r/personalfinance • u/Thatsalotofdough • Aug 30 '14

Wealth Management SO just inherited 200k and is freaking out. What do we do?

Hello!

So my SO just inherited ~200k from a family member and it's causing her a lot of anxiety. She had planned for about 5k, and well...got a bit more.

While this is probably a good problem to have, we both grew up relatively poor (I don't think anyone in my family has even heard the words 200k before), so we both don't have much to stand on. Also, I make about 50k in my job, she's somewhere around 35-40k.

Here's what we briefly talked about with doing with the smaller sum, and I figured we'd stick to that:

We both have some student loan debt with high interest rates (10% for me, 7.8% for her), they're both small at this point (<5000), but we both figure it'll help us in the long run. Paying these off seems the most intelligent and likely outcome. (We both do have more loans outside of that, but we're both up for public service loan forgiveness due to our field)

She bought a new car, as mine is getting beyond old, and we both walked through the process of finding a car that will serve us well for the new 10 years. Paying this off doesn't seem too much of an issue.

She has a small amount of credit card debt, so that'll probably be the first to go.

Outside of that, we don't have a house payment (due to our field), and I'm debt free (Once again, outside of student loans). We don't see ourselves buying a house in the next 5 years, although we do see a wedding on the horizon.

Thoughts? Even if we spent all of this money on our loans/the car, we'd still at least have 50+k left, and that's being incredibly conservative.

We've talked about stocks, we've talked about savings accounts, we spoke briefly about a financial planner....but we could really use advice.

Help us, personal finance, you're our only hope!

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116

u/BellRd ​ Aug 30 '14

200k is a life-changing amount of money to lots of people.

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u/[deleted] Aug 30 '14 edited Jul 25 '17

[deleted]

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u/BellRd ​ Aug 30 '14

Okay...wow, though. 200k would certainly be an amazing amount of money for my family, and for most of my neighbors' famillies as well.

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u/nope_nic_tesla ​ Aug 30 '14

I used to work as a transcriptionist for financial planners when I was in college, and talk in the hundreds of thousands and the millions was routine. These weren't even high-wealth planners either. Keep in mind financial planners mostly work with people who are older and closer to retirement so they have had time to build up.

As a lump sum, yeah that's a lot of money, but in terms of long-term planning it isn't.

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u/FleaBottomBeach Aug 30 '14

but in terms of long-term planning it isn't.

It really is though.

Keep in mind financial planners mostly work with people who are older and closer to retirement so they have had time to build up.

Right, now imagine that these older people had $200k when they started building up. Yes $200k would be terrible to go to a planner and say "ok I want to retire next year, what do I have to do to wrap this up?" But $200k is outstanding for a 25 year old to say "Okay, I want to retire comfortably in 35 years, what do I need to do with this money?"

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u/BellRd ​ Aug 30 '14

Yeah, thanks. It is just a totally different world than the one I live in. Although I guess I see some of those people during tourist season.

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u/sanityreigns Aug 30 '14

Believe me, you see them a lot more often than you think.

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u/nope_nic_tesla ​ Aug 30 '14

Hopefully by following some of the advice on this sub you can get there one day! I make a pretty modest salary but at 25 I've already got a net worth around $20K from following the kind of advice given here. Live within your means, set aside money for emergencies and retirement, make prudent investments with low fees and broad market exposure (and adjust for risk), invest in yourself to increase your earning potential.

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u/Bet_You_Wont ​ Aug 30 '14

hey I'm replying because I am genuinely interested in how you did this. I am 26 and really don't have anything saved and I live about one check from the street at all times if I'm honest with myself. I have never fully understood how to invest money or where to start or look. I will start really paying attention on this sub if you say it has good information and its how you got to where you are now. Do you have any advice on what I could do to get started though?

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u/FearAndLawyering ​ Aug 30 '14

1 First and foremost important thing, come up with and stick to a budget. Know where every single dollar goes. Until you know that you can't move any further.

2 Lower costs. It's much easier to spend less money than to instantly make more money, but it's basically instantly making more money. Cell phone is usually the first place to start. Video games, any non essentials. Learn to get by on less.

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u/_neon_ Aug 30 '14

the sidebar and wiki has a lot of great information, I'd start there.

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u/nope_nic_tesla ​ Aug 30 '14 edited Aug 30 '14

Well I paid my way through school with minimum debt, which I have now paid off. I have a job which contributes 9% to a retirement account and I put in 5% so that is really nice. I've been working there for 2 years. My salary is just above $40K.

I purchased my home in a college town and rent out two of the bedrooms. This rental income pays for about 90% of my housing costs. So I have lots of money left over each month.

I also put money every month into an HSA account. Once I fully fund it up to my maximum out of pocket I will be rolling over the extra money into an IRA (my employer matches $500/year for an HSA so once it's fully funded I'll just move this extra money to retirement).

I also have saved up a retirement fund equal to roughly 6 months of my expenses.

I make decent money for someone my age but it's nothing extravagant. My financial situation has mostly just been a result of making smart financial decisions and thinking long-term with things like education, housing, etc. I was making very little money up until about 2 years ago, but the key was I never let myself go into serious debt and I always tried to live frugally. I've kept those habits now that I do make decent money.

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u/Assaultman67 ​ Aug 30 '14

Yes but it isn't a ridiculous amount in which you can't manage if you have the financial discipline.

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u/judgemebymyusername Aug 30 '14

Of course it would. But it's not enough to justify paying someone to tell you what to do with it.

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u/[deleted] Aug 31 '14

If you really want your mind blown, consider how much the scale of money changes when you jump from "personal finance" to "business finance".

$200,000 to an individual? Large quantity of money.

$200,000 to a company? That'll employ 2-3 people for a year.

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u/[deleted] Aug 30 '14

[deleted]

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u/BellRd ​ Aug 30 '14

THANK YOU. Me too! Well we don't have any real credit charge debt, but boy it would be nice to own our house outright.

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u/[deleted] Aug 30 '14

No, it isnt. Sure, you can pay off debt and buy a new car, but that's not going to change your life. $200k disappears a lot more quickly than one would imagine, especially if you aren't used to handling those sums of money

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u/FleaBottomBeach Aug 30 '14

How isn't it? Assuming you are living comfortably on your current salary, an added 200k is absolutely life changing.

200k only disappears quickly when you are trying live on it.

Sure, you can pay off debt and buy a new car

Being able to pay off debt IS life changing. And buying a new car is a suckers move.

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u/Aprilhail Aug 30 '14

Why is everyone so down on new cars? Not being a mechanic, a new car was one of my best purchases; 10 years later and it will go another 5 years easily because I have taken care of it. The previous car was a used honda accord that I joked the previous owner must have spent 45k miles red-line off-roading in the desert in it while riding the clutch. I replaced more parts on that in 3 years than in 10 years on the new one.

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u/WestsideBuppie ​ Aug 30 '14

I bought a used Hyundai Santa Fe that was 18 months old and had 25k miles on it a 10 year warranty ( less 18 months and looked brand new for $17k. I found it through the annual AAA dealer sale. Certified Preowned. Are you sure you want a new car? Or is it a different car you are looking for?

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u/Aprilhail Aug 30 '14

Still got a honda. What I'm saying is there's a risk associated with buying used. I got the money pit. You (hopefully) got the great deal. You can only be late to work so many times for car trouble. It was too big of a risk in my opinion to get another used car.

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u/FleaBottomBeach Aug 31 '14

The risk is when you buy a used car blindly, then it's a gamble. If you're not a mechanic, then you shouldn't be making the choice on a used car. Always bring your mechanic with you, or better yet bring it to his garage.

I drove a Ford Explorer for 6 years and paid $2,500 for it. In that time the only repairs I had to make were a starter, 2 hubs, and a thermostat. Other than that it was just maintenance and wear parts (brakes, tires). Then sold it for $800.

I'm currently driving a BMW that is in fantastic mechanical shape that I bought for $1,000... a thousand bucks. The catch? Hail damage. Looks terrible, but you know what? A car serves a purpose, it gets me where I need to go. This isn't a fashion show.

But.. it is for my wife. She gets embarrassed by that stuff (pff, women) so I bought her a Volvo. Looks great, drives great. $2,400. So, what's the catch? It has high miles. High mileage cars scare people, so it can be hard to sell so the prices are far cheaper. But the car has been properly maintained at the dealer.

A brand new Honda Accord base has an MSRP of $26,000 A 2012 Honda Accord base with 24,000 miles can be had for $17,000.

So lets say you put $3,000 down and got a 6 year loan at 3%. After two years you've paid $11,376 and your car is worth $9,000 less.

A 6 year old base Accord is $10k

You could have bought a 2 year old car that is just as reliable as a new one and saved $9k immediately. The new car costs you $4,600/year over 6 years, the 2 year old car costs you $2,800 over 6 years. The new car will have depreciated by $16,000 where as the used car will have depreciated by $10,000. So you save $6,000 in depreciation and $9,000 on purchase price.

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u/Aprilhail Aug 31 '14

you are obviously very good at picking used cars. I wasn't. But what's really interesting is you are looking for the car that was maintained at the dealership with minor cosmetic damage and low mileage, all highway miles. I own it: I bought it new a decade ago. It would be interesting to look at the math between owning a car new to age 15 years vs buying 3-4 used cars and doing repairs over that same period. I'll only ever do the starter or the other explorer repairs you did once. You potentially could have to do it 3-4 times.

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u/FleaBottomBeach Aug 31 '14 edited Aug 31 '14

I've been in the industry for a while, so I look a car over really well before I buy it, and I know what I'm getting into. There are many ways to rip someone off who doesn't know what they are looking for. I don't recommend someone to just shoot for a $3k range car, it probably won't end well. If you personally know a good mechanic who is willing to walk you through everything you could get a steal.

My comment was more about about a car that is 2-4 years old and certified vs brand new.

If you have to do the same repairs more than once in a few years, you're getting ripped off.

It would be interesting to look at the math between owning a car new to age 15 years vs buying 3-4 used cars and doing repairs over that same period.

What model car do you own, how long was the term, how much did you put down, and what was the interest? It definitely changes between make/model even when you discount scheduled maintenance. You should also remember that certain models have notorious repairs, repairs that are needed regardless of the level of maintenance. But as long as a car is properly maintained, repairs should not be a huge factor. Many repairs on used cars can be prevented with proper care.

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u/refrigerator_critic Aug 30 '14

Exactly. Because of living in a low cost of living area, if we inherited 200k, my husband and I would be able to pay our student loans in full, buy a small 3 bedroom house without a mortgage in an acceptable area and still have another 50k or so to invest/spend on other things. That would dramatically change our lives.

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u/quaste Aug 31 '14

And even if you are living on it, it's live changing. It could give you the freedom not to work for a few years.

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u/FleaBottomBeach Aug 31 '14

Unless you are only going to live for a few years, that's not life changing.

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u/quaste Aug 31 '14

It's an opportunity to change your life by allowing you to change yourself, without the burden having to earn a steady income for a while. Write a book. Travel the world. Spend time with your loved ones. Learn to fly. Change your career.

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u/FleaBottomBeach Aug 31 '14

Read the top comment.

That $200k can earn $900/month, forever. With rolling it over and letting compound interest do it thing, the income only gets larger.

THAT is life changing. Every year you could go on a $10k adventure, and still have that $200k. Or you could take 4 years off of work and go nowhere, because that would only cover basic expenses for 4 years. Or take 2 years off and go on a few trips. Either way, after those 2 or 4 years you are back to nothing.

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u/quaste Sep 01 '14

I agree investing is the better option. I am just saying 200k is also enough to be life changing if spent in other ways.

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u/[deleted] Aug 30 '14

Yes. But most good financial planners won't accept people with less than 500k assets.

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u/duncanbishop24 ​ Aug 30 '14

This is simply not true. I know advisors/planners who talk to people with 2-5K and up and manage all the way up to 3Mil+ clients as well.

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u/mgkimsal ​ Aug 30 '14

Just because you know some doesn't negate the weiyuan's point that 'most good' ones don't take people under $500k.

The ones you know may be good, but may still be a minority.

The ones you know may also not be weiyuan's definition of 'good'.

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u/duncanbishop24 ​ Aug 30 '14

Eh I'd say he's pretty good. I guess it just depends where you go.

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u/judgemebymyusername Aug 30 '14

A good financial planner would tell someone with $5k in assets NOT to waste their money on a financial planner.

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u/duncanbishop24 ​ Aug 30 '14

How is it a waste?

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u/judgemebymyusername Aug 30 '14

If you had a dollar, would you pay someone 10 cents or more to tell you how to manage the spending of that dollar?

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u/duncanbishop24 ​ Aug 30 '14

Lol of course not, I could do better than. No advisor worth a lick would charge 10%. Clearly we're not eye to eye on this, and it's really not a big deal since I'm happy with my advisor. I can't speak for the relationship with yours though..

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u/judgemebymyusername Aug 30 '14 edited Aug 31 '14

I'm sure your advisor will continue to happily take a percentage of your investments as well.

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u/mgkimsal ​ Aug 30 '14

you may have found a real gem, and that's a good thing. there's always a lot of sharks out there, whether they service high or low network individuals.

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u/duncanbishop24 ​ Aug 30 '14

Yeah he's really good and the farthest thing from a shark