What would you do with $35,000?

KdCarr21 · February 2011

My husband's uncle passed away and left my husband 35,000 dollars.. this is my plan but please any advice is greatly welcomed!

Pay off all debt except our house.

Car-15,000

Truck-7,000

Student loans- 800

A few things on my husband credit report.. 2,000

Invest 5,000 dollars in TWO cd's for 15 plus years for our children's education

Which of course comes to 34,800

We have 6 months of bills in a emergency savings account..

We have no credit card debt

We both have retirment plans and 401ks

I have never had to make a descsion like this so any input it welcomed thanks!

I don't post often but I lurke and learn so much. I feel this is the best board to ask this question on. thanks!

taggiecb · February 2011

Yes, sorry for your loss. Some of my suggestions would be invest in a mutual fund, start an account for something that you want, like a trip or something. Or any house renos that you would like to do. Pay off debt would be my first thing.

Stacyc625 · February 2011

CD's in my (financial) opinion are a really crappy investment. I would sooner take that 5k and keep it in an emerg fund.

I also- would not completely pay off cars- especially with this economy. I would maybe pay a chunk towards them- but definitely not the whole thing. Especially if i didn't have a lot of liquid cash that i would need in case of an emerg.

Mrs.Hizzo · February 2011

I think you should look into starting a 529 for your daughter instead of putting the money in CD's. Then you could add to it each month, since you'll have freed up all that cash from car payment, etc.

Rebekah1021 · February 2011

Sounds like a good plan.

MrsLacy_2 · February 2011

I think that opening the 529 instead of a CD is a better idea, just like pp said. You can add money anytime you need to, others can add money if they like, and as long as LO uses it for educational purposes they will not be taxed on any money they use. Otherwise it looks like you have a great plan for the money. Since you'll have nearly everything paid off, start an account on the side so you can save up for a fun trip or something.

I'm sorry for your loss.

MeganColleen · February 2011

I'm very sorry for your loss.

I would not put the 5,000 into a CD, as I don't feel that they are a good investment at this time. Other than that, I think your plan looks great!

Kitten80 · February 2011

ok, the silly part first...when I saw the title of your post, I thought jump up and down throwing it/ roll in it. J/k. To the serious stuff, sorry for your husband's loss and how wonderful of his uncle to think of him. Your plan is exactly what I would do, except: don't you have to pay taxes on that money??! I think so...check and keep that in mind.

bunnybaby11 · February 2011

MrsLacy:

I think that opening the 529 instead of a CD is a better idea, just like pp said. You can add money anytime you need to, others can add money if they like, and as long as LO uses it for educational purposes they will not be taxed on any money they use. Otherwise it looks like you have a great plan for the money. Since you'll have nearly everything paid off, start an account on the side so you can save up for a fun trip or something.

I'm sorry for your loss.

I agree with the no cd aspect. A 529 would be the way to go!

Also stay away from bonds they take too long to mature and dont always make a lot in return.

However as of late there are several reputible online banks that offer really good high yield cd's and 529's ie: Ally and Sallie Mae with Upromise.

Of the 5k you could also put 1/2 into liquid and start to invest in some stocks. You may want to check out fidelity or etrade for some trading options. Having a bit "extra" now could greatly benefit you in the future with the right choices. I have friends who's parents invested in Apple, Disney, McDonalds etc over 30 years ago before they got super huge and now they're set for life. Just a thought if you can find some that are projected similarly or even a good IRA.

Any financial advisor/or financially educated person will tell you that you should always pay off your debts with the highest interest first.

I would also base your payoffs on the highest monthly payment first as well. And the 17,000 car aside from the mortgage would most likely be the highest.

Once you free up the extra payments I would suggest putting at least 1/2 the "freed up" money away in savings and put the other half towards paying off your mortgage quicker and you will save tons in interest.

Sorry to get off on a tangent. I just love financial stuff and number crunching.

hth - good luck.

Kitten80 · February 2011

Stacyc625:

I also- would not completely pay off cars- especially with this economy.

I have to disagree (gasp) based on our recent personal experience. When DH lost his job last year and hadn't gotten a new one & our depleting emergency fund was our only source to pay things, we called all our loans to try and be pro-active before we couldn't pay anymore. Our car company would only grant a deferment or forebearance or whatever that's called AFTER he got a new job! Same went for a reduced payment. We went up as high as we could in management. We called when it got to the point our savings wouldn't last past the month and the answer was the same. They said that the car companies do not benefit from giving these things while you are out of work now because so many people can't get jobs for so long so they will grant them ONLY after you get a job "to help you get back on your feet".

They said the only other option was to stop paying at all and then they MIGHT after 3 or 6 months be able to grant a reduction of some sort, but it isn't guarenteed (spelling?), that other cars are repossessed. And obviously we were not going to not pay - not only would that hurt our credit, if they wouldn't work out a plan with us then we were that many months behind plus penalties as well.

My plan since we bought the car was to pay it off and DH has done everything but with the money we have had...when this came up, he realized he should have listened to me. It is now our first priority. What would we do if we lost our newer/nicer car we have been paying on for 3 years? How would he get to work?...my car wouldn't hold up to the amount of driving he does.

Some car companies may be different, but we found out a several sets of our friends/co-workers/neighbors went through the same thing with their car company...despite what all the stupid news segments say about "call your loan companies so they can work with you before you fall behind" I will tell you that not only have we had personal experience with this NOT being the case from mortgage to car but we know a dozen other people that experienced the same thing...just wanted to share my experience. I would take the $ you will save in monthly payments to boost your emergency fund if you need to. GL! What a fun decision to make.

AJBMD915 · February 2011

Is the $35,000 tax free? After taxes? Are you sure you're actually getting that much? My DH gets bonus checks once or twice a year, generally around $20,000. We never actually get all of it. This time we ended up with around $12,000.

What kind of a return are you looking at on the $5k after the 15 years? $5k is really not going to go very far for college. I'd probably put it in savings. Otherwise I'd say it looks good!

MrsBalletStar05 · February 2011

If I were in your situation, I would do as you are doing.

ETA - ok, after reading the replies, I agree with the 529 instead of of CDs and yes, make sure you know what you are actually getting after taxes.

mommyofboys86 · February 2011

Kitten80:
Stacyc625:

I also- would not completely pay off cars- especially with this economy.

I have to disagree (gasp) based on our recent personal experience. When DH lost his job last year and hadn't gotten a new one & our depleting emergency fund was our only source to pay things, we called all our loans to try and be pro-active before we couldn't pay anymore. Our car company would only grant a deferment or forebearance or whatever that's called AFTER he got a new job! Same went for a reduced payment. We went up as high as we could in management. We called when it got to the point our savings wouldn't last past the month and the answer was the same. They said that the car companies do not benefit from giving these things while you are out of work now because so many people can't get jobs for so long so they will grant them ONLY after you get a job "to help you get back on your feet".
They said the only other option was to stop paying at all and then they MIGHT after 3 or 6 months be able to grant a reduction of some sort, but it isn't guarenteed (spelling?), that other cars are repossessed. And obviously we were not going to not pay - not only would that hurt our credit, if they wouldn't work out a plan with us then we were that many months behind plus penalties as well.

My plan since we bought the car was to pay it off and DH has done everything but with the money we have had...when this came up, he realized he should have listened to me. It is now our first priority. What would we do if we lost our newer/nicer car we have been paying on for 3 years? How would he get to work?...my car wouldn't hold up to the amount of driving he does.

Some car companies may be different, but we found out a several sets of our friends/co-workers/neighbors went through the same thing with their car company...despite what all the stupid news segments say about "call your loan companies so they can work with you before you fall behind" I will tell you that not only have we had personal experience with this NOT being the case from mortgage to car but we know a dozen other people that experienced the same thing...just wanted to share my experience. I would take the $ you will save in monthly payments to boost your emergency fund if you need to. GL! What a fun decision to make.

100% agree. We have a 2002 Ford Taurus we bought used, and at the time only had 30k miles on it 1 yr ago. It was only 4200 bucks! It runs so good and we have no car payment. I could never see paying that much for a vehicle.

almostjennifer · February 2011

You should post this on Money Matters. Those ladies are great at this sort of thing.

We do Dave Ramsey's Total Money Makeover plan, so I'd follow that if I was in your shoes.

Stacyc625 · February 2011

Kitten80:
Stacyc625:

I also- would not completely pay off cars- especially with this economy.

I have to disagree (gasp) based on our recent personal experience. When DH lost his job last year and hadn't gotten a new one & our depleting emergency fund was our only source to pay things, we called all our loans to try and be pro-active before we couldn't pay anymore. Our car company would only grant a deferment or forebearance or whatever that's called AFTER he got a new job! Same went for a reduced payment. We went up as high as we could in management. We called when it got to the point our savings wouldn't last past the month and the answer was the same. They said that the car companies do not benefit from giving these things while you are out of work now because so many people can't get jobs for so long so they will grant them ONLY after you get a job "to help you get back on your feet".
They said the only other option was to stop paying at all and then they MIGHT after 3 or 6 months be able to grant a reduction of some sort, but it isn't guarenteed (spelling?), that other cars are repossessed. And obviously we were not going to not pay - not only would that hurt our credit, if they wouldn't work out a plan with us then we were that many months behind plus penalties as well.

My plan since we bought the car was to pay it off and DH has done everything but with the money we have had...when this came up, he realized he should have listened to me. It is now our first priority. What would we do if we lost our newer/nicer car we have been paying on for 3 years? How would he get to work?...my car wouldn't hold up to the amount of driving he does.

Some car companies may be different, but we found out a several sets of our friends/co-workers/neighbors went through the same thing with their car company...despite what all the stupid news segments say about "call your loan companies so they can work with you before you fall behind" I will tell you that not only have we had personal experience with this NOT being the case from mortgage to car but we know a dozen other people that experienced the same thing...just wanted to share my experience. I would take the $ you will save in monthly payments to boost your emergency fund if you need to. GL! What a fun decision to make.

yes- maybe- however but having 35k in savings/invested would only cushion the emerg fund WHILE accruing interest. Vs. paying a car off now.... AND possibly later down the road something happening- like losing a job (or goodness forbid a spouse) and you can't pay your mortgage. Great- you have a paid off car- however you lose your house, KWIM?

My point is- and this is MY personal financial opinion- i would be much more comfortable having a padded emerg fund over paying a car off. Where as I could use the emerg fund to pay for the car off and house etc. IF something were to happen. This isn't anything against the OP- but a six month emerg fund while good that something is there- is not enough in this economy. So I were to come upon a windfall of cash- I would be hesitant to use the biggest chunk to pay off a car/s. (of course i would factor in the loan %) ~ saving/investing (after putting a little towards the car loan) is what i would financially do.

JOEBunny · February 2011

I would invest all of it, except the part to clean up your DH's credit, especially if you have a hard time saving. If you pay off your cars, you should still "make a payment" to yourself each month, so that when it comes time to replace them, you can buy new ones without debt. DH has a 0% car loan, so it would make no sense to pay it off, though we could do so. I am also not a fan of CDs. I would research a mutual fund, which will almost always give a better return.

mandymack · February 2011

I'm so sorry for the death of your family!

As far as tax implications go, you & your DH will NOT BE TAXED on any inheritance you receive from your uncle, assuming he lived/died in Missouri, because the state of Missouri has no estate tax (for deaths occuring after 1/1/2005). Even if your uncle lived/died in another state, *most* states don't impose estate tax unless the settlement is at or above $2Million. And life insurance money is NEVER taxable. It would be worth a call to the Executor of his will to determine where the money is coming from (life insurance or estate settlement).

Totally just my opinion but seeing as how you already have a 6month emergency fund and could continue to build that up monthly once you pay off the little debt you do have, I would absolutely pay off EVERYTHING: the loans, car payment, credit cards, etc. Mainly because you won't see greater than about a 4% return on any CD, mutual fund, savings account investment you make currently and I'm assuming your auto loan interest is greater than 4% so, you are saving money by paying the car off. I also think using the money to set up a 529 tax-sheltered account for your child is your best bet.

Good luck!!!

ariel06 · February 2011

What are the interest rates on your cars and student loans? How much to you owe on your home? It may be smarter to see if it would make sense to refinance to a 15 year loan if you aren't at one already because of the amount in interest you would save.

KdCarr21 · February 2011

Thank you everyone for your input! This is why I just love love this board..

ps I really wanna take the money go on a trip to cancun with new boobs and a tummy tuck but yah know

beautifulstr13 · February 2011

I think you have a good plan. I might not spend so much of it on paying off all of your bills. Put a little back into your regular account just for padding. A thousand or two should be good. And I think since your husband is the reason you have to money I would let him spend up to 500 on something just for him. Sorry for your loss.

ringer10 · February 2011

I'm sorry about your husband's uncle.

I would not pay off the cars, they are only going to depreciate and you could use that money to invest. Once the cars are paid of they are worth less every day.

Also, what are the interest rates involved for the car/truck and house?

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What would you do with $35,000?

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