What Should I Do With My $200,000 Inheritance?

by J. Money - Published August 12, 2015[Edit]

tiny treasure chest

Got one of those emails recently that you kinda wish happened to you, but also kinda don’t :)

A reader has the fortunate problem of figuring out what to do with an extra $200,000 that came his way, and he was hoping to get some insight around it. I told him my answer would be pretty boring, so better that I share with everyone here too for a well-rounded perspective. I already have my goals set up, so personally it would all go into VTSAX – a Vanguard index fund – and that would be that :) Save for maybe a grand or two to “enjoy life” and make my dad happy.

But I’m not him, and he’s not me. Nor are you, and him, or him and you/he/she/them/theirs – what the hell were we talking about again?

Oh yes, the email.

Here it is below, along with my own two cents (a real coin at one point, btw, they’re pretty cool!)

What’s up JMoney,

About a month and a half ago, my dad passed away, which has been a terrible thing, but I’m now left with a silver lining. He left me (and my brothers) about 200k each through non-retirement brokerage accounts, inherited IRAs, 401k, and life insurance settlement. My question is, what would you do with this type of windfall? Granted, it’s not the most, but it’s certainly the most I’ve ever come in contact with.

My first instinct is to simply use the financial advisor services at Vanguard (where I have a brokerage account and where most of these assets are located), and basically ask them to grow it as much as possible. But I have some other options, should I consolidate into one account? Should I buy a house/property with a portion of the assets (I currently don’t own anything, essentially throwing money away renting, so this seems like an easy win)? Should I buy more than one property and potentially rent one as side income? Maybe I should bring in an accountant to help with tax implications of all this before making additional moves? I guess I could pay off my student loans, but it seems like the money I could generate off interest with the accounts greatly outweighs the benefit of paying off that student loan debt…

Some background on me: I don’t have to make any decision immediately and I’m fortunate enough to live a fairly comfortable ($70/year salary) life as Content Marketing Manager in Denver, CO. I’m 31 with no kids. I have a car loan of about 7k, and student loans approaching 90k (yikes, I know), but that’s it. No credit card debt. I currently contribute 6% of my paycheck to 401k and get matched up to 4% from my company.

Let me know what you think!

My Thoughts…

I don’t know if I’ve ever blogged about this actually, but the first thing I ALWAYS do when coming across large sums of money is to just stare at it and soak it all in. As American author Mignon McLaughlin once said, “Money is much more exciting than anything it buys.”

It’s not that often you come across so much in your life (especially $200 grand!) so I like to relish in it as long as possible before doing something stupid awesome. Plus you need to have a good game plan in the works and plenty of time to figure out how exactly to put it to good use. Which leads us to the next step in the process:

KNOWING WHAT YOU WANT OUT OF LIFE!

There’s a reason those lottery winners end up losing it all and becoming worse off than they were before: they didn’t know what they wanted. They *thought* they knew what they wanted (big homes/ cars/sexy lifestyles and sometimes sexy new women/men to match), but as we have all come to realize, the “things” aren’t what drives us in life – our passions do. Except for maybe the cars (bah-dum-ching).

What we REALLY want in our lives are things like safety and love and stability, freedom, travel, families, starting a business, pursuing passions/hobbies/philanthropy, and on and on. All much easier to attain with gobs of money, and thus why we work so hard towards financial freedom. To be able to do all those things we never seem to have the time – or money – to work on!

Remember: money is only a tool to get us these things, it’s not the end goal.

So dreams come first, and then everything else comes after. Like messing around a little splurging, or taking some (hopefully) calculated risks to grow your money even more. Which is also what lottery winners continue to do after winning/losing it all – it seems to be the only way they know how to find more! (And some incredibly succeed at it!!)

Back to our dear reader here, though. Let’s break down each of the lines/questions and see if we can help him out.

“What would you do with this type of windfall?”

My goal, as already alluded to above, is to reach financial freedom, so all my extra money goes right to index funds until I have enough to be able to retire on (25x yearly expenses, per “the rules” of early retirement). There are plenty of other ways to reach financial freedom too, but my personality and tastes mix best with passively investing in the stock market. For others it may be real estate or investing/starting businesses, or even sniffing out the best dividend funds.

“Granted, it’s not the most, but it’s certainly the most I’ve ever come in contact with.”

Hell yeah that’s “the most!” $200,000 is a $hit ton of money!

“My first instinct is to simply use the financial advisor services at Vanguard (where I have a brokerage account and where most of these assets are located), and basically ask them to grow it as much as possible”

That’s a most excellent idea, indeed. You already have the system set up and have done your homework w/ Vanguard (something that took me 34 years to figure out, btw), so it would be like adding fuel to the fire and growing for however many years you have until it’s time to start pulling it out. And being 31 means there’s quite a lot of time for it to do so! (Unless you’re aiming for ER too – but having the $$ grow there would still do the trick)

“But I have some other options, should I consolidate into one account?”

I personally LOVE the more minimalism approach to life and finances, so I’d certainly entertain that option for sure. Provided it doesn’t screw up any tax stuff with all those accounts of yours and your dad’s. I’d make that my first question to Vanguard when/if you call them (as well as the person handling your dad’s affairs, whom I presume to be an estate person? It would be good to get the tax info from as many legitimate people as possible to make sure nothing funky triggers. I personally suck with tax stuff).

“Should I buy a house/property with a portion of the assets (I currently don’t own anything, essentially throwing money away renting, so this seems like an easy win)?”

NO!!!!! At least not until figuring out if the home ownership/investment/real estate game is something you really want to focus on. There’s nothing wrong AT ALL with renting (or owning, for that matter) if it fits with your personality and goals, and it’s certainly not “throwing away money” if you’re perfectly content living there. People like to forget about all the ways a home can tie you down – both financially, and mentally – so be sure you really want to go down that path before being a dummy like me and scooping one up just because it was “The American Dream.” It could be for many, but it’s the opposite for some.

“Should I buy more than one property and potentially rent one as side income?”

See above.

“Maybe I should bring in an accountant to help with tax implications of all this before making additional moves?”

Smartest thing you’ve said yet :) At least if this is the route you’re considering going down (and why not explore all options before pulling the trigger?)

“I guess I could pay off my student loans, but it seems like the money I could generate off interest with the accounts greatly outweighs the benefit of paying off that student loan debt…”

As you can see, we’re sensing a pattern here. TONS of great ideas for the money, but no mention of goals and dreams. Is paying off all your debts a good thing? Hell yeah it is! Is growing your money larger and larger, either through the stock market or interest or real estate a good thing? Of course! They’re all fine options.

The way you determine which to do, however, is again – broken record here – figuring out the ones that align best with your long-term strategy. I would also throw in that some routes – whether financially smarter or not – just make you HAPPIER to do, and thus are equally as fine options to take as well. Paying off debt or mortgages falling high on the list – regardless of the returns. (I call this the “do what excites you more” decision maker. Though usually best for smaller decisions than $200k ones ;))

Some background on me: I don’t have to make any decision immediately and I’m fortunate enough to live a fairly comfortable ($70/year salary) life as Content Marketing Manager in Denver, CO. I’m 31 with no kids. I have a car loan of about 7k, and student loans approaching 90k (yikes, I know), but that’s it. No credit card debt. I currently contribute 6% of my paycheck to 401k and get matched up to 4% from my company.

All this tells me our friend here has his head screwed on right, and was perfectly content before any mention of money whatsoever. Yeah he has some nasty debt and should be saving/investing a lot more than 6% of his income if he wants a shot at retiring at a decent age later, but by and large life is good and now he has a chance to make it even better.

So what do you do? Do you go the invest-it-all route? The pick up real estate option? the pay-off-all-debt and be totally free from handcuffs way? Either adds to your financial stability and amps up your net worth (and of course you can always do a mixture of all three), so it all comes back to those sexy goals again.

That’s my take on it anyways.

What would you do with $200k? What would you do with $200k if you were HIM?

Tell us below and help a brotha out :) A great position to be in, though not for the best of reasons.

———-
PS: Big thanks to our reader friend for letting me share this with y’all today. I have no doubt he’ll be treating this new found money with a lot more respect than those misguided lottery winners!

UPDATE: Wow –  y’all are leaving SO MANY great comments and suggestions!! Thank you!! This is so awesome to see and I’m sure super helpful to our friend. Keep them coming!! :)

[Photo by elias_daniel]

Jay loves talking about money, experimenting, blasting hip-hop, and hanging out with his two beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!

{ 131 comments… read them below or add one }

1 Chris Muller August 12, 2015 at 5:30 am

Oooh, what a delicious opportunity to chime in! First off – to whoever wrote that email, I’m sorry for the loss of your dad. It can be really tough losing a family member, so hang in there brother, things will get better.

Now my two cents… I agree with you, J, that seeking out an accountant first is the right move. You don’t want to do anything that’s going to eat a chunk of your inheritance because you overlooked some silly tax rule. Assuming all is well and good with that, if I were the reader, I’d do this:

1. Pay off the student loan (-90k)
2. Pay off the car loan (-7k)
3. Max out a Roth IRA for 2015 (-11k)
4. Set aside 30k in cash – use 11k next year for the Roth IRA max and keep the rest on hand for #5 (-30k)
5. Max out your 401k at work (18k over the course of the year from your paycheck, doesn’t affect your inheritance)

That leaves you with a shade over $60,000. From that point you can open up a personal investment account, put a down payment on a home, whatever you want.

I will disagree with the rent/buy theory – I think renting is throwing money down the drain. Your money is going toward nothing. You’re not able to write anything off at tax time and you’re building no equity whatsoever. I understand (and totally agree) that owning a home can cause mad headaches and tons of extra expenses, but if you are smart about your home-buy, it can be one of your strongest assets.

You can always buy a cheap starter home. We still live in our small, 2-bedroom home that cost less than a luxury vehicle.

Great post J! Way to get my brain working this early!

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2 Slackerjo August 12, 2015 at 6:06 am

A “cheap starter home” is over 300k where I live. Not always an option.

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3 Chris Muller August 12, 2015 at 7:38 am

@slackerjo fair enough… Not sure where you live but I grew up in California so I hear you, but a cheap starter home is relative… Often when housing prices are up, so are rents (and incomes), so I imagine the cost comparison can still maintain the ratio of other areas (I get it, not ALWAYS the case), but I’ll hold strong on my favoring buying. Thoughts?

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4 Dan August 12, 2015 at 11:23 pm

I would definitely stay away from buying a home right now due to your location. He is in Denver, CO which is probably the hottest housing market in the country right now. A cheap starter home that needs some fixing up is easily going for 300k with multiple offers that typically are sold to a cash buyer for 20k over asking in just a few days of being on the market. Since he is young with little attachments who he could find himself moving away within 10 years (not sure how committed he is to Denver it didn’t state). If he is always going to be there I would wait until things calm down a little. I would definitely dump it all into vanguard in his situation, but I would like to know how he is currently paying his student loans. If he is on an income based repayment plan the 200k could really mess up his payments and even get him kicked off the plan and into a regular payment plan which could end up throwing off his current lifestyle. And if so is there a way that you can invest that money without it having to count as income for the year – a question for that accountant you are going to be getting advised by!

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5 Slackerjo August 13, 2015 at 5:43 am

I live in Canada (thankfully NOT Toronto or Vancouver) where real estate is over valued (when the crash is coming is a mystery). Housing prices are out of reach and we have strict rules for obtaining a mortgage (mort is the french word for death) so many people are forced to rent because they don’t make enough to afford a mortgage or scrape together a down payment (even with multiple jobs). While there are professional jobs, most jobs are low wage service jobs or contract work through agencies that don’t pay well or offer any job security.

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6 Jenna August 13, 2015 at 11:14 am

Maybe a tiny home on wheels or nice Airstream. Home could be where you park it. Did anyone see the article yesterday about the Zappos CEO?

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7 Chris Muller August 12, 2015 at 7:32 am

I just realized he said he was not married and I was accounting for maxing out two IRAs. Drop that 11k to 5.5k! That gives him an extra 11k over 2 tax years versus what I suggested before. I told you these 5ams have their downsides!

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8 Reelika @Financially Wise On Heels August 12, 2015 at 9:53 am

I couldn’t agree more with you, Chris. It is a great advice as it helps the reader out of debt and grows his net worth. These should really be the major goals.

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9 Cheryl B. August 12, 2015 at 10:08 am

I agree Chris. Great advice!

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10 Lisa O August 12, 2015 at 11:52 am

I like this advice. I would also add that I am sure the feeling of not having the $90K student loan on your back would make you feel powerful! I am a mother of two and both have some student loan debt, I have taken out a life insurance policy on myself that will help them pay off the debt if I am not here to help them throughout the years of their making payments on the debt.

P.S. I am sorry for your loss of your father. Losing a parent is hard but you have a good attitude to look for the best investment for his money in your future.

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11 Jack August 12, 2015 at 3:45 pm

+1 for debt reduction.

Mourning is no time to be making life-impacting decisions like what to do with an inheritance.

Few things make you feel better than being debt free, so I’d pay off the student loan and car loan first, then set aside the emergency fund (assuming someone with a car loan doesn’t have a good emergency fund), and let that sit awhile.

Once you’ve had some time to recover from your loss, and enjoy the feeling of not sending in debt payments every month, then you’re in a good place to start thinking about your dreams, and what you want to do with the remaining $100K to help yourself achieve them.

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12 J. Money August 12, 2015 at 4:37 pm

Love how direct and confident you are in this, Chris :) That’s probably more along the lines of what our guy wanted here, but I couldn’t help bring out the money coach in me!

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13 Sukina August 17, 2015 at 3:19 pm

First, I am sorry to hear about your dad. I hope you and your brothers are keeping each other strong. Second, I agree with Chris! Pay off the student loan debt, max out all the retirement account. Added, take a nice trip. Not too expensive but somewhere you want to go. Also, look into dividend investing to create a added stream of income. I own real estate and it is a lot but if you do decide that you just have to own something I would do a investment property and live in one unit. But when in doubt research, research, research and go with what make the most sense to you. Also, doing nothing but paying off debt and saving the rest is ok too until you know what you want to do. Good Luck!!

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14 No Tax Charles November 21, 2015 at 8:08 pm

I’ve been in business accounting for 30 years and own my accounting firm.Get a qualified accountant to prepare your personal financial statement to see where you stand he also needs to understand your personal goals in the future. The student loan interest is tax deductible and I think you shouldn’t pay off any of the debt but it depends on how high the interest rate is especially the car.My advice is to get life insurance annuity for the next 25 years see how much you will have (I can calculate it for you.) Good luck but sorry to hear about the loss of your family member

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15 Mrs. Crackin' the Whip August 12, 2015 at 5:48 am

My advice is simply to “keep it”. Whether it’s investing it, buying real estate, or paying off student loan debt. This inheritance should have a positive effect on his balance statement now and for years to come!

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16 Ramona August 12, 2015 at 6:18 am

I’d probably get the loans paid off, but it’s just me and my aversion to any kinds of debt. Anyway, if it’s nothing too ‘urgent’, then other things might work, as already mentioned in the above comments.

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17 Thias @It Pays Dividends August 12, 2015 at 6:35 am

Paying off loans is the first thing I would do. Debt can hold you hostage if anything goes wrong in life and since student loans can’t be discharged in bankruptcy, there is some extra risk with them. I wouldn’t use all of the money to go and buy a home because when you all of a sudden have $200k and the main thing you want to do is buy a house, there is a good chance you end up with a lot more house than you really need since you had the extra money.

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18 Josh Williams August 12, 2015 at 6:49 am

I (mostly) align with J$. Pay off all of the debt. Put the rest in VTSAX, either through a before-tax account, or a taxable account (to provide income if he’s in the FIRE crowd).

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19 Chris August 12, 2015 at 7:19 am

If I were to receive that sum here is what I would do:

1) I would use about $20k to pay off my remaining debt from my car and student loans.
2) I would use another $20k-30k to take some amazing travels across Europe with my wife.
3) I would set $50k aside as a 25-50% down payment on a house.
4) The rest I’d put into a high yield savings account for emergency savings.

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20 J. Money August 12, 2015 at 4:39 pm

Amazing travels across Europe? You could travel the WORLD with that type of money! Haha… YOLO

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21 Dee @ Color Me Frugal August 12, 2015 at 7:28 am

I agree with those who say pay off all the debt first. Personally, we let our student loans linger way too long. Recently we wanted really badly to move to a new city where hubby was offered a job he really wants. We had to turn it down. Why? Because the new job, although better in every other way, pays about 25% less. And we still have a ton of student loan debt to pay off. We just can’t take that pay cut right now with all this debt. Debt is an anchor. If you have the opportunity to dump it, you should. (By the way, we have now entered turbo debt pay down mode and plan to have our student loans gone by the end of 2016- woot!)

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22 Brian @ Debt Discipline August 12, 2015 at 7:37 am

I knock all the debt out first. That leave about $103K, than as you suggest figure out what the reader want. A home, rental property, etc. Once he has a clear understanding of what he’d like for his future his in an incredible spot to begin to build wealth. Good luck!

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23 Kalie August 12, 2015 at 7:40 am

Super fun question, and great answers! I agree with paying off student debt first. Even if it doesn’t make the most mathematical sense, I like the idea of having the flexibility of no debt. And in a sense, I feel that money saved or invested isn’t really mine if I still owe someone else money, especially consumer or student debt.

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24 Fervent Finance August 12, 2015 at 7:51 am

Great advice J$. It’s just hard to pinpoint exactly what he should do since we don’t know his goals as you mentioned or his debt and risk tolerance. If the student loans don’t bother him and they’re at 2.5%, maybe paying them off in bulk wouldn’t be the best idea. Or maybe he can’t stand seeing them, and emotionally it would be a great idea to pay off.

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25 Stefanie @ The Broke and Beautiful Life August 12, 2015 at 7:54 am

“Money is much more exciting than anything it buys.” Somehow I’d never heard this, but I kinda love it (even though I totally love money, haha)

I’d also pay off the loans. If it were my money, I’d also use what’s leftover to divide between long term savings a down payment on a home and a rockstar vacation.

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26 Michael August 12, 2015 at 8:06 am

From my perspective I would look to pay off the student loans. 1) You cannot remove them in bankruptcy if something ever went wrong in life 2) Depending on the interest you can lock in a better rate than what the market can give. I wouldn’t just write the check for the loans. Call up each backer of the loan and ask if they will lower the principal amount due if you can pay off the loan today. You would be surprised what asking for 5-10% off can lead too. I would then take the rest and set it aside in a ROTH IRA for 2015 and enough for 2016 ($11k total). The rest should be put into an investment vehicle and invested in an index fund. If you didn’t want to buy a home today then you will be fine. Denver has been fast growing over the past 5 years in real estate so it may not be the best investment now. You seem happy with living in an apartment and it does give extreme freedom if you want to move or switch jobs at anytime. Plus equity investments have given better long term returns on your money than buying and holding a home has.

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27 J. Money August 12, 2015 at 4:43 pm

That’s a good tip on the debt payoffs! As long as it doesn’t mess with credit or anything that would be dope. 5% off $100k is $5,000! Though if I were the debt collectors I’d want you on the hook for as long as I could and sneak in an early-payoff fee so I could make more off you over time (oh wait, companies already do this (!!!))

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28 Scooze August 13, 2015 at 10:02 am

I have a close friend that just tried that. She is really struggling and got a small inheritance. She called up every student loan company and asked if they would reduce the amount for a cash payment, and all said no. She couldn’t even get to anyone at the banks who would be willing to entertain the option. Sadly, I just don’t know how to make this happen.

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29 Cathy August 12, 2015 at 8:11 am

Speaking from a UK perspective here but another vote from me for paying off the loans first. After that, deposit on a house or VTSAX. Or both!

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30 Steve Miller August 12, 2015 at 8:18 am

Build and investment snowball:

1. Pay off the 7k car loan, increase your 401k monthly contribution by the amount of your car loan payment.

2. Pay off the 90k student loan debt, automatically invest to your Vanguard account a monthly contribution that was the same as your student loan payment.

3. Take out 1k and spend it on something fun. Or keep it in your wallet and ogle over it daily.

4. Take the remaining 102k and invest it in a Vanguard index fund.

By doing this, you have eliminated all debt, setup automatic investments, and not affected your day-to-day living expenses.

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31 Terri August 12, 2015 at 10:39 am

I agree with this totally. Pay off the debt, up your 401k contribution (the amount of the monthly car payment and student loan payment), pull out a little fun money and invest the rest.

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32 Chris August 12, 2015 at 10:50 am

I really like #3. I’d ogle it daily in my wallet.

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33 Christine @ The Pursuit of Green August 12, 2015 at 3:22 pm

I really like this plan. It pays off all the debt and doesn’t affect living expenses. No lifestyle inflation here!

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34 J. Money August 12, 2015 at 4:44 pm

BOOM! Great word usage too – you don’t hear ogling as much as you should.

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35 Jennifer August 12, 2015 at 7:42 pm

This, all this. Let this money change your financial life without changing your actual life.

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36 Bethany August 12, 2015 at 8:27 am

It’s refreshing to see people squash the “renting is throwing away money” myth. You know what’s throwing away money? Making a rash decision on a house and then losing tens of thousands of dollars at closing when you decide to sell it. And property taxes. And maintenance. And interest. And you don’t always turn a profit renting out a house — don’t count on that without doing some serious research.

Buying generally only makes sense unless you’re going to stay put for a long time. This guy is single, right? What if someone swoops him off his feet and she (or he?) already owns a house or wants to move? Personally I like to be super duper settled before buying a house. I’m engaged right now and I still want to take a couple of years to really figure out the perfect neighborhood to buy in and consider every option.

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37 J. Money August 12, 2015 at 4:46 pm

I think you need to start your own blog: YouKnowWhatsThrowingAwaysMoney.com

:)

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38 Walnut August 12, 2015 at 8:33 am

I would invest the entire amount at Vanguard (or leave all accounts as they are) and let all of this fester for 3-6 months. Think about goals, priorities, and continue to live at the current lifestyle level. Then, in 2016, make some real decisions about whether or not to use any of the cash or just to leave it invested.

I sold my first house this spring and had just shy of $100k of cash in proceeds. Most of that money is still sitting in a brokerage account as my emergency fund and the rest has been slowly moved to pay down the new mortgage. The best thing I did was not impulsively use any of it. The financial security that comes with a pile of money sitting in the bank is epic.

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39 Katie August 12, 2015 at 8:43 am

He really needs to talk to a financial planner about this, I would recommend going to NAPFA.org and finding a fee-only advisor in his area to at the very least talk him through his options. With the different types of accounts he has inherited he will have to begin Required Minimum Distributions from the inherited IRA and inherited 401k next year. He will also have to pay tax on any dollars he takes from those accounts so taking a lot out at once is not likely to be the best option. But there should be no reason he can’t combine brokerage account he inherited with his current personal brokerage account.

Again, the absolute best thing he could do is talk to a financial planner where he could fully disclose what exactly he inherited and the implications of each account. There are planners who do hourly engagements, usually $150-$250/hr., much cheaper than paying a huge tax bill for withdrawing it all this year or for not taking RMDs when he needs to.

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40 Chris August 12, 2015 at 8:48 am

I agree with J in that he really needs to figure out his goals first. That being said, this is a perfect application for Dave Ramsey’s baby steps. Pay off all debt, set up an emergency fund, then get at least 15% of your income towards retirement accounts. That’s just a no brainer. It should also leave around $80k in cash toward whatever your goals are.

Personally, I would take the travel suggestion given earlier. Maybe allocate $5-10k for that. The rest to your Vanguard account until you figure out a bigger goal. That could be FIRE, could be a house.

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41 J. Money August 12, 2015 at 4:47 pm

That’s a good point about the savings/emergency fund actually – I didn’t even catch that. No mention of any savings outside of the 401k (which you can’t touch).

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42 Sarah August 12, 2015 at 8:51 am

I can’t second enough the advice to wait before buying a house! My fiance and I are often told by well-meaning people to “quit throwing money away on rent,” but we’ve done the math: right now, with no kids, we’re happy in a large one-bedroom apartment in a lousy school district. If we were committing to a place long-term, we’d need at least a second bedroom, a better school district for our eventual kid, and would need to pay all of our maintenance/repairs. Turns out we’d be paying significantly more a year in property taxes, home owners insurance, and repairs (just based on maintenance/repairs our landlord has covered for our apartment) than our current rent and renters insurance, before you even factor in the mortgage payment!

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43 Melissa August 12, 2015 at 8:58 am

First, I would eliminate the debt. $97k in debt is a massive mindf*ck, whether you think it truly affects you or not. Sure, you’d make a lot of interest on that $97k sitting somewhere, but then you also still have $97k in debt.

Next, I’d set up at least $20k into a safety net.

Then, (AND THIS IS JUST ME) I would set $20k aside for traveling, but in an account that would grow as well. This would cover the World Cup in a few years, the African Safari I’m hoping to go on next year (did you know that ish is $8k, AFTER THE AIRFARE TO AFRICA?!), as well as “sure, I’d love to pop over to Liverpool for a long weekend and go to a game” trips.

$1k would go towards buying a new bed and mattress, a thing I think would contribute greatly to my overall quality of life.

The remaining balance ($62k in my personal plan) I would throw into an investment account of some sort until I figured out a proper use for it. This could be a downpayment on property, MAYBE A TINY HOUSE, a new new car, going back to school, setting up an animal rescue, who knows.

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44 J. Money August 12, 2015 at 4:49 pm

Check out http://TuftAndNeedle.com for mattresses… Really good prices and starting to take off w/ a cult following. I like what they’re about.

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45 nick August 13, 2015 at 9:02 am

I’ve been sleeping on one of their matresses for a few months now and love it.

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46 J. Money August 17, 2015 at 3:33 pm

nice! my wife won a Tempurpedic a few years back so I haven’t been able to test Tuft out myself, but the next time I need to I’m gonna be all over that. Really love what they’re doing over there.

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47 Hannah August 12, 2015 at 8:58 am

With $90K in student loan debt, I would strongly consider paying off the loans. He’s so free once he pays those things off. This guy could become a digital nomad, or just feel the weight off his shoulders. His debt to earnings ratio is currently about 1.33- that’s a huge weight, and his dad gave him the option to shake it all at once.

But yes, definitely consult an accountant. It will be the best $250-$500 he’ll spend.

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48 Emily August 12, 2015 at 9:00 am

One thing I would say is make sure the inherited IRAs become beneficiary IRAs, particularly if they are traditional IRAs. Since the original owner of the IRA is the father, not the spouse, the beneficiary can’t roll it over to his own IRA.
If you cash in an inherited IRA, you are taxed on the income immediately and lose the tax free growth that the IRA provides. On the other hand, if it becomes a beneficiary IRA, you take a minimum distribution each year and let the rest appreciate in all of its tax-free glory.

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49 S L August 12, 2015 at 9:08 am

I was him three years ago.

First, up that six percent to max his 401k (not early maxing in the year though! I figured that out, right J?)
Next, if you use money to down pay on a house or to pay off the debt (I am all for getting rid of that student loan first!!!) make sure to use and and all inherited post-tax stuff first. While there is not a penalty for using some (or all!) of that inherited 401k accounts, that was all pre-tax before dad died, and you will have to pay tax on it when taken out as income – an extra 60K taken out in one year will up your owed taxes by about 11K (yeah, ask me how I know *grin*)

SIngle and fancy-free… until and IF you want to buy a home: goal is debt-free. You will HAVE to take money out each year of these inherited accounts and the amount — I am guessing a minumum of 5K – at that time could be use to pay off a portion of your school debt instead. If paying off the school debtnormally is not a hardship for you, then I would simply use the required minimum distribution for that, and hunker down with the rest with Vanguard — it will still grow or even stay about the same with this required minimum distribution and that required windfall (some of which would be taxable since you I think? may have to take a portion out of each inherited account) — All of this is assuming 401k and retirement accounts only. regular savings account is tax-free to you, not income, and I would suggest investing it too or using it to pay down the debt.

This is my “Been There Done That same exact thing” – I paid off student loans and down payment on a house, then the next year took more distribution to pay the taxes, and the next, that minimum distribution took care of the little overage I had from the second year still being high.

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50 J. Money August 12, 2015 at 4:52 pm

Thanks for sharing your story/tips! Sorry you had to get the $$$ this way too :(

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51 Stephanie August 12, 2015 at 9:15 am

I love your advice! When I first got into getting my finances in check, I was overwhelmed by all of the conflicting advice and opinions. But what you said is exactly right – you have to have a specific goal in mind and make your money management align with your personal life goals in order to make the right decisions for YOU. For me, that means building a small emergency fund and aggressively paying off my student loans right now. For someone else, their goals may be completely different and that is 100% okay. I think the best personal finance advice is to figure out what you want out of life, know your why, and then use money as a tool to make it happen like you said.

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52 J. Money August 12, 2015 at 4:54 pm

I’m glad you’ve figured it out! Sometimes that’s the hardest part – knowing your “why”

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53 Ali @ Anything You Want August 12, 2015 at 9:19 am

It sounds like this guy is thinking about this money in the right way. If I were him, I would probably pay off all of my debts, consolidate the remaining money into one account to simplify things, and then invest it. Maybe down the line if he wants to buy a house, the money can be used for a down payment. I wouldn’t rush into that.

I do think he should take some small sum out ($1,000 – $3,000) to travel or do something fun that will be a memory he can associate with his dad.

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54 Chris @ Flipping A Dollar August 12, 2015 at 9:47 am

I know it’s not my life or money but I’d pay off all the loans right away. Use the rest on a down payment only if I wanted to stay in the house’s area for a LONG LONG TIME!

Otherwise, renting is freaking fantastic. You really don’t get how awesome renting is until you’re out in the yard on a Saturday morning or fixing something that broke. You have a huge amount of mental energy just spent on the upkeep of the house, and that’s even if you are in a good financial situation!

I’d use the money to retire quickly. If he’s saving well, he could be done in 5-10 years easy and the world would be his oyster!

But man, J Money, good on you on asking what he really wants. This is a pivotal moment in this guys life. He can really set himself up for future success. I’d also point him over to MMM’s website. You seem to nice give out face punches. MMM doesn’t mind though. ;)

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55 J. Money August 12, 2015 at 4:57 pm

Hah, indeed. MMM will set you straight every time. Just gotta know what you want first so you accept the punches better! :)

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56 Jenna August 12, 2015 at 9:51 am

I bet a bunch of this money is in tax-advantaged IRAs where it will make sense to keep them in the investment accounts and then pull out money over time to avoid a big tax bill. If that’s the case, I recommend just keeping stuff in Vanguard. You might required to take some of the money out over time. If so, I suggest using that to pay off student loans.

Life insurance proceeds can go towards paying for some sort of small thing like a trip in dad’s honor, and then paying off student loans.

At this point, OP can then save up for a house, real estate investments, or put more away in investments with their new cash flow. I’d caution against getting into a reoccurring expense like a house with 1x money like an inheritance.

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57 [email protected] August 12, 2015 at 9:52 am

Once I read Vanguard…I knew the guy had his head screwed on right! =) I see many people say pay off debt, and I’d be of that mindset too but I’d need to know the interest rate. I have some student loans in the 1.8 to 2.5% range and I wouldn’t rush to pay them off. I’d definitely increasing my contribution to the 401k…I used to think getting match was sufficient but you need to turbo charge your savings if you want financial freedom. As for buy vs rent, there’s nothing wrong with either option, but if you’re in an area where it makes sense to buy, I’d consider doing that…but I wouldn’t rush into it. And yes, I’d speak to a Vanguard advisor and put a large chunk into a Vanguard account.

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58 Bonnie August 12, 2015 at 10:06 am

(1) Talk to a tax professional about ramifications of this gift
(2) Pay off all debt. I don’t care if the interest rate is low; it’s still a noose around your neck.
(3) Maybe take a small amount and do something fun
(4) Invest the remainder in the mentioned Vanguard index fund and forget you have it.

The OP has enough income to support a comfortable lifestyle, so this inheritance really is “found money.” It concerns me that someone with that income and no dependents has a car loan and $90k in student loan debt and doesn’t seem terribly concerned about paying it off. (I’m assuming the student loans have been hanging around for approx 10 years already.) I would like to see an attitude shift before he meets a great gal, gets married, and has kids. With no debt he could (with his income) still have a comfortable life even with a family to support.

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59 J. Money August 12, 2015 at 4:59 pm

Great insight :)

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60 M/M Kash August 12, 2015 at 10:06 am

Two things first….1. I am so very sorry for his loss…losing a loved one is so very hard.
2. Good advice J$.
Now, what would I do with the inheritance…. I would pay off all debt. It’s that simple. After that….I would figure out what I wanted to do. He’s in a good place because he seems to be doing fine financially. You know me….I am pro real estate usually, but i wouldn’t rush into buying anything as a permanent residence. And if considering a rental…it would have to have a great rental history for me to even consider it. If I was single and wanting to pursue a real estate purchase, I would consider buying a duplex. I don’t know his area, but in my area they do very well. I would put the rest into investments. I am all about my $$ working for me!!

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61 jestjack August 12, 2015 at 10:08 am

Hmmmm….Going against the “tide” here….big surprise. First take a deep breath and realize what a generous gift Dad has left you. To accumulate that kind of money one would more than likely have to earn about $325-$350K to achieve the $200K after tax. And who knows how long that would take. Pretty sure there will be no tax consequence from the numbers described. The debt is manageable and it really depends on the interest rate being paid. So if the student and car loans are under 4% I’d leave that alone. My own DD1 has a small student loan but the interest rate is 1.625% (no misprint) so that loan will never get paid off early.
I’d take about $50K and set aside to be used in the purchase of a duplex…live in one side and rent the other, This would provide help with the mortgage from rent, tax write-offs and lock you into to todays home values.
I’d take the next $50K and invest in AT&T or Verizon. These businesses have excellent cash flow, great dividends and the cell phone biz almost allows them to “print money” .In addition they are gobbling up spectrum and there is very little competition in reality.
I’d take the next $50K and invest in a utility….say Duke or Southern Company…Good progressive thinking…dividend paying utilities with solid cash flow in growing communities.
The last $50K I’d invest in Tiaa-Cref or Vanguard fund with a good track record.
It’s fair to point out that 31 is YOUNG….so these investments if left alone and allowed to grow should leave him in great shape when he is say 61. I would think his Dad would be happy with that legacy….

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62 MomofTwoPreciousGirls August 15, 2015 at 8:19 am

There would be taxes on the retirement and 401k accounts. No penalties but it would all be taxed at his income tax rate (or more depending on what income level it could place him in).

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63 tb August 12, 2015 at 10:12 am

Thanks for sharing.

As for suggestions, I second Chris Muller on this one. One thing that stands out is “generate interest off the accounts…,” I don’t know what accounts they are, but in general interests rate on loans are EXTREMELY HIGHER than interest rate earned to benefit the consumer. So opt to pay off the student loan & it will gone forever. One less thorn on the side / back.

Happy Wednesday to all!

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64 [email protected] and the Beach August 12, 2015 at 10:24 am

I think you were smart to suggest to just sit on it for awhile, because his father just passed away (sorry for your loss) and he may be feeling emotional, which is not the best time to do anything with money. For me I would go for the loans, mainly because he makes a good salary and once that is done (which would be, uh, instantly) he can start growing wealth with whatever is left plus whatever he was already doing. Just my two cents!

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65 [email protected] and the Beach August 12, 2015 at 10:25 am

PS if he was going to do a little splurge, I would suggest some travel…maybe someplace his father always wanted to go, or someplace the two of them had talked about previously. I think that’s a great way to connect the money with the memory of his father.

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66 J. Money August 12, 2015 at 5:01 pm

I like that idea :)

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67 Katy @ Good Portion August 12, 2015 at 10:26 am

First off to this reader, I’m so sorry for your loss. I lost my mom recently and quite suddenly, and I know it’s hard, especially at this age (I’m 32…my mom was only 62). Also, I’m seriously impressed and find it so touching that your dad was able to leave you such a great nest egg.

I utilize our financial adviser at work OFTEN…since you have a 401K through your company, you likely also have an adviser you can consult at no cost. At least, that’s how it is for me at my organization. It’d be great to find out what they recommend. They will ask you about your goals and make recommendations based on that feedback. Our adviser recommends offloading consumer debt while gradually maxing out retirement contributions. He told me recently that at this age (again, I’m 32), I need to have a minimum of 10% going to retirement, so I bumped that up and am working on maxing it out along with paying off my car within the year. I am debt-averse, so I would pay off the car and at least a significant portion of the student loan debt. How great would it be to cut your loan payments in half each month?

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68 J. Money August 12, 2015 at 5:04 pm

Interesting! Didn’t know organizations had those… though def. makes sense, as long as they don’t tell you to scoop up all their company’s stock – hah. We know how that goes.

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69 JennieKR August 12, 2015 at 10:26 am

I’m with Andrew – my loans are 2.25% so I wouldn’t pay them all off right away as investments would likely out-earn them. However, if you have already used up your deferrment/forbearance allotment I would pay them off. If not, you have those as a safety net in an emergency and can always pull out non-retirement investments in a crisis. I would definitely invest the equivalent, though! (Paying off the car is a given.)
There’s not really any mention here of his dreams and passions. I think a windfall would be the time to take an epic trip, fund the supplies or training for a new hobby, or get yourself set up for a future business endeavor.

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70 Jason @ Phroogal August 12, 2015 at 10:36 am

Mathematically speaking, paying off high-interest loans first and then investing what’s left would be best. You can assume the stock market will gain 8% a year so any interest rates above that need to go.

+1 on Vanguard. Fantastic bunch over there.

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71 Kirsten August 12, 2015 at 10:41 am

I WAS him 10+ years ago. My mother passed away my final year of college and left me around $150k. I am a rocket scientist (or aerospace engineer, if you prefer), so I make good money. Problem: between my husband and I we had $150k in student loan debt.

I had a car that wouldn’t run, a wedding to pay for, and a brand new life ahead of me. I paid the minimums on my student loans, bought a house, and a new car. DUMBEST THING EVER.

If I had a time machine, I’d go back and pay off the debt. I do believe long term investing will outweigh the debt, but if I were just rid of the debt, I could have made different decisions with my life. I could have quit a job without another one in the wings. I could have stayed home with my babies. Debt controlled my life.

I say dump the debt and start investing what you would have paid.

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72 J. Money August 12, 2015 at 5:06 pm

“Debt controlled my life” – so scary, but so true for MILLIONS of people out there. Just horrible :( Sorry you lost your mother and had to learn all this stuff the heard way.

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73 Tawcan August 12, 2015 at 10:51 am

First of all, sorry for your loss. If I were him, I’d pay off all the debt first then invest the rest. If there are any rooms in my tax sheltered accounts I’d put money in there first.

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74 zut August 12, 2015 at 10:52 am

Put all of the $200k into a Vanguard index fund and treat it like its not yours. What I mean by that is don’t spend a dime of the $200k. One day you can live off of the 4% SWR and you don’t have to ever touch that “generous gift”. Do you really want to remember that gift paid for your student loans or do you want it around for the rest of your life and be able to pass it on to your kids or if you don’t have kids it could be donated to a worthy cause in your father’s name? You could make that gift last another lifetime or two…that’s some powerful stuff right there.

In 10 years that $200k will be $400k….for most people that’s 40% of the way there to a nice early retirement. In 10 years you could pay off that 90k loan and still max out that 401k, I didn’t do the math but one would be pretty darn close to an early retirement.

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75 J. Money August 12, 2015 at 5:10 pm

Exactly. $200k is no joke with early retirement – I would happily take financial freedom with debt vs no debt and forced to keep working for $$$ :)

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76 jodi August 12, 2015 at 11:06 am

actually, i kinda have been out brotha. my husband died 15 yrs ago leaving me about $300 in assets. i sold the house we were in because it wasn’t the best of houses in the best area- though maybe i should have kept it…i bought a condo for around the same $$. 15 yrs later i am down about $90,000- probably because i actually took a few years off from work when my husband first died. personally i think the decision to buy a house-for living in purposes-not investment purposes- was a great idea. i love where i live. i don’t think i should have taken so much time off though. if i were him, i would invest it all and continue on w/the life he has which seems to be a happy one. it will def. increase in value, right mr j money? i should have invested more rather than “whooooooooo hooooooo! i have all of this money!” yes indeed.

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77 jodi August 12, 2015 at 11:14 am

that’s “that.” not “out.” sorry for the typo. =)

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78 jodi August 12, 2015 at 11:16 am

and that’s $300,000 in assets lol. yes i’m ok.

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79 J. Money August 12, 2015 at 5:13 pm

I was gonna say – you stretched that $300 out well, girl! :) Sorry to hear about your husband – none of us can escape death, it’s freaky :(

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80 Trevor April 26, 2016 at 8:59 am

Taking time off wasnt the mistake…in my opinion. People would die to have the much time to figure out their next move. I would have relaxed for about 3 months, then used the other 2.7 years to learn how to get richer. Time is the biggest asset in life! Most dont get it, or in your case…squander it.

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81 Jackie August 12, 2015 at 11:06 am

First, I wouldn’t do anything with it right away. I would give myself some time to grieve. Second, what were your financial plans before you received this inheritance? Money just makes you more of who you are, so likely you already know what you want to do with it.

As a parent, I would want my son to use money like that to improve his future long term, while spending a small portion of it (say $5K) on something enjoyable. I wouldn’t go out and buy things you hadn’t been actively working on buying already.

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82 J. Money August 12, 2015 at 5:14 pm

“Money just makes you more of who you are.” – GREAT insight. So very true.

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83 Michelle August 12, 2015 at 11:11 am

I would pay off the debt, definitely! I may have overlooked it so I’m not sure what the interest rate is on them. However, if it’s the 6% to 9% like most people have then paying it off is probably a good idea.

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84 Danell August 12, 2015 at 11:36 am

I’d pay off the debt first, keep a little out to do some traveling and have fun with and invest the rest.

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85 John @ Frugal Rules August 12, 2015 at 11:47 am

Great thoughts here and like what you’re saying for the most part J$. Like you said, I think the smartest thing is to sit back for a brief period and let it sink in. He’s in a great job so there’s no rush to act now. Take time to grieve and then assess what he really wants financially. I’d recommend paying off all the debt and then going the VTSAX approach with the rest, assuming it’s in line with his goals. If we received $200k we’d likely pay off the house (which is around $75k), dump a big chunk into VTSAX, dump some money into the kiddos 529 accounts and hold back $5-10k for a nice family vacation.

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86 Alexander @ Cash Flow Diaries August 12, 2015 at 11:59 am

Deeply sorry for the loss. 200k is a nice amount to have for sure and if I were the inheritor, based on my real estate background, I would definitely throw this money into more rental properties. The cash flow I get from rental income is how I will retire early and this would only allow me to retire faster. Of course you cant just buy any house. There is a method to the madness. One of the comments I read was:

“Making a rash decision on a house and then losing tens of thousands of dollars at closing when you decide to sell it. And property taxes. And maintenance”

Who does that and why? Would you just buy any random stock without every looking into it? No and you shouldnt buy real estate like that. Of course those people will fail miserably because they don’t know what they are doing. Real estate can be a great investment and really propel your numbers far greater then any stock if done properly.

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87 J. Money August 12, 2015 at 5:17 pm

I actually agree with you, the only problem is most people don’t know what they’re doing and jump in cuz everyone says it’s such a great idea. Very very smart to do your own homework and read/research/immerse yourself in this stuff if you plan on going down that path – something I failed to do in buying my own home! Which then turned into a bad “income property” because it wasn’t set up to be one – hah.

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88 Alexander @ Cash Flow Diaries August 13, 2015 at 11:24 am

HA! Yeah its definitely not for everyone and I agree that most people just don’t have the knowledge or willingness to learn to do it properly. Good read by the way!

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89 Kayla @ Kat Script August 12, 2015 at 11:59 am

In his situation I’d probably pay off the students loans and invest the rest. In my situation, I’d pay off my credit cards, student loans, and parents. Then I’d probably put the rest into investments.

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90 Crystal August 12, 2015 at 12:04 pm

I think the other commenters and J are all really helpful.

I too would get an accountant to look at what’s what and see what I could spend and invest without penalty. Then sit on the money for 3 months. Don’t even think about it. Then I’d pay off all of my debt ($97k), open and fully fund a Roth IRA each year ($5500), make sure that I am getting the max company match on my 401k (looks like you are already), use a chunk for a 20% down payment on a home that could also be a good rental property in the future (that’s $60k on a $300k house, so less if you live somewhere cheap like me), use $2000 for a nice vacation somewhere that had significance to you and your dad.

That would eat up $164,500 in the first year. That leaves you with $35,500 as padding for home maintenance and future Roth IRA contributions. You could also start saving 25%-50% of your income since your debt would be gone. You could use that to buy another property or save for retirement faster with more 401k contributions.

No matter what, it sounds like you are thinking along the right paths! Long run benefit! Nothing is sadder than a parent working their butt off, leaving their kids a great path to financial security, and it going down the sh*tter…I mean, those stories just make me sad for everybody involved. You sound level-headed. Give yourself time to grieve and hopefully you’ll have a great financial life story for your dad when you two meet up again way, way in the future (if that’s your belief system, no offense intended if not). :-D

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91 Retire29 August 12, 2015 at 12:34 pm

Pay off that debt, first and foremost. It’s a great investment and the return is guaranteed. Plus, it will alleviate most financial stress in your life.

That will take about half of the $200k.

Then, assuming you enjoy your work and work location, and will likely be there for at least five years, put a down payment on an affordable and reasonable home and stop renting. Don’t buy above your means or salary.

Keep whatever is left (hopefully $50k or so, depending on the down payment), and max out your Roth IRA, 401k (comes from your paycheck, but this money will replace that paycheck loss), and then leave the remainder in an emergency fund.

Good luck!

Eric

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92 Becky August 12, 2015 at 12:56 pm

Here is what I would do:

Pay off student loans – $8000
Pay off car loan – $14000
Pay off house – $115000

I really want to be debt free because it would lessen our month expenses. After that, I may splurge $1000 or so and put the rest into retirement savings or something. I would definitely get in contact with a financial advisor and discuss, but one of my goals is to be debt free, so I would aim for that first.

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93 phriot August 12, 2015 at 1:35 pm

What I would do is: First, pay off our student loans. (Between me and my SO, we have around ~$55k.) Second, engagement ring, wedding, honeymoon. Third, replace my nearly 20 year old car with something in the 3-5 year old range – my SO’s 2007 Hyundai Accent isn’t bad, so maybe one of those, but a little newer. (I’d replace that too, but we just got it and it isn’t showing any signs of being a problem.) Fifth, downpayment on a 2-4 unit multifamily home and live in one unit, as I’ve already decided that I want to be in real estate. With the remainder, I’d split it between more boring things. The majority would go in an index fund, with the rest topping off our emergency fund, maybe try out P2P lending with a little.

If I were him, I’d probably pay 1/3 to 1/2 of the student loans, to gain the psychological benefit of a less-intimidating number. I’d put a big chunk in index funds, fill emergency fund if necessary, and leave another good chunk in cash while I decided what was best for me.

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94 Kim August 12, 2015 at 1:54 pm

What a bittersweet situation to find yourself in. So sorry for your loss.

As long as you don’t blow it on buying a new Ferrari or something similar, I think all these options are great. From personal experience, when I sold my practice, I got a large lump sum as a down payment and used $70K to pay off student loans for myself and my husband. I’ve never regretted that for second.

Also, Denver real estate is booming, so if you can find a good deal and do plan to stay in the area, I don’t think that would be a bad investment at all. Otherwise, any combination of investing will serve you well and be a great legacy to your Dad, although it sounds like you would have done well regardless.

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95 Christine @ The Pursuit of Green August 12, 2015 at 2:47 pm

To the emailer: Sorry for your loss. I can’t even begin to imagine what you’re going through right now. It sounds like he set his life up well and passed it along which is great.

It seems like you have a lot set up for yourself already. There’s a ton of great advice in the comments already so I will just say that whatever you do I’m sure you’ll think it through first!

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96 Donna August 12, 2015 at 3:42 pm

I think I’m going to go against the “popular opinion” here. I would only say to pay off the debt if the amount that was being paid toward debt is now going to be invested. If freeing up cash flow is going to go to lifestyle infation instead, then don’t pay down the debt, invest it all. People tend to live the lifestyle they can afford. People are also willing to cut back and be a little more frugal when struggling to pay down debt.

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97 Stockbeard August 12, 2015 at 4:16 pm

I would:
1) Figure out how much I owe in tax and set that aside
2) pay off my debts (loan, etc…) if I had any
3) Invest what’s remaining in my ongoing investment plan (in my case, low cost ETFs from Vanguard or Schwab)

Donna: hopefully paying off the debt means that whatever was used to pay the debt until now, can now be invested moving forward.

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98 Julie Gosnell August 12, 2015 at 5:11 pm

I am really sorry for your loss! I can understand what a difficult time it is when dealing with the loss of a loved one and then receiving a large windfall. Emotions must be all over the place.

Since no numbers were given I have to do a little guessing here.

Let’s say the student loan debt is a ten year term at about 6% interest rate. You are currently paying about $1000.00 on your $70,000.00 a year income. That means at least 16% of your monthly pay is going to pay off student loan debt.

You can take the same amount that you were paying in monthly debt and apply that to a bump in your 401(k), honestly you could afford 15%, at least. Contribute to your IRA etc.

I would save at least $35,000.00 because that should be more than six months expenses. Don’t touch this unless absolutely necessary for an emergency. Start a sinking fund to pay cash for a new car and add your monthly payments that you are paying already to this fund and buy your next car with Cash Money.

Don’t spend any money on anything else for at least six months. Take time to grieve the loss of your father. Making decisions about life when you are trying to grieve is not smart to do at all. Six months will also give you time to let the money sink in and really think about life.

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99 J. Money August 12, 2015 at 5:25 pm

I like the $35,000 savings cushion – I totally overlooked that part of the equation (though it’s possible he has savings and just didn’t mention it). Thx for chiming in!

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100 cindy August 12, 2015 at 5:54 pm

He needs to put the total $200 in Vanguard Total Stock Market Account and not look at it for the next 5 years.

During those 5 years he needs to get a clue / do the following: increase his contributions to all the retirement accounts and get very aggressive in paying down his student debt (He did not say how fast he is doing this. If he is already aggressively hitting this, then please disregard this). He needs to set a realistic goal of how much debt he wants to retire in the next 5 years and reduce his lifestyle to accomplish that (renting, maybe getting a car that he owes less or nothing on, reducing entertainment lifestyle–he is in Denver–so go hiking and camping!!!) or add in some side jobs.

He needs to do this asap. Just because he is 31 with no significant other now does not mean that will stay the same in the next few years. Prepare for the possibility of change and try to be a person who is free to enter into a relationship with little to no financial baggage (or at least try to be someone who has a PLAN to deal with the baggage).

At the end of this 5 year period, he can better evaluate what, if anything, he wants to do different with the Vanguard money. If he has worked his butt off to reduce his debt, he will have a better appreciation and wisdom to consider what to do with money he has received instead of earned.

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101 J. Money August 17, 2015 at 3:34 pm

“Prepare for the possibility of change” – Truth! Never know what’s around the corner, for the best or the worst.

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102 Sharee August 12, 2015 at 8:48 pm

My condolences to your reader for the loss of his father. I agree with so many others on the waiting period and hiring of a tax professional before doing anything else.

J, please do an update in 6-8 months to let us know how he is doing. Better yet, I bet he could write a great guest post :)

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103 J. Money August 17, 2015 at 3:35 pm

I’ll see what I can do :)

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104 Prudence Debtfree August 12, 2015 at 9:24 pm

I’m very sorry for your loss You’re young to lose your father. What you do with this inheritance can be a way of honouring him. I would:
1. Pay off all debt – student loan and car.
2. Keep a very liquid emergency fund of about $15,000 in an easy-to-access-if-needed account. (A bit of a guess as to the amount. Enough to cover 3-6 months of expenses if you lose your income.)
3. Put the rest (about $90,000) into the long-term savings that will see you to early retirement.
4. Increase your investments to at least 15% of your gross income as you save for a down-payment. (I think that some day, you will want to buy a house.)
You’re in a position to make very wise choices that will impact the rest of your life significantly. I hope that you find yourself thinking, “Dad would be proud.”

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105 Steve Tea August 12, 2015 at 10:43 pm

Take that vacation with your brothers. As a Dad I’m sure that would have made your Dad a Very Happy Man!

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106 J. Money August 17, 2015 at 3:36 pm

I like that idea :)

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107 nick August 13, 2015 at 9:10 am

earlier this year i got the balance of an inheritance from my grandma (about 43k total) i invested about 10% of it and the rest all went to pay off debt. it is a great feeling to see your checking account grow because there is no longer a debt payment coming out of it.

i would recommend paying off all the debt, then let the balance sit in my checking account for a few months before deciding on anything else. After a few months i most likely would want to travel somewhere which would cause me to invest the money in some dividend stocks, if you figure a 4% dividend rate that could cover all your travel expenses every year for a very long time

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108 Simple Is The New Green August 13, 2015 at 5:29 pm

I personally would buy real estate. I find the stock market boring and both the stock market and real estate have risks, but I found that creating rental income got me to financial independence in a couple of years, whereas the typical retirement fund would have taken me much longer. Simple living helps also. :)

I also like that with landlording, I am provide a real value to someone… a clean, safe roof over their head. The stock market feels too removed to me. And, I always put people before profit… i.e. the health and safety of tenants is first priority.

Rental income also increases as expenses increase (if you buy right), so it can be a hedge against inflation.

I do agree though, that real estate takes time to learn, but the process is fun. I might analyze up to 100 properties before I buy just one. I also like the niche approach, but that is a matter of opinion.

If we wants free info from me, feel free to send him my email address.

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109 J. Money August 17, 2015 at 3:38 pm

So nice for the offer – thank you!! Interesting you find the stock market boring, haha… I guess Index investing is too, now that I think about it? Though I’m totally fine w/ that?

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110 Jason August 13, 2015 at 6:18 pm

This is a fantastic problem to have. First, he needs to check with a tax guy on how much in taxes he might owe if he cashes this stuff out. Because it is in IRAs and a whole host of other things he has to probably parse this out a bit. For example, the IRAs and 401k(s) part of the inheritance could be rolled to an IRA in his name where he would invest. Then how much of that portfolio is in just a brokerage account and in a life insurance? Depending on how much is there I would then discuss what to do with that money.

I might:
1) Cash it out and set aside the taxes that will come with it (this will probably put him in a 28-35% tax bracket)
2) take the money and pay off the car loan and part of the student loans
3) He could just take part of this money and cash it out over a series of years and use that money to 1: contribute to another retirement account; 2) pay down debt; 3) save for a house or something. If he cashes this out at once then the tax implications could be huge. It is like he is taking out a 30% loan or more to give to the government so he can access the money. That makes no sense. So the answer, IMO, depends on how this money is distributed among these accounts and then go from there.

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111 MomofTwoPreciousGirls August 15, 2015 at 9:01 am

Since he is not a spouse he cannot just roll into a regular IRA in his name. It must go into an Inherited IRA and he will be required to minimum withdrawals each year.

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112 Nikki August 13, 2015 at 9:14 pm

I would pay off my student loans and my husband’s house which we are currently renting out. Anything extra would go into an emergency fund.

If I were him, I’d kill all the debt and invest the rest. It’d make maxing out the 401k super easy. Talk about a lot of extra money rolling in if there were no debt left to pay off!

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113 Tre August 13, 2015 at 9:52 pm

I would pay off student loans and invest the rest. $90k is a lot (trust me, I’ve been there)

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114 trinhsetter August 13, 2015 at 11:15 pm

I would go to the bank and ask for all $200k in one dollar bills. Go home, make it rain, roll around for 5-8 hours and take a nap. The next day, I would deposit everything back and pay off all my debt.

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115 J. Money August 17, 2015 at 3:39 pm

BOOM!

That’s the answer right there – hah!

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116 Kemkem August 14, 2015 at 4:58 am

It totally sucks losing a father. I am sorry for your loss. It really plays with your head, when my dad died, it took me over 4 years to even say out loud that he was dead. I talked about him in the present tense, and l was the walking wounded. That being said, with this windfall, l would pay off the student loan and car debts. The extra 100,000 l would just sit on until you have had time to process everything. Think of why your dad had saved up for you and your siblings, and it will become clearer what you need to do with the money. Hang in there. It gets better.

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117 RealMoney August 14, 2015 at 8:24 am

It seems like the reader is not doing too bad financially. I personally would put away all that money into one safe account that pays decent interest. 200K is 200K, and it is difficult to come by on your own. I wouldn’t rush to pay off the student loan; who knows, something may come up to take care of that (hiring bonuses?).

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118 Free to Pursue August 14, 2015 at 8:47 am

The death of a close family member is a big change to digest and it makes us want to use a salve to right what is wrong in our lives.

When my dad passed away I was less than bright for the first 18 months (going from really lost to progressively getting back to baseline). And I behaved poorly with money, thinking buying things would make life better, though I didn’t understand why I was doing what I was doing at the time.

Based on my unfortunate experience (luckily I was 20 so I didn’t have a ton of personal money to blow), I would suggest putting the money away where you can’t touch it or do anything substantive with it for a year. It won’t go away, it won’t lose value appreciably…it will just sit there. No. I would not let a professional decide…it’s your money, not theirs. After a year, you can take the great advice some have shared above or from a chosen, trusted adviser, and place it where it will do the most good for you, something that is right in line with your baseline values.

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119 J. Money August 17, 2015 at 3:43 pm

Great answer. Sorry you had to learn the unfortunate way :(

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120 Richard C. August 15, 2015 at 7:50 am

1) Pay off the student loans.
2) Pay off the Car.
3) Set your 401k to 25% (now that you have less expenses). Low stock index funds if possible.
4) Take a trip somewhere your dad wanted to go, to think about him and the other $100,000 left.
5) Fund a Vanguard IRA (Roth if income is too high to do traditional IRA) $5500 (VFINX or VTSMX).
5) Open a personal account at vanguard and invest in VOO or VTI ETF’s (later can be havested for tax gains or tax losses easier than Mutual Fund). Fund how much you feel comfortable with.
6) Put money on a house only if you rent out a portion, or buy a duplex. Housing is not a good investment unless it makes you money.
7) Discus this with your brothers who may or may not be financially savvy.

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121 MomofTwoPreciousGirls August 15, 2015 at 8:08 am

First, sorry you lost your father. I’m sure this is all bittersweet and makes you want to do the best possible things to make home proud.

Like J Money said first focus on all the different types of accounts that were left. You can certainly consolidate things, but only in like accounts. 401ks and traditional IRA accounts can be combined into an Inherited IRA. Once that is done you will need to determine a couple of things. If your dad was already taking RMD withdrawals (over 70.5) you and your brothers must each withdraw whatever amount he had left to take, split according to the percentage you each received. So if he still needed to take $1000 and there are four of you each must take $250 by the end of the year.
If he was not at RMD age, you can hold off on withdrawals until next year, but for as long as those accounts exist you will have to withdraw a minimum amount each and pay the taxes (no penalties on inherited IRA withdrawal). You can also take more than required each year, but again it’s all additional taxable income. Best to think of it as an additional retirement account that has annual w/d requirements. That’s why they call it a “stretch” IRA.
If he had a Roth that would have its own set of rules. All other cash and investments can be combined and used towards your goals. First payoff debt, set up an emergency, then max out your retirement accounts, begin your wealth building. You may also wants to have some for a little fun. Maybe a little travel. It’s hard to say “run out and payoff all your student loan debt” not knowing how much of these funds are tied up in retirement accounts that will have size able taxes due.
Good luck.

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122 R August 16, 2015 at 5:39 pm

If it was my money I would (in this order):

1)Get a tax advisor to weigh in
2)Pay off the car loan $7k
3)Use $13.8k to subsidize my lifestyle while taking that much out of my check to max 401k
4)Use $5.5k to max Roth IRA
5)If you plan on staying in your area buy a modest 3 BEDROOM home (no less than 3) $100k
6)Pay off student loan debt $90k

Yes, I realize that I am over by $16.3k, but I am considering tax savings for the additional 401k contribution to the tune of $2070, rent that he will not have to pay $8040/yr, and a car payment that he won’t have to pay $5700, no student loan payment $3,600 yr. All that comes to $15,810. Yes, I realize I have guestimated on the house price (but I did so considering he thinks he can buy 2 with that money), used an average rent and car payment, and a big fat guess for the SL payment. If he does all this he will have an extra $3110 which he can use to pay any tax implications or splurge! And then next year, he gets to keep all the extra he won’t be spending on those payments!

DONE! Boy, that was fun :)

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123 J. Money August 17, 2015 at 3:44 pm

That’s because we’re all nerds :)

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124 Ben August 23, 2015 at 5:31 pm

A $200k inheritance could do a lot of things:

– buy something nice that will last and be a reminder of the loved one
– repay some debt
– remodel / improve house
– repay some debt
– invest for retirement
– did I mention repay some debt?

Seriously though, the best things to do would be to repay debt and invest it for later in life. When investing, many may choose to do index funds but an alternative would be to learn more about investing and utilize a value investing strategy. But only if one has the time, stomach, and patience for long-term investing in the stock market.

Ben
ModernGraham.com

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125 Linda December 7, 2015 at 1:41 am

I have the same “problem” but I am 53 and live in goverment housing with no job. My dad died August 2015. With goverment housing I can only have $87 000 in cash. I have no idea what to do. It’s very stressful.

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126 Jeff February 2, 2016 at 6:28 pm

Old thread but fits my current situation. I do not see anything about the rules for inherited IRAs and 401K’s. I hope he did not cash them out without figuring the rules to do all the suggested ideas.. If he took out a lump sum combined with his stated income a higher tax burden probably occurred. Hopefully he figured out to leave the IRA’s alone and take the RMD’s which at his age would be quite low letting that money stay invested for the long run.

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127 Jeff February 2, 2016 at 6:30 pm

OOps, I do see Momof2Girls had some great info.

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128 Trevor April 26, 2016 at 8:47 am

Despite all this advice, it comes down to what you really want out of life. Thats something nobody (not a financial guru, not a vanguard rep, etc.) can tell you.

Invest in yourself (not real estate, not stocks, etc), Learn a new trade…develop your business savvy by going to seminars. Meet people in those realms. Network, study, learn, hustle. Get certifications, go to more seminars and learn concepts that will increase your money 2X, 4x, or more. Careful, some people pushing ideas in these realms will take your money too with little or nothing to show for it,….. but at least you will be meeting these people face to face to hear their ideas. As the saying goes: “a fool and his money are soon parted”. You may need to make some small investments in about 3-4 concepts after doing your research. If one hits, you make triple your money. Then the cycle starts of turning a 50K investment into 500K or even a milly.

Do this for a solid year…it will dawn on you what to do.

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129 J. Money April 26, 2016 at 10:42 am

thanks for adding to the convo :)

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130 JEN July 9, 2016 at 2:56 am

200K? Would pay off everything my husband and I owe: house 72k, car 4k, student loans 15k, and medical debts 10k. The rest I would divide 50/50 into interest savings and investing. I would then pull in an extra $1300 a month once those things were paid off… we would live comfortably and likely put much of that into savings as well. Honestly just $30k would be amazing and save me almost $700 a month in car payments and student loan payments and medical debt. 200k is over 5 times what I make a year before taxes. Seriously life changing money.

I will echo others here though and say get rid of the student loan debt. If something were to happen and you couldn’t work for a time being debt free is the key to survival. You can take whatever you save after those payments are gone and apply it to investing or savings accounts, live as you have been but reroute that money.

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131 J. Money July 9, 2016 at 7:51 am

Well done only having $72k in house debt left! And even more so having a plan for future $$$ like that. Always better to know what you’d do with it *before* you get than afterwards :)

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