Dear Quentin,
I unexpectedly inherited about $850,000 and need advice on what to do with it. I'm a mother in my 40s and I'm financially independent. I make about $100k a year, and have $50k in savings and stocks. I have no experience with this amount of money.
Financially independent
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Dear financially independent,
There's only one thing better than an inheritance, and that's an unexpected inheritance.
Take a deep breath: $850,000 could be worth a lot even in 2024, if you're smart, but it could also disappear faster than you think. Set up a tax-free 529 savings account for your children's college education if you don't already have one. Maximize your contributions to your 401(k), if your employer offers one, or your IRA. If you don't own your own home, put some of it aside, although you may want to wait until mortgage rates drop before committing. Set aside enough money in an emergency fund to cover at least six to 12 months of expenses. And yes, treat yourself to something: for some people, it might be a spa or a philosophical course, while for others it's a new bathroom or insulation for their home.
Treat your windfall as hidden wealth. Be careful when talking about it with others, including neighbors, friends, relatives, and financial advisors who work on commission. It's a hard lesson to learn, but if you share news of your good fortune, not everyone will be happy with you. Some people may have their own business ideas and may consider you as their golden ticket. What's more, the average American family has $62,410 in savings — and the average family has just $8,000 — so as much as your true friends wish you well, it may still be hard for them to see an Instagram META update about your brand new kitchen or TikTok video From your trip to the Turks and Caicos Islands.
“An inheritance or windfall like this can be an emotional, confusing, and life-changing event, all at the same time,” says Martin Shamis, a certified financial planner with Janney Montgomery Scott in Philadelphia. “Depending on how you receive this $850,000 inheritance, there may be taxes due or specific distribution rules you will need to follow once you receive the assets. An inheritance can be a life-changing event, and seeing your personal net worth increase can have a significant impact on your life goals.” For you and your children, this is the perfect opportunity to discuss your financial goals, both in the short and long term.
If some of your $850,000 is in stocks and bonds? This will provide you with a timely opportunity to reconsider your overall investment strategy. You may want to take on additional risk — or play the long game with less risk now that you have more capital to work with. “If you have a strong allocation suitable for wealth accumulation, for example, you may want to step back from it to focus on capital preservation,” Hans says. Fidelity Wealth Management. On the other hand, “additional assets may give you the opportunity to take on some additional risk, especially if you intend to pass some or all of the assets to future generations.”
Here's what may be the most satisfying and empowering part of inheriting a large sum of money: If you have any personal loans or credit card debt, pay them off as quickly as possible. Current average Interest rate on personal loans 12.2%, the average percentage credit cards It is 20.7%, according to Bankrate.com. And with inflation rising to around 3.5% year-on-year in March, you're bleeding money at those rates. There's nothing like paying off debt to give you a head start before you meet with a financial advisor. (On this topic, be wary of bad actors – advisors who… Wine and dinner for you, and they will make you suffer.)
Take inspiration from others. In September 2018, this woman She wrote to Moneyist to ask how she should invest her windfall of more than $150,000. It has been life changing for her. She did not have a college degree, worked full-time for $15 an hour, as well as a part-time job for $10 an hour, and said she would never earn more than $30,000 a year. She paid off her car and bought a small house that she owns free and clear I wrote in the update. I deposited $70,000 into a high-yield online savings account. She increased her retirement portfolio and invested $10,000 between ultra-safe dividend stocks and exchange-traded funds. She also spent $7,000 on dental treatments in Mexico.
If Moneyist had a gallery of champions, you'd be in first place. You'll be able to do everything you did and more, while still setting aside some money for your favorite charities. “This planning foundation will support your decisions about whether you want to use the money to pay off debt, invest the money for long-term growth and retirement, or do something for yourself like home repairs or travel,” he says. Michael Martin, president of Prosperity Corporation in Minneapolis, Minnesota. You, like that inspiring woman who inherited a small portion of your sum, should take your sweet time.
Enjoy every minute of it.
Previous columns by Quentin Fottrell:
