store cards, personal loans and your overdraft.

Paying these debts off should help you to save a significant amount of repaid interest over time, and remove that burden once and for all.

For most people in their 20s, their student loan is the biggest amount of money they’ve borrowed in their life so far. It can also feel like a millstone around your neck for years to come, as student debt repayments are deducted from your salary automatically when you reach a certain income.

Depending on the amount you earn, you could be repaying student loans for 30 years or more. So, if you’ve received an inheritance, you might want to free yourself from this cumbersome debt by repaying it early.

Once you’ve cleared any outstanding debts, it’s worth setting aside cash earmarked as your ‘emergency fund’. It’s good to have at least three times your monthly income set aside for a rainy day, which could prove to be a valuable lifeline should something unexpected happen.

You might decide that now’s the time to own your own home. With a large lump sum at your disposal, this could mean your dream home is within reach.

First-time buyers are better off having a deposit of around 15% of the cost of the property, or more if you can afford it. The higher your deposit, the easier it’ll be to access better mortgage rates – you’ll also have a smaller mortgage left to pay off in the long term.

Do remember that your home is at risk and may be repossessed if you don’t keep up with repayments on your mortgage.

You might also be interested in Financial planning in your 20s

If you’re relatively new to investing, inheriting a lump sum in your twenties could be a great way to start your investment portfolio and put that money to work. A Stocks & Shares Individual Savings Account (ISA) lets you invest directly in company shares or bonds, or you can invest in a fund that does the buying and selling on your behalf. You can currently invest up to £20,000 into your ISA each year, and any capital gains from your investment are free from tax.

There are a vast arrange of different types of investments to choose from. The right choice will depend on your investment goals, your attitude to risk, your ability to absorb losses, whether you’re looking for your money to grow over many years, or you would prefer to receive an income now or very soon in the future. Please remember that investment returns are not guaranteed, and you may not get back the full amount you invest.

For more information, see 5 ways to make tax-efficient investments

Let’s be honest, pensions will never sound exciting (especially in your twenties), but there’s no avoiding the fact that the best time to start saving into a pension is when you are young. They are still one of the most tax-efficient ways to put money aside for your future, and they offer a rare opportunity to claim money back from the government.

How? Well, whenever you pay into your pension, the government will top-up your pension contributions with a tax-free amount. For people who pay 20% income tax, the top-up is worth 20% of whatever they put into their pension – meaning a £1,000 contribution becomes £1,200. For 40%of taxpayers that £1,000 contribution turns into £1,400.

For most people, the annual amount they can pay into their pension and still benefit from pension tax relief is limited to £40,000 (or 100% of your salary – whichever is lower). This is known as the annual pension allowance. You can carry over any unused pension allowance from the past three years, meaning you could potentially invest up to a maximum of £160,000 in the current tax year.

However, if you are fortunate enough to inherit a very substantial lump sum, it may not be a good idea to invest all of it into your pension – even if you spread the amounts over several years. That’s because there’s a limit on the value of your pension fund before facing tax penalties. This lifetime allowance currently stands at £1,073,100. If your pension fund exceeds this amount, you are likely to face an extra tax charge at some point during your retirement, on top of the usual income tax you pay on your pension income.

For more information, see Why a pension is a good starting point for your financial plan

It’s impossible to list all of the things you can do with a large inheritance. For some it could mean buying a new house, buying a luxury car or paying for a holiday. It could mean making gifts to your family or donating to charity. What you choose really depends on your priorities here and now, and your ambitions for the future.

But if you’d like some professional financial advice, why not talk to an Amber River independent financial planner?

All over the UK, our friendly financial planners are helping people at different life stages to focus on their financial wellbeing, and make the most of their money. We call it Life Landscaping®, because each individual journey is unique.

If you’ve received an inheritance lump sum and want to speak to one of our team, arrange an appointment or find out more, call 0800 915 0000, or alternatively use our contact form here.