Where do I put this money??

[somanydogs]

Please pardon my story of being a spoiled 30 year old...but I need advice from a mustachian (or many).

My wife and I are receiving $5000 a quarter from her very generous grandmother, $2500 of it being for our homeowners insurance/property taxes and $2500 of it being for our newborn son.

Our financial situation:

We are both 30 years old, our home is paid for and we have no debt other than 9k left on our car that we have 0% APR on for the life of the loan. We have a savings account with about $40k in it. Due to health reasons and avoiding childcare costs my wife stays home with our baby and I am the only person bringing in an income, and a very meager one at that. I make $29k per year, but recently received a promotion that will bump my earnings to $36k and will reduce my commute from 30 miles to an easily bike-able 2 miles (my first mustachian move. w00t!) I have only been at my current workplace for two months which offers a 403b plan but have not been there long enough for the company match of 5%. I have only $900 in a previous 403b that I am working on rolling over into my new employers plan.

I just recently became interested in personal finance and have been spending most of my early mornings before work reading books, internet posts, and watching youtube videos on how to invest. I created a budget on Mint which is slowly but surely reducing our monthly cost of living which my wife has been on board with. However, the thought of investing the money that we are given is something that worries her, she is (understandably) a little skeptical since I have just recently gotten so in to personal finance. This is her family giving us the money so I feel I cannot pressure her too much about what I think we should do with the money but I would like to encourage her think about making the money earn more for us.

My questions:

Considering our financial situation,

• What is the best way to allocate the $2500 per quarter for our son to maximize earnings for his future?
• What is the best way to allocate the $2500 per quarter for our property taxes/insurance considering we will have to use this money annually to pay.
• What should we do with the 40k in our regular savings account?
• How do I convince my wife of a good plan with the money considering she is very risk adversed and skeptical?

I understand that my current pay does not lend itself well to FIRE, however I think we could be making better decisions with our money. I'm just not yet as savvy in the financials as I would like to be.

Any help is appreciated!

[MDM]

somanydogs, welcome to the forum.

You might go through Investment Order and Getting started - Bogleheads, reading those and the links within them.

After digesting that, perhaps propose answers to your own questions, so people can support or challenge as they see fit.  It's one way to learn. :)

In any case, good luck!

[zolotiyeruki]

As an aside, you'll want to make sure to avoid the gift tax.  Don't have all the $20k gifted to you personally, or you'll pay tax on part of it.  The recipients should be varied in order to reduce each individual's tax liability.

WRT your wife, you need to take the time and drill down to her basic concerns.  What is she afraid (for lack of a better word) of if you invest it?

[MDM]

As an aside, you'll want to make sure to avoid the gift tax.  Don't have all the $20k gifted to you personally, or you'll pay tax on part of it.  The recipients should be varied in order to reduce each individual's tax liability.

Recipients are not responsible for gift taxes.  That onus falls on the giver.

See Tax Tips to Help You Determine if Your Gift is Taxable | Internal Revenue Service.

[zolotiyeruki]

As an aside, you'll want to make sure to avoid the gift tax.  Don't have all the $20k gifted to you personally, or you'll pay tax on part of it.  The recipients should be varied in order to reduce each individual's tax liability.

Recipients are not responsible for gift taxes.  That onus falls on the giver.

See Tax Tips to Help You Determine if Your Gift is Taxable | Internal Revenue Service.

Ah, I wasn't aware of that, thanks for the correction!

[Villanelle]

This may be controversial, but I am assuming your son lives in your house, eats your groceries, uses your water, etc. 

So, if you feel comfortable doing so, I'd use that money to cover living expenses and the taxes, allowing you to safely invest the rest.  If you want to understand a good portfolio allocation, google "three fund portfolio" and similar search terms.  That way, one set of money becomes the living money, and the other set becomes the investing money.  The general wisdom is to fund your own retirement first, before finding a college fund.  There are scholarships and loans for college (and not all kids want to, can, or should attend a university anyway); there are no retirement scholarships.  If and when you are stable, in part due to investing that money, then you can decide to set something aside to help with college. 

You shouldn't invest money you are going to need every 6 months, so I wouldn't do that with the property tax money.  If you have enough to float one or more payments, you could start a CD ladder, basically have a CD that expires every 6 months, so you take that out and put in the next one.  Ideally, you could be several payments ahead so you could do 18 mo (or more) CDs, so you can get a decent rate.  (For more info, google "CD ladder".)

And while it would be the gifter that pays the gift tax, it is still an important point.  She can give money to you, to your wife and probably to your son as well.  And if she has a spouse, he may also be able give money to each of you, in order to help stay under the cap.  It wouldn't be your mistake to pay, but making sure grandma stays within on the right side of the IRS is a good idea.  You can google "gift tax" for the limits and rules. 

[Rob_bob]

As has been mentioned, don't invest the money given to you for taxes.  If the money given for your son, or some part of it, is for education then that could be invested.

Depending on what your expenses are a good piece of that $40k in the bank should be your emergency fund, invest the rest.