How to spend Inheritance???

bakersuzieAugust 14, 2006

I am going to be coming into some money shortly when my deceased grandmothers home is sold. I owe about 9 more years on a mortgage that is 5.5% I don't have much consumer debt, but I also don't have much in savings or retirement. My questions is should I pay off my mortgage or should I invest the money. My brother says to invest the money and keep on paying the mortgage, but it seems like I could save a lot of money by paying off the mortgage. Then i could really step up my saving for retirement. What is a girl to do? I don't know much about stocks or investing.

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I recently heard a financial advisor say never spend your inheritance right away, sit on it for about a year and never pay off your mortgage using a large sum. If you have an emergency of some sort the money is there to use. While you are sitting on it for that year, decide how you want to invest it.

Not sure this is how I would do it but it did make sense.

Good luck and most of all enjoy it!

    Bookmark   August 15, 2006 at 12:48AM
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Chemocurl zn5b/6a Indiana

If it was me, I would sit on it a bit, putting it in savings or where it would not be tied up for any specified period of time.

I would then seek the help of a good financial advisor.

I was in my fifties b4 I ever did that, choosing to save and invest as best as I could on my own. My tax person gave me the name of a good financial advisor.
I wish I had seen one years b4. I laid all my cards on the table, and she came up with different plans for me to meet my goal of being financially secure for life. The fee was quite reasonable ($150).

I for one would not use it to pay off the mortgage or other bills, but would instead have it invested and growing to meet your future retirement needs. The longer it is invested the greater the return, (or so one hopes) as you already know.

I also wish you good luck, and that you enjoy the security it can bring you.


    Bookmark   August 15, 2006 at 8:09AM
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Rather than asking "How should I spend my inheritance", ask "How can I keep my inheritance?"!

How long will you be in your home? Is it appreciating in value? If your home is where you plan to stay for the remainder of your natural life, and it is appreciating in value (could be sold for considerably more than what you paid) I would use a portion of it to pay down the principle balance, because if that's the case then you got a good deal and would be turning it into an asset instead of a debt. Your rate seems pretty low, although I don't know what type of mortgage you have (5/1 arm, 30 yr fixed, etc.)

But please do seek advice of a qualified financial planner( I am only a loan officer) and invest a considerable amount and sit on it. If it is a LOT of money, you could invest it carefully and use the interest to help with the current mortgage payments! That way, you can save or spend your own income, and you still have the original inherited amount or most of it. I know a guy who won a modest lotto, invested it, and he and his wife and child live on interest completely, which equals a middle income full-time job, which meant his wife could be a stay at home mom with virtually the same income, lol. Just ideas.

Also don't forget about TAXES! I heard the "death tax" expires in 2007(I'd have to double check), so maybe hold off, lol.

    Bookmark   August 15, 2006 at 10:45AM
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All good advice about planning so far.

First and foremost, I would recommend taking a bit of the money and doing something that would please your grandmother. Take a trip to a place she always talked about or buy a piece of jewelry that will remind you of her or take a cooking class that reflects her heritage. You would know the right thing to do.

That said, with the majority of the money you'll want to do something fiscally responsible. If the question is invest vs. pay down your mortgage, invest. Most mutual funds or whatever will earn more than 5.5% interest per year. So even when you take out the cost of the interest you are paying on your mortgage, the interest you are earning will still come out ahead.

I'm sorry for your loss.

Here is a link that might be useful: craftfetish blog

    Bookmark   August 15, 2006 at 2:59PM
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Thanks for the advice. I am going to sit on it for a while. Craftfetish, you had a good idea. My Grandmother and grandfather were poor as church mice when they got married but had saved and worked very hard and were worth quite a bit when they passed. I and my 2 siblings will recieve my moms part (She died several years ago) so I want to make sound decisions that would make her proud. I am going to talk to some financial advisers and give myself some time to think this over. thanks for all the great advice.

    Bookmark   August 16, 2006 at 12:37AM
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We are lucky enough to have the same issue. Here's what we are doing:

My husband and I are in our 50s, so we are taking advantage of the "catch-up" provisions in his 403-B (same as a 401-K) and our Roth IRAs. We put the money into a taxable brokerage account and invested it conservatively, and we use the taxable money each paycheck as needed to make up the difference of the extra ($800 per paycheck!) amount sent to the 403-B. We also "laddered" some of the money, $10,000 each, into treasury bonds which will come due, one per year, for the next several years. As each comes due early in the year, we immediately move it into our Roth IRAs for the maximum contribution for that year. As the money waits for these contributions, it is available to us if we should have an emergency need in the meantime.

My in-laws worked so hard for this money, that every time we spend some of it, we ask ourselves if it is a "worthy" purchase. I DO feel that retirement savings is absolutely worthy of it.

    Bookmark   August 16, 2006 at 6:26AM
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Chemocurl zn5b/6a Indiana

I forgot to add that years ago, I received a small inheritance, and sat on it a bit. Then the 37 acres adjoining my 3 acre property was forclosed on, and offered up for sale by the bank. I knew the banker, and asked him what he 'thought' it might take to buy it. He told me (I'm now wondering if that was all right)and I got it. I know another neighbor had put in a bid on it as well.

It maybe wasn't the best investment for growth, but I receive a little cash rent for the tillable acres, and have enjoyed the use of 'my' woods so much for walks with my fur friends and hunting. The woods backs up to State Park property (woods) so I can take really long walks without ever trespassing on private property.

Sue...who was told that they aren't making any more land

    Bookmark   August 16, 2006 at 9:05AM
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It really is best to wait - unless you have high-interest consumer debt!

Stick the money in a high-interest bearing CD and wait until you have filed your tax return before you even consider touching it. Making any other decision will be regretted.

Don't forget to get a consultant.

    Bookmark   August 17, 2006 at 2:45PM
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Ok, you're paying 5.5% interest on your house, money you are spending every month and not getting back. You have 9 years left to pay and you payed x amount for your house to start with, but how much will you have actually paid for it when it's payed for? If you borrowed say 85,000 for 30 years a 5.5% in the end you will have actually paid like 160,000 for it. Maybe you won't actually make any money when you sell it? Anyway....I paid my house off with my inheritance money, then I put my house payment in the bank every month as savings and got to keep the interest and make interest too. If I sell my house I'll have what it really cost in the beginning in it, so all the equity will be real profit, plus ever how many years of mock house payments I have made to myself. Now this would'nt apply to someone that wasn't going to live in a house for long, but........

    Bookmark   August 29, 2006 at 8:10PM
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The only reason I wouldn't 'spend' it right is if you didn't know what to do with it. But, if you are educating yourself beforehand, I see no reason to just sit on it. I think just sittting on may be more of a tempatation to buy into something you really shouldn't. Set a little aside for emergencies, but don't keep it open to use for just anything. Otherwise one little whim may wipe it out.

Personally, I vote for diversification. Spread it around! Pay off a little of your house, put some in long savings plans and some in short, do some high risk and some lower, update your house, go on a trip, put some in an emergency fund. Don't know how much you are getting so your individual case may call for something else. I too would talk to a financial advisor so you can get the best plan of action for you personally.

    Bookmark   August 30, 2006 at 11:23AM
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Baker, Suzie,

You wouldn't be interested, I suppose, in having Baker, Eddie drop in to help you spend some of it?

ole joyful

    Bookmark   September 26, 2006 at 5:39PM
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Hey, Suzie ...

... where are you??

Haven't heard a word.

And I've ben waiting with (well, almost) bated breath to hear from you!

ole joyful

    Bookmark   October 6, 2006 at 3:40PM
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Did you take your dolls and dishes and go home?

Was it something I said?

Sorry if I offended you.

Speak to me, Suzie.

ole joyfoul

    Bookmark   October 12, 2006 at 12:40PM
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We are in the same boat and will work with a financial planner for the short term. The only difference is our house is already paid off and to me tha's a huge priority. Because you can lose money investments no matter how safe you think they are. Many thought Worldcom and Enron were safe companies, afterall, what can be safer than a communications and utility company, haha. Even steady companies like Lucent and Sun are at a small fraction of where they were. With a paid off house you'll always have a place to live, you'll always have the peace of mind that it's yours forever. Just remember, financial planners are great a history but can predict the future no better than you or your monkey (although it's been proven that monkeys are better at figuring which stocks to buy).

Personally, I'm thinking of tax free bonds, a steady percentage that I'm not taxed at is huge for us as we have high taxable income. Also anything tax deffered is great for when we are pulling money out we can pay the lower rate (which is also not guaranteed, just the current law, just like SS payments are the current law).

    Bookmark   October 12, 2006 at 2:06PM
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I think your grandparents would be happiest if they knew what they left made you a little more secure. Do not spend a dollar unless you absolutely have to. Check out CD's. They are safe and not doing bad right now. I personally don't have a dollar I would trust with a financial advisor.

    Bookmark   October 14, 2006 at 9:15PM
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Some financial advisors don't sell financial products, so have no ax to grind.

But ... while many folks say that they'd like unbiased advice, not many are happy about paying even a modest fee to make use of it, it seems to me.

I've told many people, over the years, that learning how money works is an interesting hobby ...

... that pays well!!

No one cares as much about your money as you (except possibly some folks who'd like to transfer some of it from your pocket into theirs).

Here's to making your income and asets work harder for you than for the other guys.

ole joyful

    Bookmark   October 15, 2006 at 2:37PM
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If it were my choice, I'd invest the money and keep paying the mortgage. If it were my wife's choice, she'd pay off the mortgage.

I would argue that 10 years from now, we would almost surely be better off having kept the mortgage because the investments would have returned more, on average, than the 5.5% interest rate on the mortgage. She would argue that "almost surely" doesn't mean "surely," and she would rather have the security of knowing that no matter what happens, they can't take the house away.

So it really comes down to risk tolerance: Would you rather take the sure thing or follow a course of action that will probably turn out better but might be worse? There, no one can advise you.

    Bookmark   December 5, 2006 at 6:44PM
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If your 5.5 mortgage is a 30 or 15 year fixed, don't even think of paying it off. The interest is tax deductible and most investments earn more than 5.5%, particularly over the long haul. I'd find a fee-based financial advisor, but I'd not make any decisions about the money for a while. I've heard that with windfall money you should save 1/3, spend 1/3 and invest 1/3. I don't think I'd spend the 1/3, except on really good purchases. When I inherited a bit of money from my mother, I invested 2/3 and saved 1/3. The 1/3 I've saved, I've been slowly spending on improvements to my house. We got a whoppin' tax refund last spring and of that, I invested 1/3, put 1/3 in a 9 month long CD bearing 5.65 % and saved 1/3 toward my new kitchen.

    Bookmark   December 6, 2006 at 12:25PM
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Haven't heard from you in ages.

Did you move to a sunnier clime?

Don't tell me you've departed this earth!

If so, if you have loved ones, I hope that you made a will, as leaving us without having made one leaves a lot of unnecessary confusion, delay, frustration and expense.

Have you any interest at all in Baker, Eddie's suggestion?

I understand that he's a rather undemanding, easy-going, reasonable, more or less humorous fellow. A good companion.

Truth to tell - a bit opinionated at times. And somewhat stubborn - no, that's when it's someone else: when it's me, it's "self-willed".

Plus - he's been a personal financial advisor for better than 20 years, and I'm pretty sure would be generous in offering the use of his skills.

Can you beat that?

Hope you've been enjoying your inheritance, whatever you're in the process of deciding to do with it.

Best wishes for a New Year's that's memorable for all of the right reasons.

ole joyful

    Bookmark   January 12, 2007 at 11:05PM
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