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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: cody1awesome on October 23, 2015, 08:41:17 PM

Title: What should I do with an inheritance?
Post by: cody1awesome on October 23, 2015, 08:41:17 PM
I recently inherited about 130K and can't decide what to do with it.  This is my current situation.

Emergency Fund - $16K and rising
No mortgage, we rent
No retirement savings

Debt:
110K - student loans for wife and I
25K - car loans for 2 cars
Credit cards are completely paid

Our initial thought was to take the money and buy a house, then take the money saved from not paying rent and use it to start paying down our student loans.  Then we thought about just completely paying off our student loans, use excess money to pay off our cars faster, and then save hard for a year and use the money for a down payment. 

We both work full-time, but the money isn't exactly great.  So another option was to pay off our student loans and then one at a time go back to school for better paying degrees, paying in cash for each semester if possible. 

We are packing lunches and saving money any way possible at this point.  This inheritance can be a game changer for my family.  My wife and I were poor growing up and we want to make sure we can make the best possible life for our son so he doesn't have to fight as hard as we've had to. 
Title: Re: What should I do with an inheritance?
Post by: lhamo on October 23, 2015, 08:51:09 PM
The Dave Ramsey "debt snowball" approach would be:

1)  Put aside $1000 as a mini emergency fund
2)  Pay off the cars and the student loans (using the inheritance + the other 15k you have saved)
3)  Save a 3-6 month emergency fund
4)  Save for a house down payment or fund further education (whichever you decide is the priority)

Personally, I would start contributing to retirement before saving for a house/education.  Because you lose the opportunity to contribute to that once the tax year ends, and compounding is a marvelous thing.


Title: Re: What should I do with an inheritance?
Post by: jengod on October 23, 2015, 09:07:59 PM
PAY OFF THE STUDENT LOANS AND THE STUPID CARS AND THEN NEVER BORROW MONEY AGAIN!!

{I have a Ph.D. in Dave Ramsey podcasts and that's exactly how he'd yell at you.} Seriously though, debt is dumb. Don't try to invest while you owe money elsewhere. Get to Net Worth Zero and then invest.
Title: Re: What should I do with an inheritance?
Post by: mozar on October 23, 2015, 09:11:49 PM
Personally, I would pay off the student loans first. What are the interest rates?
Title: Re: What should I do with an inheritance?
Post by: ltt on October 23, 2015, 09:36:30 PM
It would be really nice not to have that student loan debt hanging over your head--it's a lot of money. 

But if you use all your inheritance money to pay off debt, then it's gone---all gone.  I would pay off the cars (I'm assuming higher interest rate here), then pay down on the student loans, but not all.  Invest some of your money---maybe in to Vanguard. 

What are you interest rates on your student loans?  Your vehicles?
Title: Re: What should I do with an inheritance?
Post by: Goldielocks on October 23, 2015, 09:49:42 PM
Invest $75k for retirement, moving the max each year into Roth or 401k.

This would get you $40k per year in retirement after 45 years at 6% interest, net of inflation. (I assume you are young).  401k Matches and SS will generate a lot more...

Imagine never NEEDING to fund retirement savings out of wages.

It also locks off money from inflating your lifestyle, by say, using it towards a larger home.

I would split the remainder between student loans and a nicer, newer, used car.  For 'now' money.  An alternative is something like eye vision surgery , braces, knee surgery, or something that is lasting that improves your life.


Title: Re: What should I do with an inheritance?
Post by: mxt0133 on October 23, 2015, 10:55:06 PM

We both work full-time, but the money isn't exactly great.  So another option was to pay off our student loans and then one at a time go back to school for better paying degrees, paying in cash for each semester if possible. 


The both of you have 110k in student loans and are already working full-time. What makes you think that going back to school will get you better paying jobs?  Do you have a specific degrees in mind?  How much would it cost to complete the degree and what will your starting salaries be?  How old are the both of you?  If you are on the older side then going back to school might not make much sense as you would not be working much longer.  However if you are still in your 20's or early 30's then it might be worth it.

If you cannot answer those then I would recommend eliminating the debt and focus on lowering you expenses. 
Title: Re: What should I do with an inheritance?
Post by: davisgang90 on October 24, 2015, 04:40:24 AM
Pay off the debt!
Title: Re: What should I do with an inheritance?
Post by: AlwaysLearningToSave on October 24, 2015, 06:08:01 AM
We cant give advice without more information. What are the interest rates on your loans?

Your best bet is probably to kill the loans, but it depends on interest rates.
Title: Re: What should I do with an inheritance?
Post by: ShoulderThingThatGoesUp on October 24, 2015, 06:45:30 AM
More information! See the how-to-write-a-case-study pinned thread.
Title: Re: What should I do with an inheritance?
Post by: cody1awesome on October 24, 2015, 07:05:09 AM
The interest rates on the car loans are 3.5% and 4.7%.  I'm 30 years old and she is 28.  I don't have the interest rates on her loans, but a few of them are private loans because she went to grad school.  My loans are

3.86 %    $7,276.48    

3.86 %    $5,606.64    

6.80 %    $6,267.25    

3.40 %    $5,592.27    

6.80 %     $8,452.12    

3.40 %    $5,498.04    

6.80 %    $7,653.79    

4.50 %    $4,500.00

Both cars will be paid off within 5 years, even if we only make minimum payments.  Even if we paid off one of our loans it would help.  I am currently on a repayment plan that does little to nothing.  I've been making payments for a year and have managed to pay a whopping $4.33 in principal and over a grand in interest.  When I called about not making a dent, they said that I would never pay them off without paying more per month, which is true, but my wife and I can't both afford to make the standard repayment.  My loan amount has actually increased since I've been making payments. 

The idea of going back to school is to invest in ourselves first in order to maximize our money making abilities.  She has a Master's degree in Public Health, I have a Bachelor's in Psychology.  We live in KY, so any job she has applied for started out at less than what she makes now by at least 5 grand, usually more.  She wants to get a degree in Applied Behavior Analysis because we both work with people who have intellectual disabilities and the pay for ABA is considerably higher, especially with her experience working with autism.  I would go back for an associate's degree in a medical field, possibly sonography or radiology, and the pay for those jobs doubles or even triples my current pay. 
Title: Re: What should I do with an inheritance?
Post by: thedayisbrave on October 24, 2015, 07:32:30 AM
I would set aside enough money to max ALL possible retirement accounts for this year and next, and then pay down the loans with the remainder.  You should only be left with a very small amount of loans - pay extra on them until they're gone.  I would not go back to school until you save up enough cash to pay for it.  Otherwise, you're escaping the handcuffs temporarily to just put them back on again.
Title: Re: What should I do with an inheritance?
Post by: Tjat on October 24, 2015, 07:48:50 AM
1. Sell both cars and buy ones with cash (no loans) for a total of $15K

2. Pay off the entirety of your student loans. This is a huge anchor around your necks and few people have the opportunity to wipe it clean as you do.

3) Begin saving in the following order
 - Company match 401K
 - ROTH IRA contributions for both of you ($5500 each). Your tax bracket sounds low, so post tax is optimal
 - Or, depending on your home buying priority start saving for a downpayment

IMO, it doesn't make sense to buy a house when you have $135K in debt already. Also - don't go back to school unless you have explicit high probability plans that it will be a worthy ROI. It sounds like your prior investments in school haven't paid off very well, so be very careful making the same mistake twice. Think about the monthly cash flow that will be freed up if you ditch your student and car loans! Suddenly another degree may not be necessary once you ditch the debt.
Title: Re: What should I do with an inheritance?
Post by: cincystache on October 24, 2015, 07:54:54 AM
Congrats on the inheritance and I'm sorry for your loss. Here is my two cents on your situation:

1. Get rid of the cars and get two dependable used cars for whatever amount you sell your current cars (preferably less). Stop buying cars on credit, forever.

2. Rent a cheap place. Don't sink all your money into a house, you have bigger priorities. KY is super low cost of living, a two bedroom place should rent for about 800-1000 per month MAXIMUM. If you want to be intense, find a 1 bedroom for 600 or less. They are out there. If your income isn't great you MUST learn how to save more money or you will never get ahead, the inheritance will be a temporary fix. A house is not the answer to your problems.

3. Maximize any 401k matching through your employer, this is free money.

4. Max out an IRA for both of you (11,000 per year). You only get one chance to contribute each year so make the most of it.

5. Student loans suck, but not as much as having $0 in retirement accounts at your age, these are prime compounding years!!!! I would pay off any student loans that are above 5% interest and pay the minimum amount on the rest until you are maxing out ALL of your retirement accounts for both you and your spouse (HSA, IRAs, 401k/403b's). Then and only then would I consider paying off the lower interest student loans early.

6. If you have any money left after attacking your high interest loans and you've maxed out your IRAs, HSA, 401k, I would earmark it for future IRA and 401k contributions. If you commit to funneling all of that money into a good mix of stock and bond index funds and let it compound for the next 30 years within a retirement account you will come out much further ahead than if you bought a house or paid off your low interest debt today.

7. On school: I agree with "investing in yourself" but paying full price for another degree is not necessarily a good investment (i.e. your current student loan mess). Find out if your wife can start working for an employer that will pay for part or all of her education. Fields like that usually offer student loan forgiveness and/or tuition reimbursement.

For you, an associates degree in a medical field is not a bad route provided you attend a school that costs 4,000 or less ANNUALLY in tuition and it will only take 2 years (or $8,000 total) to complete your program AND you can still work at least 20 (preferably 30 or 40) hours per week while going to school. I would check salary estimates for radiology techs in YOUR area as well as MRI technicians to be sure you are getting a good return on your college dollar. I think these program are far better than a 4 year degree in psychology in terms of return on investment and ease of finding a job so well done doing your research.

Best of luck, keep us posted on what you decide!
Title: Re: What should I do with an inheritance?
Post by: Catbert on October 24, 2015, 11:18:48 AM
Let me answer your question from a different perspective. 

Was this a distant relative whom you knew little if at all?  If so, treat the inheritance as you would any money and see all the answers above.  However, if it was a close relative (e.g., grandparent) do you have any idea what they might want you to do with the money?  Maybe something you can remember them by.  A strong believer in Dave Ramsey = pay off debt.  Previously encouraged you to get a Masters = further your education.  Saved all their life for retirement = fund an IRA/401k.

That doesn't mean every dollar has to be spend  as you think they might like (especially if they encouraged world travel).  But it can be nice to have something to remember them by.
Title: Re: What should I do with an inheritance?
Post by: cody1awesome on October 24, 2015, 12:07:46 PM
The relative who passed wasn't actually related to me.  He dated my mother for years and years, but she wouldn't marry him and I was never adopted.  My mother died from cancer in her mid-50's, and he passed away from kidney failure due to COPD and a stroke.  The inheritance is actually in the form of a 90 acre farm, which we sold, primarily to pay off the taxes.  Due to the location of the farm, the land wasn't worth a lot.  Because I am a Class C inheritor, meaning no relation (even though we considered each other father and son) I have to pay a flat tax of around $12,750, plus a 16% tax on any money over 100K.  So with that, plus the 6% that goes to the realtor, plus another 4% to the estate lawyer, I am looking at ending up with about 130K after a sale of 170K.  We fought with ourselves forever about moving to the farm, but I've never been a farmer and the house needed massive repairs, plus it wasn't large enough to fit our family of 4 (me, wife, child, grandmother.)  It was also an additional hour drive to and from work for my wife, which would have negated a lot of the money saved, plus we didn't want to take out a loan to pay the almost 30K in taxes if we didn't sell. 

My step-dad told me to keep the place or sell it.  All he wanted was for my wife and I to have a good start for our son, which is why I'm putting a lot of effort into what I need to do with the money. 

My wife and I both work for the same company, her in a supervisory position.  The company doesn't offer a 401K match and I am a contract employee, which started as a way for the company to save money by not having to pay health insurance or payroll tax (shady, but I had to work.) 

Another thought on going back to school was that we could finally move out of state.  Much of our reasoning for staying in KY was because we had family to take care of.  My wife could have a higher paying job, but it would have to be out of state.  My degree in psychology was a miscalculation on my part, and it is costing me now. 

If we paid off our loans we would have about 20K left.  Our priorities are to save for retirement, open a 529 for our son, and work on buying our first home.  We could take the 20K left and max out retirement for this year and next, but I worry that we wouldn't be able to keep up that pace because of our current pay.

My wife makes 35K a year before taxes, and her take home is about $25+
I get paid as I work, which is at least 40 hours a week, and after taxes I bring home around $21,600.  If either of us got a decent paying job, we could add considerably to our income. 

The reason we rent a 3 bedroom, 2 bathroom is because my wife's grandmother lives with us to provide child care, which saves us close around $500 a month and gives us peace of mind.  If not for that, or if she had her own place, we would move into a cheap 2 bedroom immediately and save like mad. 
Title: Re: What should I do with an inheritance?
Post by: La Bibliotecaria Feroz on October 24, 2015, 01:10:33 PM
Definitely pay off those 6.8% loans--the others is more a matter of preference.

Open a 529 for YOURSELF if you think you might go back to school. Double-check the rules, but my understanding is that you can open a 529 for yourself, and any money that you don't use, you could transfer to your kid.
Title: Re: What should I do with an inheritance?
Post by: Frugal D on October 24, 2015, 01:23:29 PM
This is a no-brainer. Pay off all of your debt.

Don't even bother trying to analyze the cost/benefit of the interest rates versus investing.
Title: Re: What should I do with an inheritance?
Post by: johnER on October 24, 2015, 05:45:13 PM
This is a no-brainer. Pay off all of your debt.

Don't even bother trying to analyze the cost/benefit of the interest rates versus investing.
Why would you not even bother trying to look at the interest rate?  It's really a no brainier to pay the minimum on the sub 4% debt and contribute to an IRA/401k instead.

I'd pay off anything over 5%.  Anything lower than that is a personal choice, if it makes you sleep better to have less debt that's something, but investing will definite win out in the long run over a loan at 4%, especially if you're able to put the money in a deferred tax account.
Title: Re: What should I do with an inheritance?
Post by: Stupendous on October 24, 2015, 06:11:53 PM
If you co-mingle the inheritance, pay off debts that aren't yours, use it to buy a house, etc it will be split in the event of divorce. Not sure if that's something you want to think about but nobody has mentioned it thus far.
Title: Re: What should I do with an inheritance?
Post by: Pigeon on October 24, 2015, 06:15:43 PM
I understand you live in a low COLA, but it still seems to me like your wife is significantly underpaid with an MPH.  If I were her, I'd be looking around, even if it means changing my career focus somewhat.  She shouldn't have to go back to school.

I wouldn't even think about putting any of that money into a house until you have dealt with your debts, started saving for retirement and have improved your income.  I don't think you getting an associates degree in an allied health field is a bad idea.  It might be worth looking at dental hygiene as well.

If you haven't already looked at it, the Occupational Outlook Handbook is a useful tool for career changers and it's online for free.
Title: Re: What should I do with an inheritance?
Post by: cody1awesome on October 24, 2015, 06:44:09 PM
As far as divorce goes it wouldn't matter a whole lot.  Besides the fact that we are happily married (for now) the will had my name AND hers.  I agree that she is underpaid considering her degree, but the problem lies in location.  The offers she gets are low because she technically doesn't have any experience other than internships and the like during grad school.  If she wanted to make more money, we would absolutely have to move, and the chance of me finding a job in KY that makes $11.25/hr (My after tax rate) in the areas where she would find employment are are pretty slim.  Most public health jobs in KY are in low income areas that don't have a lot of opportunity for career to begin with.  Tonight I'm going to make a list of each of our student loans and find out how much interest I would be paying during the span of the loan.  I used tuition.io to check my loans today, and if I stay on the current repayment plan I will be paying loans until I'm dead, and probably after if the government has their say. 

My wife is also underpaid because we have only worked at this company for 3 years, and that's as long as the company has existed, so everybody was kind of without a paddle.  The money wasn't there initially, which explains the use of contract employees.  My wife's contract was up last month, so soon she will be negotiating a new contract.  She hopes to get a raise at that time.  We are both fairly intelligent people who have had ZERO experience with money due to our upbringing and lack of education on the subject.  However, we see this inheritance as a chance to make a fresh start.  When my mom died in 2010 I got 10K in life insurance money, which I used to pay off all of our external debts, such as credit cards and a laptop that m wife bought on credit during her first year at college.  At this point I have spent more time online looking at financial information than I spent playing as a child, so I'm hoping to become fairly versed in finance, at least as much as possible. 
Title: Re: What should I do with an inheritance?
Post by: mozar on October 24, 2015, 07:01:32 PM
Knowing what I know now I still think you should pay off all your loans or most of them. I would try to find new jobs first before paying more for school. And unfortunately it's going to be a long time before you can buy a house.

I don't understand what you mean that your wife has worked at the same job for 3 years but only has had internships?
Title: Re: What should I do with an inheritance?
Post by: Pigeon on October 24, 2015, 07:03:07 PM
Why would you have to restrict yourselves to KY in the event you were willing to move?  Is the relative who lives with you unable to move out of KY?

You said your wife has worked at this company for 3 years. Why do you say she doesn't have any experience other than internships?
Title: Re: What should I do with an inheritance?
Post by: cody1awesome on October 24, 2015, 07:39:21 PM
I'll try to be more clear this time.  My wife's degree would be valuable for epidemiology and coordinating public health initiatives at health departments and schools.  Those jobs don't pay much in KY, and are few and far between in our area.  He current job seems like it would require a degree, but it doesn't.  She manages staff and does intakes for families, educating them on the services provided, and she also makes sure that the branch that she manages follows the guidelines for Michelle P and SCL2 waivers that the state set.  Her experience in this job is perfect if she stays in this field, and she recently applied for a job as an Executive Director at another company.  She fit the bill perfectly and has all of the experience and requirements, but a sad truth of this field is that companies almost always hire from the inside, and the opportunities just aren't there.  We are at this company because our old one shut down.  Job security is a big worry for us.   

Her experience in Pubic Health only goes so far as her graduate program and the internship that she did while there. So she doesn't have enough experience to get a job that pays at least what she makes now, UNLESS we move.   

We stayed in KY for this long because of family health issues.  Her dad died in 2010, then my mom died in 2010, and my step-dad died in April of 2015.  Now we are waiting to settle the estate before making any more decisions on moving.  She could apply for jobs at the CDC, and with other health firms.  The worry is that her getting a new job wouldn't pay enough to cover all of our expenses at the moment.  My psych degree is worthless unless I get a graduate degree, so any job I would get would have to be at least as much as I make currently, after tax.  In other words, she would have to carry us until I found a decent paying job as well. 

She actually thought about trying to do other internships to get the experience needed to be more eligible for the jobs around the state, but she really likes working with people who have intellectual disabilities, which would be perfect for an ABA degree. 
Title: Re: What should I do with an inheritance?
Post by: lhamo on October 24, 2015, 07:49:47 PM
There are currently 70+ jobs listed for the CDC on usajobs.gov -- not all would be appropriate for your wife, but some look interesting:

https://www.usajobs.gov/Search?keyword=CDC&Location=&AutoCompleteSelected=&search=Search

Most are in Atlanta, which might be a good place for you to consider moving.  It is a major metropolitan area with a booming economy, plus relatively low cost as far as big cities go.  CDC and Emory are both big employers in the public health field.  Emory might offer tuition waivers for staff -- would be worth looking into.  And at least for now, the Georgia Promise program might help offset the need to save for college for your son.

BTW, your psychology degree is not worthless.  Granted, you can't be a practicing psychologist with just a BA, and I would NOT recommend pursuing graduate study in that field.  But you seem very articulate and hardworking, and you probably could get a decent job in another field in a better economy.  Don't let the negative experiences you have had trying to find rewarding/well-compensated work in an area with limited economic opportunity get you down.  I think if you can relocate you will find that you have lots of opportunities to choose from.

In fact, that might be something to consider -- use this windfall to relocate first, get better paying jobs in the next 3-6 months in a better economy, and then pay off the debt. 
Title: Re: What should I do with an inheritance?
Post by: cody1awesome on October 24, 2015, 08:02:08 PM
I appreciate that.  We've had a rough few years and with everything happening, the deaths in the family, her getting pregnant and then having the baby, school, and dealing with this estate, most of our talks have been focused on the immediate task at hand.  When my step-dad died he hadn't told me a single thing about what he wanted, so I had to arrange it all myself.  I wasn't on his accounts so I had to pay cash for his burial, which left me short $4500.  His life insurance paid for the service.  While looking into his accounts to pay bills we found that he had another life insurance policy that he never told me about, and without that we never would have paid all of his bills.  He lived in his mother's house, and she passed away 6 months before he did, and he never handled her estate.  So not only was I appointed the executor of his estate, I was made administrator of hers.  It's been a long road and I'm glad it's coming to an end soon. 
Title: Re: What should I do with an inheritance?
Post by: justajane on October 24, 2015, 08:04:46 PM
BTW, your psychology degree is not worthless.  Granted, you can't be a practicing psychologist with just a BA, and I would NOT recommend pursuing graduate study in that field.  But you seem very articulate and hardworking, and you probably could get a decent job in another field in a better economy.  Don't let the negative experiences you have had trying to find rewarding/well-compensated work in an area with limited economic opportunity get you down.  I think if you can relocate you will find that you have lots of opportunities to choose from.

+1. My husband has a "worthless" degree in mass communications and after about a decade of working his way up now makes about 90K at a financial firm. What usually matters for these types of support jobs at corporations is that you have an undergraduate degree. He started out as a temp at a major credit card company. He probably made 30-40K for a few years. Then he was hired on as an actual employee and his pay went up to 60K. He made a few internal moves and got some raises and now he makes good money. This story is very, very common. 

More and more degrees is not always the answer to making more money.
Title: Re: What should I do with an inheritance?
Post by: ShoulderThingThatGoesUp on October 24, 2015, 08:08:40 PM
Does your wife's job make her eligible for public service loan forgiveness at some point?
Title: Re: What should I do with an inheritance?
Post by: cchrissyy on October 24, 2015, 08:23:22 PM
Don't worry at all about if you fund the IRAs just this year and next but then can't keep that up in the years after.  The whole point is getting the $ invested and letting it compound over time.  You can do $5500 each for 2015 now, and another $5500 each in January, and use the rest of the $ to pay down your higher interest loans and whatever else. but thinking that you won't be able to keep doing the IRAs absolutely doesn't make it a bad idea to do them in the years that you can!
Title: Re: What should I do with an inheritance?
Post by: cody1awesome on October 24, 2015, 08:38:07 PM
My problem with the degree is I really love psychology.  I used to get weekly emails while in college and they would list jobs that I could get with a BS in psychology.  Police Officer, Telemarketer, etc.  Never anything I was interested in.  Initially I wanted to be a drug and alcohol counselor, but from my experience there isn't much money in helping people.  The inheritance is like a genie who only grants one wish.  I could buy a house, but still have a lot of debt.  I could get rid of debt, but still rent.  I've been leaning more and more towards a better education.  The extra cash could supplement my income enough to go back to school and get a degree in a short amount of time, then instead of making 11.25 an hour I could make double that at least.  Over time, that would pay for itself.  I don't want another degree just to have one, I want a degree that will help me through my lifetime and through as much of my son's lifetime as possible. 

Right now my Income Based Repayment on my loans is such that I can't even calculate the interest over time, because on most of my loans the payment isn't enough to cover the interest, nevermind the principal. 

My wife isn't eligible for public service loan forgiveness because our company isn't a not-for-profit company. 

As far as retirement goes I had settled on dying at work.  It was an unreachable dream, but as I said, this windfall could change our lives.  If it changes for the better or for worse depends on the choices I make early on. 
Title: Re: What should I do with an inheritance?
Post by: cchrissyy on October 24, 2015, 09:53:59 PM
Are your loans on the kind of income based repayment plan where, eventually, the remaining balance gets forgiven?  Because if so, that probably would change people's advice to pay them off with the lump sum, and you'd be better off saving/investing it and letting the loans eventually erase themselves.
Title: Re: What should I do with an inheritance?
Post by: okits on October 24, 2015, 09:57:22 PM
I've thought about your situation a bit and I think you should use most of the inheritance (~$100k) to pay off your loans (highest interest rate first.) As I understand it those student loans follow you around until they're repaid or you die, so save yourself years of interest expense and get rid of most of them. 

I sense a feeling of futility from you, and suspect having that much debt hanging over your head (as a young family trying to establish careers) is a significant contributing factor. You've also lost all your parents at a young age and in the space of a few years (and had to settle two people's estates), and I imagine that takes a while to recover from.

Use some of the remaining money to move for better career opportunities and get on your feet in a new city.  The goal is to better your long-term prospects, so even if it takes a few months to find work (or the pay isn't fantastic), if there's room to move up you're better off.  Get a side hustle going for extra cash (once your stepdad and his mother's estates are settled.)  If downgrading your cars is feasible free up some cash by doing that.

The rest could be an emergency fund, retirement savings, or education savings for your child.  I know a lot of big numbers get tossed around on these forums but that's not life for everybody, so don't let that discourage you as you're just getting started.  You're wise to carefully consider how to use this inheritance to better your futures.  Some of the suggestions and support here should give you hope that you can take a big step forward in your lives.
Title: Re: What should I do with an inheritance?
Post by: cincystache on October 25, 2015, 06:17:19 AM
I sense a feeling of futility from you, and suspect having that much debt hanging over your head (as a young family trying to establish careers) is a significant contributing factor. You've also lost all your parents at a young age and in the space of a few years (and had to settle two people's estates), and I imagine that takes a while to recover from.

Use some of the remaining money to move for better career opportunities and get on your feet in a new city.  The goal is to better your long-term prospects, so even if it takes a few months to find work (or the pay isn't fantastic), if there's room to move up you're better off.  Get a side hustle going for extra cash (once your stepdad and his mother's estates are settled.)  If downgrading your cars is feasible free up some cash by doing that.

The rest could be an emergency fund, retirement savings, or education savings for your child.  I know a lot of big numbers get tossed around on these forums but that's not life for everybody, so don't let that discourage you as you're just getting started.  You're wise to carefully consider how to use this inheritance to better your futures.  Some of the suggestions and support here should give you hope that you can take a big step forward in your lives.
+1

Try to stay positive about your situation and your outlook. You seem very fatalistic in your writing and you need to realize that you and your wife have the power to change your situation. Don't complain or think that you are doomed to fail because of where you live, how much debt you have, how much your job stinks, or how your degree is worthless. Have a positive attitude and get out there and make it happen. You guys are young and full of potential, go make it happen
Title: Re: What should I do with an inheritance?
Post by: cincystache on October 25, 2015, 06:45:52 AM
http://www.financialsamurai.com/bad-attitude-net-worth-killer/

This blog post seems to sort of fit your situation. I hope you get some insight from it.

Keep us posted on your journey
Title: Re: What should I do with an inheritance?
Post by: soccerluvof4 on October 25, 2015, 07:10:50 AM
Pay off your debt so you can look forward. Just don't develop new debt. Nothing else to me makes any sense.
Title: Re: What should I do with an inheritance?
Post by: Dee18 on October 25, 2015, 07:36:49 AM
It is great that you are thinking so carefully about how to best use this money.  I agree with posters who say pay off the student loans.  But I think the best advice you are receiving is to sell those cars.  Car debt is never good debt. I was brought up with the idea that one needed a new car every four years so they would be "safe," as if a five year old car would suddenly die on the side of the road. That was so silly!  I am now happily driving my 11 year old Honda (including on my frequent 400 mile trips to Ky where I grew up).  With the student loans paid off and more modest cars, you should be debt free and still able to max out your IRAs for the next couple years.

I urge you to think more broadly about career possibilities.  Do not think that another degree will suddenly get you a higher paying job. (I teach at a university and see way too many grad students who are there because they were dissatisfied with a job and mistakenly believed grad school was the answer.).  What will get you a higher paying job is identifying your key skills and selling them to a future employer.  Go to the college you graduated from and ask for help from their career services office, or whatever they call it now.  Have them help you write a resume and do a practice job interview.  Keep in mind that few people get paid for exactly what they would like to do.

As for relocating for your wife, she certainly could work for a university with a good grad program in public health and get her PhD for free while working. I have friends who have done that at Univ of Alabama at Birmingham.  The CDC is another possibility, but the cost of housing in Atlanta is really high now and the transportation situation is dreadful.  Louisville is much more affordable and livable. She might also benefit from speaking with some former professors about ideas for jobs.

Title: Re: What should I do with an inheritance?
Post by: justajane on October 25, 2015, 08:40:47 AM
Yes, going back to school to make twice as much might be a good idea if you were, say, going back to make 80K instead of 40K, but you're still only talking about $20 an hour after more and more loans. You need to actually sit down and find out what another degree would cost, also factoring in lost wages and living expenses, and then calculate (with interest) how long it would cost to pay it down. You might be (literally) compounding your debt even more with not as much gain as you think.

I have a friend who makes $16 or more dollar an hour working part-time as a counselor for a suicide hotline. Would that kind of work not be possible with a psychology BA?
Title: Re: What should I do with an inheritance?
Post by: cody1awesome on October 25, 2015, 04:27:16 PM
I didn't realize I was being fatalistic in my writing, but after reading back I can definitely see that.  A few of my student loans are underwater because of my repayment plan.  I used tuition.io and it basically said that with my current payment I wasn't even covering the interest.  I've considered paying those loans first, then making an adjusted minimum payment for a year while saving the rest of the money until we decide what to do. 

Dee18, I'm glad you mentioned that the cost of living in Atlanta was high, because my wife has a friend who works on the CDC campus (fellowship) and he told her that it wasn't that bad.  So now I know that it is something to look into for myself to help determine if it is a possible choice. 

On the topic of getting a side gig, I have thought about that at least a million times.  Because I am a contract worker, I make $15 an hour, which ends up being $11.25 after taxes.  I could work 50 hours a week right now, but I choose to work 40 so I can be at home at night with my son.  I grew up without my father, and only had my grandpa as a father figure until my step-dad came along, so I want to make sure I get my time in with him.  The reason I can't work more during the day is because my schedule is based on family need for my client.  If they need 40 hours, but they need those hours from 11a-7p, I don't get home until 7:30-8p, and my son is in bed by 8:30p or 9p.  That leaves me the weekends to spend time with him, or I could work 50 hours during the week and do weekends as well, which would increase my paycheck, but decrease my times spent with my family.  Also, my schedule changes weekly.  One week I could work M-W, have Thursday off, then work Friday and Saturday, and the next week I could work M-F and have an event that I have to be at all night on one of those nights.  I considered signing up to be an Uber driver, but it isn't really relevant to my situation because I live in a college town and the bars and the campus are within a 5 minute walk.  The taxi company in town barely stays afloat. 

I have thought about working for a suicide hotline, but at the time the hours wouldn't have worked with my schedule.  I'm going to look into that again and see what I can come up with.  As I mentioned above, usually after 9p I am available to do other work, and I have been doing a little bit with Amazon Mechanical Turk, and I used to do some stuff with Virtual Bee before they stopped assigning work, but the money wasn't much.  I could probably do some transcription for Amazon and make better money, but I'm not qualified for it just yet, though I am trying. 

I talked to my wife last night and she told me that she didn't want to make ABA a full-time career, but use it to supplement her income.  It could be worth it in the long-run if we decide to stay where we are.  We also talked about the possibility of moving to find more lucrative work, and that seems to be back on the table. 

I used to work doing data entry for Xerox and even though it was piece rate, I still made over $13 and hour, plus I had health insurance.  I could always go back to that, but I realllly don't want to.  If they would allow me to work from home I could work lots of hours at night and bank the money, so if those opportunities are out there someone let me know. 

Thanks for all of the help and advice.  Usually I get a few short responses or end up with a lot of unhelpful information, but you guys are giving me tons of options and that has helped ease my stress a little bit.  On the flip side you're killing my wife because now I won't shut up about it. 
Title: Re: What should I do with an inheritance?
Post by: cchrissyy on October 25, 2015, 05:00:21 PM
Quote
Are your loans on the kind of income based repayment plan where, eventually, the remaining balance gets forgiven?  Because if so, that probably would change people's advice to pay them off with the lump sum, and you'd be better off saving/investing it and letting the loans eventually erase themselves.


I'm still really interested in the answer to this, because it could make a big difference in your bets options and give you light at the end of the tunnel.



Also, remember that there is no rush to decide about the inheritance. You can totally just hang on to it for a year, as long as you don't spend it away it will still be there for you when you have recovered fomr the loss and stress a bit and maybe the bets way forward is more clear.

good luck!
Title: Re: What should I do with an inheritance?
Post by: Tjat on October 25, 2015, 06:11:31 PM
I didn't realize I was being fatalistic in my writing, but after reading back I can definitely see that.  A few of my student loans are underwater because of my repayment plan.  I used tuition.io and it basically said that with my current payment I wasn't even covering the interest.  I've considered paying those loans first, then making an adjusted minimum payment for a year while saving the rest of the money until we decide what to do. 

I'm not familiar with this type of loan - it sounds like you're making payments but your balance is still increasing. If so, that is alarming and I'd strongly recommend eliminating those loans - even before any sort of retirement contribution.
Title: Re: What should I do with an inheritance?
Post by: cody1awesome on October 25, 2015, 06:40:07 PM
As far as loan forgiveness goes, I really have no idea.  Everything I've read says that loans are forgiven after a maximum of 25 years of payments, but the white house site says that that rule is for students who enroll in college in 2014 or later.  When I talked to a loan officer about why I was making payments and my loan amounts were increasing, she said it was because of the repayment plan I was on and that I would never pay them off, unless I started paying a standard payment, which I really can't afford at the moment.  Here is the link to the information:

https://www.whitehouse.gov/issues/education/higher-education/ensuring-that-student-loans-are-affordable

When I first called to set up payments on my student loans, it all sounded too good to be true.  Apparently it was.  I was told that because my wife was paying student loans, and because we had 3 people in the household (technically 4 because she was pregnant at the time) I qualified for a financial hardship, which would keep my payment low.  $127 to be specific.  He said I just had to re-enroll every year, but he NEVER mentioned that my payments wouldn't be enough to cover the interest.  In fact, he made it sound like it was some awesome deal because they adjust mine based on my wife's loans.  So because she pays more, I can pay less, then somehow, when she pays hers off, I can move that over to mine.  Like I said, too good to be true, and this fool definitely rushed in.  If not for this inheritance I really don't think I would ever get them paid off. 
Title: Re: What should I do with an inheritance?
Post by: cchrissyy on October 25, 2015, 07:19:39 PM
The student loans thing is worth more research - maybe it needs a separate thread


I think you're right that the rules and calculations changed in 2014 but still, being on Income Based Repayment leads to forgiveness.


That leaves you the choice of paying them off, or or making these minimal payments while investing/using this inheritance on something else.  I don't know which you should do but you definitely need more info before choosing.
Title: Re: What should I do with an inheritance?
Post by: ClaycordJCA on October 25, 2015, 10:04:00 PM
If you do not have one already, I suggest the first thing to do is  to allocate the equivalent of three to six months of expenses to an emergency fund. Otherwise, any emergency will likely be funded with high interest credit card debt that you can't payoff and the cycle will begin anew. I then would pay off the most expensive 6.8% student loans.  That will give you some breathing room since some of your monthly payments will now go toward principal.  I would also fund IRAs for you and your wife for this year and next - the power of compounding is no joke, the $6k I contributed 25+ years ago is now almost 80k with no additional contributions.   I'd put the balance of the inheritance in an on-line savings account until you and your wife figure out what your 5-year plan is and then how to achieve it. You are not in a position to buy a house with so much uncertainty and debt.
Title: Re: What should I do with an inheritance?
Post by: clarkfan1979 on October 27, 2015, 01:45:28 AM
If you both have a four year degree you don't need to go back to school to increase your income. Try to get creative instead of looking at only one possible way for more money.

If you do well then you can treat yourself later in life with a Master's.
Title: Re: What should I do with an inheritance?
Post by: meg_shannon on October 27, 2015, 02:08:06 AM
The poster said the cost of living in Atlanta was reasonable, not high.

I agree that you should pay off your student loans, since you're not making much, or any, progress in paying off the principle.

You need to reassess your car situation. If you and your wife work at the same place, do you need two cars? Several posters have suggested you do something about your cars, and so far, you have replied much about that.

Is your wife and live-in grandmother onboard with an MMM lifestyle? They could do a lot to help lower expenses. Does the grandmother financially contribute to the household, other than childcare? Would she be able to move your family (if you move)?

Save for retirement before worrying about your son's college education. You need to get your own financial house in order before worrying about someone else's, including your children. If you sacrifice your savings to provide college education for him, he may supporting you when he's your age. The great thing about a 529 is that you can change the beneficiary. So you can open one for yourself, or your wife, and in time can change it over to your son.

Don't take out more loans for education. Look at moving somewhere else, such as Atlanta, first. You both have degrees and are in an underpaid and depressed area. You can make more money, without having to pay tuition and sacrifice years of earnings, by moving.

There is nothing wrong with renting. I know that in depressed areas of the country owning is generally cheaper than renting (I grew up in Michigan), but as long as your net worth is improving you are making progress.

Even with lower salaries you can achieve home ownership and a retirement. Please don't become too pessimistic about this. There are several (or many) members on the board who work low paying jobs and are making huge progress towards their goals. I would suggest submitting your data for a case study and opening up a Journal thread for support here. Many people here have been through similar situations and can provide information and ideas that you may not come across elsewhere.
Title: Re: What should I do with an inheritance?
Post by: cody1awesome on October 27, 2015, 11:18:05 AM
The poster I was referring too said the cost of housing in Atlanta was high.  I had to go back to make sure I wasn't too far off base.  Again, I haven't been perfectly clear with the job situation and now I can see where that gets confusing.  My wife works a city away and uses her car to get to work and for meetings.  I work with a client in the community, so we are traveling to and from different locations all day, every day.  That's why we need 2 cars.  If we both worked in the same building, I would absolutely downgrade to just one car.  Also, I had just paid off my car and got a truck, which was my little gift to myself.  Then we found out she was pregnant, so the truck had to go for a reasonable vehicle, which brings me to my current car.  Hindsight, you old devil you. 

While looking online for job postings I did come across two that my wife recently applied for, one close and one in Louisville.  I'm continuing my job search as we speak. 

Her grandmother is a tougher egg to crack.  Before she moved in with us, I was diligent about cutting costs.  I unplugged almost everything at night, I only ran the dishwasher and did laundry during off-peak hours.  That alone saved us about half in our electric bill.  I was the only one who drank coffee, so after I filled my thermos in the morning it would go unplugged until just before I went to bed at night.  I made sure the ceiling fan blades were spinning in the right direction for the time of year.  I kept the thermostat down and put on a sweater when the weather warranted it.  The situation is a lot different now. 

My wife's grandmother is a huge help, especially since my wife and I both work.  I don't think she would be opposed to moving, and she does randomly help with bills, but because she takes care of our child, we kind of count her cost of living as her payment.  So she doesn't help with rent or anything, unless she gets a wild hair to do so.  Having said that, she also does pretty much whatever she wants.  As I said above, I liked to do laundry on the weekends when the electricity is off-peak hours.  Afterwards, I would unplug the washer and dryer.  She used to at least unplug the washer and dryer when not in use, but now it is always plugged in, and she does laundry almost exclusively during the week, middle of the day.  She also runs the dishwasher during peak hours only.  So while I appreciate her help around the apartment, there are multiple places to continue saving money where she works at it for a bit, then stops completely. 

It's not that I'm unappreciative, because she does a lot to help the family and without her things might be a lot worse (maybe, more on that in a second.)  But there are definitely areas where we could all work together to save more and make life a little easier.  I just worry about bringing it up because she does so much.

Now, since my wife's grandmother has moved in, my wife's stress level stays high.  My wife hates that she has to work while our son is at home, and it is exacerbated when her grandmother goes off of our son's feeding schedule during the day, or when my wife gets home and she can't find bibs or blankets because her grandmother has moved them.  It makes her feel like less of a mother because these are things a mother should be able to do or have done.  For example, when we need the car seat, we can't find it.  It has been moved to the hall closet.  When we need the baby motrin, it has been moved to who knows where.  These are the stressful events for her.  Because of this, my wife wonders if it would have been better to do daycare and not have her grandmother with us.  We wouldn't need a 3 bedroom apartment, which would save us about 250-300 a month in rent, which could then go towards the cost of daycare and save my wife a whole lot of stress, and in turn save me a whole lot of stress as well.  That's not necessarily financially related, but it's just another possibility. 

Finally, as I also said before, I like that her grandmother cares for our child during the day because I am weary of daycare centers, especially in my area where drugs are prevalent.  Background checks aren't exactly standard, and I don't know that I am able to trust an unknown with my child at this point.  As far as living the MMM lifestyle, I'm all for it.  My wife is a little less for it, but she would be fine.  Her grandmother is the anomaly. 

I'm not being pessimistic as much as it appears.  I'm just stating a lot of facts, and they are facts that kind of suck at the moment.  It's just that we both want a house, which is the emotional bang for us, but paying off the loans is a realistic bang that is better in the long run.  It's all a matter of delayed gratification, which is the hardest kind of gratification. 
Title: Re: What should I do with an inheritance?
Post by: HazelStone on October 27, 2015, 11:35:26 AM
I'm going to suggest a moderate/hybrid route. I'm not as optimistic by nature as some on the board here. Don't sink the bulk of your money in student loans just yet. Pay off some- the debts listed at 6.8% are a bit of ouch. Do that and you should free up cash flow to make headway on the others, or consider paying off your wife's private loans- those don't have as much flexibility if you run into a rough patch. Federal loans follow you till the day you die.

Pay off the car loans; I won't pass comment on number of cars or type of cars. You know your situation best. That's more interest saved and more cash flow freed. Keep those cars as long as you can! The longer you go without a car payment, the more you can save toward your next car, OR keep throwing extra money toward debt payoff and investing.

As others have mentioned, set up Roths for you and your wife. Once the contribution deadline passes, you can't go and backfill those years when your income has improved five years down the line. Your income is relatively low; take advantage of that. Post-tax investing, time value of money, blah blah. :)

Keep a decent chunk of cash as an emergency fund, though! You have a baby. There may be some medical bills. Your wife's grandmother might get sick and unable to care for the baby. You might get laid off. It sounds like you don't have any close relatives that could be a financial backstop if things get rough. This way you've won yourself breathing room on cash flow, you are saving some interest, and you'll still have funds for moving to a new region. You'll have a debt snowball with some momentum. Put the remaining money in a CD if you have to, just so you Leave It The Fuck Alone.
Title: Re: What should I do with an inheritance?
Post by: redbird on October 27, 2015, 01:32:55 PM
Pay off all the loans that are above 4% interest rate immediately.

As for the rest, you can either pay them off immediately or invest the money. If you invest, you will likely make more than 4% so you would come out ahead. This is what I would do. Keep in mind though that even if it's less than 4% interest rate, it might make you feel better just to get it paid off.

An example of the latter - I personally just recently bought a car (post-FIRE). I was given an extremely low interest rate. But I paid it off in full immediately because I am FIRE and wanted to have 1 less bill to worry about. The amount of money I could've made off of keeping the same money invested was fairly low, and therefore I felt like the extra $$ was not worth the time/stress of worrying about the bill.

Your debts are much larger than the cost of the car I bought, however. Your potential for $$ you could make if you invest is much higher.
Title: Re: What should I do with an inheritance?
Post by: NoraLenderbee on October 27, 2015, 03:09:03 PM
As others have said:
--Pay off the high-interest loans.
--Fund IRAs for self and wife this year. Set aside funds for next year as well.
--Emergency fund.

Then put the rest in a CD or savings account and take a breath. You have time to consider what to do about the other things. You've both lost your parents and been through a major life change. Take some time to recover. 
Title: Re: What should I do with an inheritance?
Post by: Fi(re) on the Farm on October 27, 2015, 06:33:37 PM
I'm with NoraLenderbee, pay off the loans with over a 4% interest rate, max out your retirement, put some aside for emergencies and then breathe for just a bit. Talk with your wife and do some serious thinking about what you want from your lives. Once you've lowered your debt load you may be able to focus on what's next. You've had a stressful few years and you need to give yourselves the opportunity to relax a little.
Title: Re: What should I do with an inheritance?
Post by: JLee on October 27, 2015, 06:43:24 PM
This is a no-brainer. Pay off all of your debt.

Don't even bother trying to analyze the cost/benefit of the interest rates versus investing.

I just bought a reasonable used car financed at 1.99%. I am pouring money into tax-advantaged retirement accounts instead of paying cash for a car. Given the choice of:
Max IRA at $5500
or
Buy car for $6000 cash

I think option 1 is preferable. I'm sure others will disagree.
Title: Re: What should I do with an inheritance?
Post by: Red Beard on October 28, 2015, 10:44:49 AM
The first thing I would do is get a very clear understanding of your loans.

https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven

Federal loans under Income-Driven Repayment are forgiven after 25 years, even if you borrowed before 2014. This could mean that the best course of action would be to pay off the private loans first, address the car issue and save the rest. The could depends on a number of factors. Would you continue to qualify for IDR if you paid off the private loans? Will your future income grow at a more rapid rate than your loan interest, meaning that at some point you would no longer qualify?

Without knowing the answer to those questions, I would probably pay the private debt as well as the 6.8% loans. I would put the rest into savings (the IRA advice you've already gotten). I would also absolutely move to an area where jobs are more abundant before considering grad school.
Title: Re: What should I do with an inheritance?
Post by: TexasAnnie on November 27, 2016, 01:23:46 PM
+1 to Red Beard, along with the other good advice on this old thread. For others viewing this:

Interest will continue to accrue on Income Based Repayment plan.

You may owe taxes on the forgiven amount after the 25 - the amount forgiven is considered income. With interest continuing to accrue, that amount could be very large.