First off CONGRATS:) Second, don't panic, it is good to remember that while your track record of hanging on to money isn't great, you have paid your dues in the past and you are now turning over a new financial history page:), you can do it!
You are right about being scared of losing an amount that will be very hard for you to replace - but, you are honoring this gift from the "Universe" - it is all good - you can do this, there is no rush.
I like the idea of $500 for each of you to spend as you like. Then I would sit down and do a real budget - you might have to hunt down information from 3 months back or whatever, but starting right now you will keep better track. That way you will have "real" numbers to work with for next month.
There is a leak and I bet there are a ton of things you could consider, if you only knew where it was all going:).
The $400 rent is real nice and perhaps it is smart not to mess with that.
OK then, you are a bit scared of turning it all into emergency fund and I don't blame you. It might disappear slowly and since you are not real savvy about finances, investments should be the least of your worries for now. However, that IRA suggestion for your husband which will also result in tax savings might be a consideration - educate yourself on that - read up on it - open another thread on that subject.
So here is my suggestion, call it your DISCRETIONARY FUND ALLOCATION:
1. Medical: You've had that recent emergency expense - take that amount, add in your deductible, plus say $2000 on top. That is now your dicretionary fund for medical expenses! Must have for peace of mind. Probably at least 5K total
2. Car fund: Repairs, tires, batteries, funds for replacing car - say $ 5000
3. Three months of living expenses - gives you peace of mind. Take that $1800 or whatever your budget number is x 3 = $5400 and breathe easier:)
4. Vacay - weekend away - trip to Europe - set aside $1500 to start - you need fun goals too or you'll stop trying.
5. Luxury items- art supplies - electronics - nice dinner out - take a class -kitchen gadget - whatever floats your boat - gifts - holidays - set aside $ 500.
6. Immediate emergency fund $1000 always!
7. Whatever is left can go toward retirement savings or a CD - that way there are penalties for withdrawals, keeping you from spending it and you are building a safety net for yourself.
Most credit unions and banks will let you set up as many separate savings accounts as you like, each with an individual goal and you can add $25 or $100 a month to whichever account you need/want to boost the most.
My credit union has what they call a holiday club savings account, which gives you 3% interest, but there is a penalty for early withdrawal - perfect for vacay and holiday allocations.
Finally, stop thinking of it as a windfall of $25,000 - think of it as a windfall of $500 each and a thank the lord or the universe:), peace of mind fund for you to build your new financial life around. This is so exciting!:)
I'm not good with spreadsheets so I actually use pen and paper for my budget. (I know:), but it works just fine. A budget is important, just keep working at it every month, it will get so much better. You need a plan - for now and for 3 or 6 months down the road. An intermediary plan for one year - where do you see yourself then?
Where do you want to be in five years - how can you make it all happen? You just got your chance and yes, you can do this:) ... and yeah, yeah, do pay off your bills every month, but you already know that drill.:) You will do fine.
Good luck - keep asking questions and work it, you can do this. Don't over think it and don't be in a rush - think about your values and how you can achieve more financial security.