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Ask Dave

Spending An Inheritance

Matt and his wife came into a big inheritance, so Dave walks them through the Baby Steps to debt freedom.

QUESTION: Matt is 22 and he came into a $100,000 inheritance with his wife. They are new to investing and owe $95,000 on their house and $10,000 on their cars. They have $4,000 in an emergency fund. How should they spend this money? Dave walks him up the Baby Steps.

ANSWER: Your first goal is to be debt free except the house and have an emergency fund of three to six months of expenses. Pay off the car and other debt and then set aside $3,000 to finish her school. Then fully fund a couple of Roth IRAs for this year and next year, invested in good growth stock mutual funds. Since you don’t have kids yet, throw the rest at the house, and when she graduates and gets a job, pay off the house. You’ll be completely debt free before age 30.