Author Topic: Reader Case Study – Investment Advice for Windfall  (Read 1966 times)


  • 5 O'Clock Shadow
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Reader Case Study – Investment Advice for Windfall
« on: September 14, 2017, 04:59:38 PM »
Life Situation: Single, living with S/O of 6.5 years. We have been talking about marriage in the next couple years, after we get out of debt. My S/O and I are both 25. No dependents. We live about 35 miles outside of Washington D.C. in a stupid high COL area. The average SFH in my area is $555,000. I am a video production contractor and she is a federal employee.

Our combined Gross Salary/Wages: $148,000, I make $93,000 and my S/O makes $55,000

Net income: $95,000 / $7,900 a month

Debt: (preparing for face punches)
Student loan: $5,500 @ 6.8%
Student loan: $975 @ 3.4%
Student loan: $675 @ 6.8%
S/O Student loan: $62,000 @ 6%
Honda Element: $5,200 @ 5.5%
Honda Civic: $5,000 @ 5.0%
Credit card: $3,900 @ 10%
Debt consolidation loan $14,300 @ 15.15%

Total Debt: ~$97,500.00. We made a lot of stupid financial decisions in college like taking out variable interest rate credit cards with up to 25% interest rates. We’re definitely paying for it now. My S/O went to a very expensive private school. I went there as well but fortunately I dropped out and got my associates degree instead at a very affordable community college.

Rent: $1,500
My Student Loans: $100
S/O Student Loans: $350
Insurance (car, renters, etc): $150
Credit Card: $160
Gas: $100 I occasionally bike the 7 miles to work. My S/O has a sweet commuter benefits plan and gets to ride a bus that is a 3 min drive from our apartment to right outside her office for free! Normally it’s $9 each way. Unfortunately it’s 3 miles on a highway so she can’t get there by bike.
Phone: $175 (insert face punch here)
Utilities: $125
Internet: $70
Civic: $250
Personal Loan: $500
Element: $230
Food/Fun: $800 (insert face punch here) This also includes Netflix, Amazon Prime and Hulu.

Total monthly expenses: $3710.

These numbers are including more than minimum payments. This leaves us with about $3400/mo extra that we have been snowballing our debt down with. We also use this money as a sort of flex fund that we can use for unexpected expenses if they pop up. In the past 10 months we have paid off 5 high interest credit cards and saved to move into a new apartment without using credit to afford the first and last months rent and a security deposit. We are on track to finish paying off our debt besides my S/O’s student loans in the next year. Fortunately we are both still on our parents health insurance for another year.

401k 1: ~$10,000 Contributing the full company match
401k 2: ~$7,500 (I need to roll this over to my current 401k) Contributed the full company match
TSP: $7,000 Contributing the full company match
ROTH IRA: $1,200 My mom gifted me this recently to teach me about investing.
Inheritance: $100,000. I am getting this in the mail tomorrow(!)

Total Assets: $125,700

Specific Questions:
I have read Bogelheads “what to do with a windfall” article and other blog/forum posts but I think that my situation might be a little different than a lot of those people. Right now I am living pretty comfortably, and while it would be great to wipe the slate clean and eliminate all my debt, my S/O and I have been working on paying down our debt and have a plan to be done with all of it in the next two years. Her student loans would be a year and the rest of our debt a little less than a year. I was thinking that my Great Auntie who I’m inheriting from would be very happy if I invested the money she is leaving me for my future like she did. She made a modest salary as a secretary but managed to save and invest enough to leave me, my sister and 4 cousins $100,000 each. If I “set it and forget it” into a fund like VTSAX I could just continue living my life and continue paying down debt like it never happened. I want to get in a large lump sum as soon as I can so it can start accruing interest while I’m still relatively young.
-Is this a bad idea?   
   -If so, what would you do with the 100k instead?
   -If no, do you think I should do 1 lump sum, or maybe something like stagger the $100k over 10 months at $10k investments each? The economy is at an all time high and it’s freaking me out.

-What is your general assessment of our situation?

-Do you think that snowballing from smallest amount to biggest and ignoring interest rates for the psychological woohoo-we’re-doing-it! feeling is foolish? That’s what we’ve done so far and it’s been working OK, even though we are probably paying more in the long run.

Thank you all for your help! I am young and dumb and I don’t want to squander this opportunity.


  • Pencil Stache
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Re: Reader Case Study – Investment Advice for Windfall
« Reply #1 on: September 14, 2017, 05:12:08 PM »
In your shoes, I'd pay off the 10% and the higher than that interest rate loans on day 1 of getting the check deposited.

I'd then probably invest the rest (lump sum, just jam it all in there) in something that you can't get your hands onto easily and then continue to pay down/off the rest of your debts. It's mathematical and economic folly to invest money when you have 10% and 14+% debts hanging around on your balance sheet.

Frankies Girl

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Re: Reader Case Study – Investment Advice for Windfall
« Reply #2 on: September 14, 2017, 06:02:00 PM »
I get that you are in a committed relationship and have plans to eventually marry. Most likely things will be just fine and your plans will proceed and you have nothing to worry about.

But until you are legally responsible for each others' debts, do not pay off a dime of the significant other's debts. Stop including them in your totals. At least as far as what you do with the inheritance.

An inheritance is not shared property in most states. As long as you keep it separate, it is yours and yours alone, even if you were married.

Paying off a debt for someone that you are not in a legally binding relationship is a risky move. 

Pay off all of your debts if that makes sense - and then invest the rest of the inheritance into a taxable account in your name only. And then use all of the extra income that was going towards paying your debts towards building up an emergency fund and paying down any shared debts, and then help out with your SO's debts.
« Last Edit: September 14, 2017, 07:34:53 PM by Frankies Girl »
I frequently have no idea what I'm talking about. Like now.

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  • Stubble
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Re: Reader Case Study – Investment Advice for Windfall
« Reply #3 on: September 14, 2017, 07:31:34 PM »
We were in a similar situation. My husband inherited a very large windfall. We had zero knowledge about money at the time and a search on windfalls led us to bogleheads which eventually led us to our path of FI.

Despite being in a committed relationship for 12 years and married for 7, my husband keeps his inheritance separate from our money. My father lost his million dollar inheritance to my mother after 40 years of marriage so I fully support my husband keeping his money separate. Your SO should respect this as well. With that said, I agree with the other poster to not to put any money towards her debt and any lawyer would advise against that as well. You might want to work out a legal agreement with her, where you pay her debts and she repays you interest free--but even so there's still risk.

I would pay off all your high interest debts immediately. Anything above 5% should go! Then I'd sock away $10k  in an emergency fund, since I don't see you including one here.  The rest should be invested in tax advantaged accounts first and then post-tax accounts. Take all those monthly payments that you were previously putting towards your  debt and have it automatically invested. Then proceed as if nothing has changed.


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Re: Reader Case Study – Investment Advice for Windfall
« Reply #4 on: September 14, 2017, 08:02:17 PM »
You are not married yet, so don't act like you are.  Deposit the check in your own account, in your own name, not in a joint account.  Use it to pay debt that you are personally liable for, and invest in your own name.  You can always choose to spend separate funds on joint things later assuming you are still together; it is much, much harder to disentangle joint assets if you are not.  If I were your aunt, the thing that would piss me off most (well, maybe second, after a Lamborghini) would be if you lost the money to an "evil ex" and her life savings didn't end up helping you.

That said, you are in a committed relationship, and you are seriously talking marriage, so you don't want to be a selfish jerk either.  My suggestion:

Use @$25k to pay off the CCs, your SLs, and the debt consolidation loan.* FWIW, if I am your aunt, this makes me happy -- as long as I am confident that you have mended your ways and the righting of the ship will be permanent.  I think that is where you are, so get rid of stupid interest rates immediately, with the blessing of older relatives everywhere.

Use $10k or so to set up an emergency fund if you don't have one. 

Invest the rest.  This will still give you a really nice head start for your future.

Then:  since the inheritance allowed you to clear your individual and joint debts so quickly, go ahead and use the money that has now been freed up in your monthly budget to pay off her SLs aggressively.  That way you both end up benefiting from the inheritance, but you are still protected and still get the benefit of your aunt's savings if the relationship doesn't make it.

*Caveat: the fact that you guys are digging out on your own, and that is giving you a feeling of power and control, is critical and not something you want to undermine.  But paying 10-15% in interest is insane.  So if you want to split the baby, use the inheritance to pay off those debts now, and then use the money you were throwing at those debts to pay yourself back -- in effect, you are borrowing the money from yourselves, which is at least better than paying the CC companies.
Laugh while you can, monkey-boy


  • 5 O'Clock Shadow
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Re: Reader Case Study – Investment Advice for Windfall
« Reply #5 on: September 15, 2017, 02:08:43 PM »
Thank you all for your insight and tips. My S/O and I have already discussed how I am not paying off her debt with the inheritance but we will work together to pay it off over time. I did not think of keeping the inheritance in a separate bank account in my name only. I will be opening an account at my credit union specifically for investing in my name only. Thank you so much @Frankies Girl, @nara, and @Laura33 for the insight. I think the plan I'm going to follow is paying off the debt I'm on the hook for, like Laura33 suggested, which is a little over 25k. I'll stick the rest into VTSAX and continue to aggressively pay off our cars (mine first!) and then move onto her student loans after we've finished everything I'm responsible for.


  • Walrus Stache
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Re: Reader Case Study – Investment Advice for Windfall
« Reply #6 on: September 16, 2017, 08:35:23 PM »
It sounds like you are heeding all the great advice already offered, good for you!

You asked about lump-sum investing vs. dollar-cost averaging over time.  The evidence-based answer is that you are more likely to achieve better returns by dumping it all in ASAP.  However, if you are not of the temperament where you can calmly look at the long-term picture and not get upset at a near-term drop, DCA is easier on the emotions and could work out better if the peace of mind prevents you from doing anything foolish, like exiting a position you were going to hold for decades, except a 10% drop freaked you out.


  • Magnum Stache
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Re: Reader Case Study – Investment Advice for Windfall
« Reply #7 on: September 16, 2017, 09:24:12 PM »
You've already gotten and accepted very good advice.  Bravo to the givers and to you!  Definitely keep the funds separate and in your name, and pay off the really high interest rate stuff.

Double-check the income limitations on the Roth IRA, but I would fully fund this and next year's Roth.  That should be tax free money forever.  Let it grow. 

If you have a 401K, fully fund it, preferably with a low fee index fund similar to Vanguard's VTSAX or the S&P 500.
Pump the rest into VTSAX and perhaps the international equivalent.  I wouldn't do bonds yet, you don't need the money and you aren't going to retire in less than 5 years.

Congrats on the jump start to financial freedom.

FYI, I think it's a good idea to continue working together to pay off those debts over a year or two.   Shared burdens that build character are a very good way to improve the likelihood you are both marrying "a keeper". :)


  • 5 O'Clock Shadow
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Re: Reader Case Study – Investment Advice for Windfall
« Reply #8 on: September 28, 2017, 02:42:06 PM »
Hey all,

Thanks again for all your tips. I paid off 25.5k of debt on Monday and invested the rest in VTSAX. So excited to finally get a started on investing for FI and I hope to learn more tricks and tips from you all along the way!


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Re: Reader Case Study – Investment Advice for Windfall
« Reply #9 on: September 28, 2017, 04:16:30 PM »
Congrats!!  Great start!  I am confident your great-aunt would be proud.
Laugh while you can, monkey-boy


  • 5 O'Clock Shadow
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Re: Reader Case Study – Investment Advice for Windfall
« Reply #10 on: September 28, 2017, 05:46:20 PM »
Very cool update.  Nicely done!!


  • Magnum Stache
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Re: Reader Case Study – Investment Advice for Windfall
« Reply #11 on: October 03, 2017, 02:02:03 PM »
Now that your debt is paid off, I'd recommend increasing your 401k contributions.  Getting the match is good, maxing is better.