The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Freedom2016 on September 25, 2012, 09:49:53 PM
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Hello Fellow Mustachians,
I could use some guidance in figuring out what to do with a small inheritance I received from my grandmother, who passed away a few months ago. The total amount is about $8500. $1700 is earmarked for our 5-month old son and we are likely to open a 529 account for him using that as seed funding. It's the remaining $6800 that I'm unsure about. These seem to be the options:
Pay down debt. We have a mortgage (340k remaining, 4.875% APR), I have a student loan (37k remaining; 3% interest), and we have a loan from my husband's mother (13k remaining, 0% interest).
Bulk up our emergency fund (16k current balance) which was depleted when we got an unexpected tax bill earlier this year.
Put into retirement fund (we have about 200k saved right now; we are 38 and 40 years old).
Put toward new car fund. Neither of our 2 cars (both paid off) is particularly family friendly; we are likely to sell my Mini Cooper in the next year & replace with something bigger - but we won't get enough from the sale of the Mini to fully fund a purchase.
Do something sentimental with the money. My sister plans to buy artwork to remember grandma by; my husband and I talked tonight about creating a mini "endowment" that would throw off a small sum each year that we would use on, say, grandma's birthday to do something special in remembrance. The latter idea could also double as additional emergency savings.
It feels like the obvious answer is debt, but there's something so clinical and unsatisfying about doing that. It's not like we'd be able to pay anything completely off; we would just make a dent.
What say all of you?
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Sorry to hear about your grandmother.
I'm always of the opinion that a windfall shouldn't be treated any differently. Stick with your asset allocation and investment plan (or debt paydown plan). A windfall should merely accelerate what you have planned, not change it.
(I suppose one exception may be that a windfall could give you enough to invest in something that wasn't an option before. Real estate, for example.)
So that's my first recommendation.
My second would be another option you don't have listed - stick it all in the 529. It'll grow quite well over the next 18 years, and having a lot of his college paid for by his great grandmother is a nice idea, to me.
My third option (and if you're picking from just your list, so you don't like the above ones I suggested) would be the option to pay down the family loan. Though it is at 0%, loans among friends and family can strain or alter relationships. Even if that's not the case on the surface, that would be my number one priority to pay down.
Good luck.
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What he said
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When my father-in-law left us a small inheritance, we bought, as a remembrance, a painting that we loved that would have been out of our normal price range (about $3K I think). After that, we still had 2/3 left over to invest.
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First, I'm sorry about your grandmother.
All of your options sound fine, and it's all in what you want to do - but I would urge you to set the money aside for some amount of time, like six months or so, while you think about your options. You can put it in a "high"-yield savings account for the meantime, so you can earn some interest on it.
At least, that's what I would do. I would be worried about making a decision too hastily, even though the decisions you've outlined all seem good.
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Thank you all for your input! We will likely follow maryofdoom's suggestion to wait a few months to think through what we want to do. Thanks, arebelspy for adding to the list of ideas and thanks use it up, wear it out for sharing your experience.
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All that the above said but I would also focus on refinancing your mortgage because rates are much better than that now - you have the cash to pay it down to meet an LTV requirement so I say do this immediately.