Windfall

[frugalone]

Dear folks, Have not been on here for a while. I hope all of you are doing OK!
I have had some good news today. I am going to be the recipient of a windfall very soon. My head is kind of spinning; it's more money than I've ever received before in my life.

I have been googling "what to do with a windfall" and found some advice on the Get Rich Slowly site.
http://www.getrichslowly.org/blog/2014/02/20/how-to-handle-a-windfall/

(Sorry, couldn't get the link to be live, and when I did, it wouldn't go "unlive")

OK, so...Here's my situation. We're a household of two with one income, no kids, one vehicle. Right now said vehicle is in the shop and we're getting along OK. However, once I return to my regular shift when the academic year starts, I will need the car. Usually my spouse drops me off and picks me up from work and does the grocery shopping, etc. Decision was made that we didn't need two cars with their attending maintenance etc. with only one person working (the work situation is not likely to change).

I have very little in savings, except for my 401(k) through work. I was unemployed for over two years and all of my ready cash went to pay living expenses after my UC benefits ran out. My new job does not really pay enough for me to save much. When I get hit with an unexpected expense, it can wreak havoc with the budget. Is this what they call living paycheck to paycheck? If so, that's me.

I'm wondering how to handle the windfall. As far as long-term goals are concerned, I want to take a very special vacation in a year or so, when I finish graduate school. I do have life insurance and health insurance, with one of those flexible medical savings accounts. I don't really carry any debt other than, say, $300 at the moment on my credit card.

What do you think? As I said, my head is spinning. What do you think of Get Rich Slowly's advice? I'm not sure about the "inaccessible account" thing. The company who handles my 401(k) has a high-yield savings account, CDs, etc. Should I talk to someone there?

Advice? thoughts? thanks!

[kib]

Good for you!! :cool:

Those six ideas from your link all sound like good advice : spend 5%, pay debts and taxes, fix what's broken, then basically set aside the rest to invest or, maybe, to spend when you've had time to think about what might actually improve your life.

I know that SLN doesn't usually deal in hard numbers, if you want in depth analysis you might want to post this on Mr. Money Mustache along with dollar amounts. What you do depends in part on how much it is, in other words if it's enough to fix every situation you've got that needs a cash infusion, or if you'll have to make choices. It doesn't sound like you've got a lot of fixing to do, I think if I were you I'd work on a six month expense emergency fund, beyond that, "inaccessible" isn't a bad idea.

ETA: or at least, "quasi-accessible", like bonds. If you really have to do work to get at the money, you're much less likely to spend it.

[frugalone]

Good for you!! :cool:

Those six ideas from your link all sound like good advice : spend 5%, pay debts and taxes, fix what's broken, then basically set aside the rest to invest or, maybe, to spend when you've had time to think about what might actually improve your life.

I know that SLN doesn't usually deal in hard numbers, if you want in depth analysis you might want to post this on Mr. Money Mustache along with dollar amounts. What you do depends in part on how much it is, in other words if it's enough to fix every situation you've got that needs a cash infusion, or if you'll have to make choices. It doesn't sound like you've got a lot of fixing to do, I think if I were you I'd work on a six month expense emergency fund, beyond that, "inaccessible" isn't a bad idea.

ETA: or at least, "quasi-accessible", like bonds. If you really have to do work to get at the money, you're much less likely to spend it.

Yes, quasi-accessible sounds like a good way to go. Since the retirement investment folks' advice is free, I will probably make an appointment to meet w/them.

[SteveinMN]

Congratulations, frugalone!

I think action number one is to build up an emergency fund of six-months of expenses. If the windfall is enough for that, that's fine. If there's money left over, you don't need to do anything concrete with it right away -- unless you're going to spend it just because it's there. I'd fix the car (or get another one, if that's what it will take to have a reliable vehicle) -- it's the one you have and you can't go that long without it. I'd set some aside for the vacation because it's good to celebrate big achievements and it's something you've wanted to do for a long time. Beyond that, I think time will show you the best place to put it next. Don't forget that it is possible to effectively lose money on a safe investment by parking it someplace where the return does not match the rate of inflation and admin expenses.

[Rogar]

I thought about it before reading the get rich slowly article and my thinking was pretty much in line with the article. I'd take a small amount and treat yourself to a non-necessity item you've wanted and not been able to afford. Paying off debt and fixing things like broken cars or taking care of health care issues is next. Beyond a luxury item or two and fixing real necessities, the rest I would park in short term CDs or money market and let it sit while you take a few months to digest the options. A windfall is just that and at least in my case of a similar situation my thinking was not prepared for quick and possibly once in a lifetime decisions. I think building a comfortable nest egg would be next on my list but there may not be a magic time period for the nest egg to last. For young people with employable skills it might only be a couple or few months. After these things are taken care of the options get more personal, but I'd also look at longer term investments that would give a higher rate of return than CDs or money market.

[sweetana3]

The best thing you can do is to sit down with your spouse and talk about goals, both short and long term. Talk long and in depth. Write them down and think about them. Any investment advisor who is good, is going to want to know what you and your spouse want to do in life and what your goals are since this determines what advice they should give.

If you are unsure, park the money and if uncomfortable, work with it in chunks. We got an inheritance this year and parked it in a higher yield account and we are determining what to do with it but are using dollar cost averaging and putting it in different investment vehicles.

[ToomuchStuff]

I agree on the emergency fund, especially since you say you don't make enough to save much and unexpected expenses hurt.
Do NOT consider retirement savings. IMHO, mixing those two is a bad idea.
Is your schooling paid for? Do you have schooling debt?

[Gardnr]

Put it in a simple savings account for 1 month. Get comfortable with the windfall first. once you're certain you need none of it now, spin off half to an investment. Sit another month on the remaining half.

Continue in that fashion until you have the savings account balance where you want it for your emergency fund. We grew ours from 6m to 18mo when the market crashed back in 2007. It felt good and we've kept it there. We just like that when we go to sleep at night :)

[frugalone]

Yes, it is paid for. I have tuition reimbursement at work and no student loans.



Is your schooling paid for? Do you have schooling debt?

[rodeosweetheart]

Do you have an emergency fund? If I got a big windfall, the first thing I would do is set up a two year emergency fund, or in my case, 5 year, as I am 5 years away from Medicare health insurance.

I'd really sock into emergency funds and no-work funds so that I felt more comfortable without an income coming in. I would do that before I invested any of it. But that may because of my age.

And obviously I'd pay off any debt, but you don't have that, good for you!

So you are in a nice position here.

[awakenedsoul]

Congratulations! Like some of the above posters, I would fully fund an emergency fund. (For me, that would be a year's worth of living expenses. I would invest the rest the way Dave Ramsey advises, (in mutual funds.) He gives the details in his books and on his show.

Do you have a house? Is it paid off? That's another nice place to put money.

[frugalone]

I don't have an emergency fund right now, so putting money into that is my first priority. I don't want to buy a house. To paraphrase Groucho Marx, any house I could afford is one I wouldn't want to live in. ;)

Here is a question. How do you all pay for things like car insurance? Does it come from your monthly budget? And what about clothing? I've never been able to work out a budget for clothing. I always have enough to wear, but once in a while, I do like to buy something new, like a sweater. Last year I needed sandals, but I made it through this summer (so far!) without needing another pair.

[SteveinMN]

How do you all pay for things like car insurance? Does it come from your monthly budget?
If you have the money to pay it all at once, I would do so -- unless your insurance company will let you space it out without charging interest and/or administrative fees. We pay auto/home in two installments (for cash flow reasons; the fees for doing so are minimal) and our umbrella and my business policy all at once when they're due because they're much smaller numbers. But I do know that $n has to be allocated each month for each kind of insurance to make sure we have enough money set aside to pay the premiums.


And what about clothing? I've never been able to work out a budget for clothing.
Clothing is one of the categories (along with home improvement/repair and, tbh, the grocery bill) for which we really don't have a budgeted amount. If we had to count dollars and pennies to get by, we would budget. If either one of us had a history of being a spendthrift, always buying new clothes or gadgets for the house or T-bone steaks, we would budget.

But neither DW nor I spend much money on clothes. Most of what we buy is good-quality clothes in "classic" styles, modernized with cheaper accessories (e.g., a suit tie in whatever is the "hot" color at the time, knowing full well the next time I wear the suit that color will be dead dead dead).

One option for figuring a budget amount would be to look at how much you spent on clothes over, say, the past year (if last year was fairly typical) and set that as your budget baseline. I've never gotten on with those suggested budgets that establish that "you should set aside 5% of your budget for clothes". Most years that's way too much, especially now that I don't need to dress for work.

[Teacher Terry]

Our home/car insurance gets taken out of our monthly pension checks with no fee. This company offers state employees a great discount so even though I shop around yearly I can never beat the price. We don't have a clothes budget either because usually we don't spend much especially with both being semi-retired. This year was an exception as we both lost 30lbs so probably spent 1,000 between the 2 of us since we had nothing that fit.