Post # 1
Bees, without describing the circumstances, Darling Husband and I have come into $100,000 tax free (and legally, of course!). That is roughly our net annual income after taxes. We have recently paid off a very large debt of $70K over 2 1/2 years from an unfortunate real estate investment (DH flipped a house and chased the market to the bottom when it finaly sold a few months before the wedding), so we only have $15K in savings currently. I have a $10K student loan at 4.25%, but we have no other debt now. We rent our home, and also have basically no retirement savings. This money would allow us a substantial down payment for a house, however the market in our city right now is extremely low inventory and highly competitive for homes in our price range of $4-500K, so even with the low interest rates I’m not sure this is the right time to buy. Oh, and I’m due with our first baby in a month. This is probably the only time in our lives where we would come into money like this.
I guess for now it will just go into a high-interest savings account. What would you do?
Post # 3
@RoundtreeBee: Wow, that’s amazing! We recently had a much smaller windfall, $15K. We ended up paying off all of our consumer debt so that we only have our student loans and mortgage left. I also made my husband open a Roth IRA since he had no retirement savings through work and had never opened one before (I’ve already got a 401K) and put in the maximum contribution. The rest went towards the purchase of a much wanted new king sized bed and mattress set (we figured what’s the point of having this awesome windfall and not having at least one frivolous purchase?!) and then into savings.The plan is also to just push the amount we WERE putting into debt every month (about $500) into savings and not change our lifestyle at all.
Honestly, with such a high amount that you’ve come into, I would definitely talk to a financial advisor. You have so many different options and they’ve probably seen situations like this hundreds of times and can give some great advice!
Post # 4
I would immediately pay off the stuent loan, max out IRA contributions for both of you, and invest the rest in some sort of high interest CD or savings account for use as a security fund. You can still contribute to last year’s IRA max amount so you could in theory use like $20k towards retirement for 2012/2013 out of it.
Post # 5
- Wedding: August 2013 - Rocky Mountains USA
Wow! What an awesome problem to have! Definitely max out both your personal IRAs and any work IRAs, if you didn’t do that already. Besides that, I’d put some in a combination of low- and medium-risk (low- to medium-return) stock market accounts – that could make you a ton of money by the time you’re ready to retire. My dad does a lot of investments and really likes Vanguard.
Post # 6
I would pay off the student loan and invest the rest for retirement. Then I would keep making a payment in the same amount of the student loan each month into a separate account to save for a down payment for a house. I think getting your retirement set up is more important than a house right now. I would also look at my budget to see where i could save more money for retirement and a house.
Post # 8
Unless you can find an investment paying better interest than you’re paying in your (likely tax deductible??) student loan, I’d pay that off First. from there I’d probably split the remainder between retirement and a term investment thats about the period you’d like to wait to purchase a home. My exact split recommendation would be based off two things 1) your current age (and thus time until retirement) and 2) housing costs in your area. If you decide to use it toward your downpayment, I’d suggest you buy the same house you would have planned without the windfall and make an effort to contribute the difference in mortgage payment costs to retirement investments for the life of your mortgage.
Post # 9
I’d build or buy a house anyway. If the market is that competitive, then renting is probably pretty expensive, too, and at least if you bought, you’d be earning equity.
Post # 10
That is awesome!!
I would pay off all debts first. Then look into using as little of it as possible to get 20% down on a home. And leave the remaining in savings.
Post # 11
I would def pay off whatever debt you had first, then buy a home, or build one. Large homes around here only go for 80k [4 beds, 2 bath], so that would buy us a pretty nice one!
Post # 12
This is a fun question! I hope the circumstances for this windfall are happy! I would do the following:
1. pay off any existing debt
2. Max out your IRA contributions
3. treat yourself and Darling Husband to something nice but not extravagent – vacation when the baby gets older or that shiny new laptop you want… maybe between 1-5k
4. Bulk up your savings (in liquid investments, not 401K) to 4-6 months salary (“emergency fund”)
5. Whatever is left I would do one of two things with. If you anticipate buying a home in the next couple of years, I would put it into a high yield savings account/CDs. If you want to put it away and not touch it for a while i.e. baby’s college fund, I would put it into some funds or individual stocks if you’re comfortable investing, because you have time to ride the market and should make a better overall return.
Post # 13
- Wedding: September 2013 - B&B
I would definitely pay off that student loan!! And probably put the rest into different savings accounts. I think its smart not to buy a home if you’re uncertain, and hopefulky the money can grow and earn interest and then you’d still have it for a down payment!
Post # 14
Thanks all! The money is a blessing that came out of some sad circumstances. Sounds like I should definitely pay off the student loan, it will be nice to be completly debt free. I have a Simple IRA through work, but I’ve only been contributing up to the employer match. I also have a personal IRA, which I haven’t contributed to for awhile. Sounds like a great idea to max out my 2012/2013 contributions in both accounts.
As for buying a home, we tried to buy our current rental home this year, so we were pre-approved for $400k mortgage with a low down payment. Sadly, our landlord valued his property way more highly than we did and couldn’t come to a deal. If we do decide to buy in the near future, we wouldn’t increase our budget, just our down payment. In addition to the finacial aspect, I just don’t think I’ll have the patience or stamina for a house hunt with a brand new baby in this kind of market. My Darling Husband has his RE license, so he insists on not using a buyer’s agent in order to save the 3% fee.
Really appreciate the advice! The windfall was something completely unexpected, and I’m still a little overwhelmed and in shock.
Post # 15
I am sorry you came into the money under sad circumstances.
Pay off all debt – anything you are in debt for, yes, become debt free!
Roth IRAS can only be built with income only, so I am not techincally sure if you can put that new money into a Roth. That may be a good question for a financial advisor.
But if you can definitely max out two Roths for each of you (or if you have Traditional IRAs) then max out 2013’s also. You can still put into 2012 until April. $5,000 x 2 and $5,500 x 2
Before you look into houses again, I’d try to live on your new debt free income for a while. See what it’s like to actually live with a $300-400k mortgage. As in put that money away even if you are renting and see how it feels to live on the rest. I’d also wait until after the baby came – there’s no rush! Try to see if you can do it.
What would be left if you paid off all and any debts? 20% down of a 350k mortgage is $70k.
Post # 16
I know I’d pay off all my debt, then half of whatever was left over to save for retirement and the other half to start on building my forever home. But that’s just me.