$100,000 gift? Now what?
What if you received a $100,000 gift? What would you do with it? What would you buy? What would you pay off? These are the questions that Jade asked of me in a comment.
HI I wanted to see if any of you financially wise people could give me some advice.
My relatives have been talking about gifting me $100,000( I won’t hold my breath)If it happens I want to have a plan. what would you do with it?
Jade.
Well Jade, it’s a little difficult to give you exact advice without knowing your financial status, but here goes. If you follow the following and just ignore steps that you already have completed you should do ok. Follow it in order.
- Put 3-6 months expenses aside in a high yield savings account like ING or HSBC. For most people this amounts to somewhere between $7,000 and $15,000.
- Put about $3000 aside for fun money.
- Pay off everything. Get rid of all debt. Lose the Credit Cards, car payment, student loans, and mortgage. Of course, you might not be able to get rid of it all, but do what you can.
- If there is anything remaining, drop the max into a Roth IRA.
- If there is still more and you have children, drop the max into either a 529 or ESA.
- Whats left? Anything? Increase your savings to a full 6 months. Open another savings and drop the rest into it. This is your fun savings for future purchases.
Now, this is really a pretty generic list. Your situation is most likely different from most and will need some tweaking. Now, chances are that if your family is able to gift $100k, they can probably help you with the financial planning. Don’t be afraid to ask them for help with it if need be. If you follow the above list, you should end up with a pretty solid savings, little or no debt and be started on both your retirement and your children’s education. From now on, you put as much as you can into your future purchases savings. When you need a new(used) car, it comes from the cash in that account or you can’t afford it.
Your new goal is to have no debt for the rest of your life. Think about how quickly you can build savings if nearly your entire paycheck is free to be added to it! Got an extra $1000 a month? Be a diligent saver and you’ll be able to pay for things with cash in a lot less time than it would take to pay it off any other way. Plus you get the rush of knowing you owe nobody.
Now is where all the rest of the PFBloggers out there get to chip in. If you have any other advice or different advice add it here and help Jade out.
Technorati Tags: gift, savings, retirement, education, debt, credit cards
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Tim said,
Wrote on February 22, 2007 @ 10:54 am
Like any large windfall of cash, Jade shouldn’t do anything with it until she gets some kind of financial guidance. She should put it in a high yield savings account or her regular bank account until she has a game plan.
at $100k, just about every bank has private/premium/wealth management banking which provides financial management if she does not have or cannot get advice from other sources. In this case, having a consolidated portfolio for the $100k with one bank is probably the best solution until she can get a better financial plan going. Until then, put the money into her account or a high yield savings account.
To reiterate what you stated, you cannot give any advice beyond that unless you have an idea of where her finances currently stand. If she doesn’t have earned income, she cannot do ROTH. Paying off all her debt, if she has any, and depending on how new her credit history, may not be the best thing to do either. if she doesn’t have kids or isn’t planning to have kids or she isn’t planning or doesn’t need to go to school further, the 529 or ESA isn’t a choice either.
I understand she wrote you and you provided some good suggestions under the caveat she didn’t provide financial info other than $100k, but really nothing should be done at all until she gets someone to look at her whole financial and tax picture.
Tim said,
Wrote on February 22, 2007 @ 11:07 am
I’m amending my comment above. If Jade cannot maintain high deposit min in order to avoid monthly maint fees, the premium banking services wouldn’t be viable. My suggestion was based off the fact that many have financial planning services at that deposit level.
At any rate, the underlying suggestion of depositing the money into an interest bearing account or short term CD and seeking advice from a certified financial planner who can assess Jade’s entire financial picture is really the only thing she should be thinking about doing.