‘I’m a mother in my 40s and I’m financially independent’: I’m about to inherit $850,000. What should I do with my windfall?

‘I’m a mother in my 40s and I’m financially independent’: I’m about to inherit 0,000. What should I do with my windfall?

“I have no experience with this amount of money.” (The subject of the photo is a model.) – Photo illustration MarketWatch/iStockphoto

Dear Quentin,

I inherit about $850,000 unexpectedly and need advice on what to do with it. I am a mother in my 40s and financially independent. I make about $100,000 a year and have $50,000 in savings and stocks. I have no experience with this amount of money.

Financially independent

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Related: My wife inherited $800,000. She put $300,000 into our mortgage and $500,000 into her own bank account – after 35 years of marriage.

“The hard truth is that this money is probably gone.  Without a receipt, it's your word against his.“The hard truth is that this money is probably gone.  Without a receipt, it's your word against his.

“The hard truth is that this money is probably gone. Without a receipt, it’s your word against his. – Illustration from the Market Observatory

Dear Financially Independent,

There’s one thing better than an inheritance: it’s an unexpected inheritance.

Take a deep breath: $850,000 can go a long way even in 2024, if you’re smart, but it could also disappear faster than you think. Create a tax-advantaged 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 to your IRA. If you don’t own your own home, set aside a share for this, 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 retreat or a philosophy class, while for others it might be a new bathroom or new insulation for their house.

Think of your windfall as stealth wealth. Be careful when telling other people, including neighbors, friends, relatives, and financial advisors who work on commission. It’s a hard lesson to learn, but if you share your good fortune, not everyone will be happy for you. Some people may have their own business ideas and might see you as their golden ticket. Plus, the average American household has $62,410 in savings – and the median household only has $8,000 – so even if your real friends wish you well, it can still be difficult for them to see an upgrade. Instagram META update on your brand new. cooking or a TikTok video from your trip to the Turks and Caicos Islands.

“An unexpected inheritance or windfall like this can be both an emotional, confusing and life-changing event,” says Martin Schamis, a certified financial planner with Janney Montgomery Scott in Philadelphia. “Depending on how this $850,000 inheritance will be received, there may be taxes to pay or specific distribution rules you will need to follow once you receive the assets. An inheritance can change your life, and seeing your personal net worth increase could have a major impact on your life goals, both for you and your children. This is the perfect opportunity to discuss your financial goals, both short and long term.

If part of your $850,000 is invested in stocks and bonds? This will give you a timely opportunity to review your overall investment strategy. You may want to take additional risks – or play the long term with less risk now that you have more capital to work with. “If you have an aggressive allocation tailored to wealth accumulation, for example, you may want to reduce it to focus on capital preservation,” according to Fidelity Wealth Management. On the other hand, “additional assets may provide you with the opportunity to take additional risks, especially if you intend to pass on some or all of the assets to future generations.”

And here’s what can be the most satisfying and empowering part of inheriting a large sum of money: If you have personal loans or credit card debt, pay them off as soon as possible. The current average personal loan interest rate is 12.2%, and the average rate for credit card is 20.7%, according to Bankrate.com. With inflation hovering around 3.5% year-on-year in March, you’re losing money at these rates. There’s nothing like paying off your debts to give yourself courage before meeting a financial advisor. (On this note, watch out for bad actors – advisors who wine and dine, and undermine you.)

Get inspired by others. In September 2018, this woman wrote to Moneyist to ask how she should invest her windfall of more than $150,000. It changed his life. She had no college degree, worked full-time for $15 an hour plus a part-time job for $10 an hour, and claimed she would never earn more than $30,000. dollars per year. She paid off her car and bought a small house, which she owns for free, like she wrote in an update. She deposited $70,000 into a high-yield online savings account. She completed her retirement portfolio and invested $10,000 between very safe dividend-paying stocks and exchange-traded funds. She also spent $7,000 on dental work in Mexico.

If the Moneyist had a gallery of heroes, she would take first place. You’ll be able to do everything she did and more, all while donating money to your favorite charities. “This planning basis will help you decide whether you want to use the funds to pay off debt, invest the funds for long-term growth and retirement, or do something for yourself, such as home repairs or a trip », declares Michael Martinpresident of Prosperity in Minneapolis, Minnesota. You should, like this inspiring woman who inherited a fraction of your money, take your time.

Enjoy every minute.

Previous columns by Quentin Fottrell:

“I have a modest Roth IRA that hasn’t worked out well”: My wife and I are savers and are happy to drive old cars. Where should we invest $15,000?

Are they cheap? I’m going on a trip with two friends for Memorial Day. I spend $90 on gas and neither offered to chip in. What should I do ?

He intends to bleed me dry’: My husband turned into a monster after our marriage. I own a $1.3 million house. How can I save my finances?

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