Big Plans For Big Inheritance
Ben and Tracy are going to inherit $900,000 from her deceased mother. They have $34,000 in debt. What's the best way to handle this money?
QUESTION: Ben and Tracy in Arizona are going to inherit $900,000 from her deceased mother. They are renting a house now because they put their old one on short sale. They have kids going to college in several years. They have $34,000 in debt. What's the best way to handle this money? Dave addresses a money danger here.
ANSWER: Personal finance is 80% behavior and only 20% head knowledge. If you didn't learn any lessons from the past year and continue to engage in debt and stupid behavior, this money will be gone fast. You really have to assess your behaviors, habits and values that put you into the mess that you were in so that you never go back.
I would write a check for $34,000 and be debt-free. Then I would fund an emergency fund of three to six months of expenses, preferably six months. The third thing I would do is pay cash for a modest home. Then sit down with an investment advisor and maybe invest $10,000 per child into a 529 plan for this year and next year. Then you'll probably be done with that unless they want to go to Harvard.
After doing all that and buying a home, then invest the balance in mutual funds or maybe even a rental property. Don't ever go into debt again for the rest of your lives.
When Sharon and I paid our house off, we rounded up our house payment amount and had that drafted monthly into a mutual fund. It's amazing how much money that becomes just a few years later.
Teach your kids how to honor your mother's legacy by managing this money well. Also, give a little bit of it and take a family trip with some of it.