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My wife just received a settlement of $60k from an old work injury. We want to be smart with this obviously and prepare for ours and our kid's futures. I'm just looking at different options and wanted unbiased opinions from you guys and girls. First our situation...
I'm 41, wife is 44. I make 55k annually currently, wife is in the job market.
We have a 9 year-old son.
We have less than $1k savings, we don't own a home, and we have one financed car (I use a free company vehicle).
We rent an apartment currently but are sick of it and ready to rent or buy a house.
We plan on paying off all unsecured debt. This will take roughly $17k. We will stash $15k in savings for future surgery out-of- pocket expenses for her injury.
We will secure a decent savings account for our son for probably $1k. We will also likely put some in our primary savings account for emergencies.
Now we decide what to do with the remainder. Do we go ahead and buy a home off my income alone and use a chunk of this for a down payment? Do we continue to rent and save more until we have more for a down payment? Do we invest a chunk of this?
Just looking for some ideas before we start planning everything. I know that saving is going to be the primary focus but I can't help but dream of investing some of this for more security later. This will likely be the only time we see this much money in a short period of time and we want to be very wise with how we handle it.
I would put the remaining balance in your emergency fund.
Look for on line bank. They may have savings accounts paying about 2% so put what you might need this year in the savings account. Also the 15k. Then look at one year and a two year CD for most of the rest. You could buy one each year or maybe better space 4 CD's out over the year.
Assuming you have not invested in the stock market. For most of us, this is where we can make some money.
I would go to the online brokers and read about investing and savings for retirement. This will help educate you. I would probably buy an S&P ETF. When it loses value, and it will, you do not sell. Hopefully when you need it will be worth a whole lot more. To be clear this is really money you do not plan on spending in the next 20 years. My idea is to introduce you into the stock market and maybe as you get confrontable and have extra money you will do some more investing.
If you decide to buy a home keep this money out of the stock market.
If you go with my 20 years then look at using a ROTH IRA
First, I’m sorry for your wife’s injuries and I hope she heals soon. Once you pay off your debt, avoid all temptation to splurge or go into debt again. Set up a budget and develop enough discipline to live within it. Paying unsecured debt sucks the life out of your income.
Your wife may need it in future for medical bills. A medical settlement is not a windfall like winning the lottery. Put it all in mutual fund. Keep paying down your unsecured debt & live beneath your means. Is any of this unsecured debt medical debt of your wife's? Is so pay her medical bills with settlement monies & put rest in mutual fund.
Get extra jobs to pay your debts. If you have 17k plain consumer debt on 55k salary, you need adjust your spending dramatically.
The other issue not yet brought up is you probably owe taxes on the settlement. So if you haven't taken that into consideration, you need to.
I agree with paying off all debt and building up savings.
I would be inclined to keep most of the settlement in cash savings (online bank account as someone else mentioned or a money market account with Vanguard). Some of that savings can go toward a down payment, but I'd keep saving more so I'd have 20% down.
If you have no retirement savings, that's a serious problem. You need to start contributing to a 401k. If you don't have one, then set up an IRA with Vanguard and put it in a target retirement fund. You can contribute up to 6000 a year, I think. If you have no retirement savings, I'd get $12,000 into IRAs for both you and your wife right away (6k for each of you).
Based on the information you've given, I wouldn't do any lifestyle upgrades until you've built up more savings (both in savings account and retirement savings).
Based on the info you've given, you're very far behind the 8-ball financially. You're really not ready for any lifestyle upgrades in terms of renting or buying a house. This money will allow to to begin to catch up by paying off debt and building some regular savings and retirement savings, and maybe some toward a home down payment. But it's really just a starting point toward those goals (other than paying off debt).
Last edited by mysticaltyger; 04-25-2019 at 12:22 AM..
Your wife may need it in future for medical bills. A medical settlement is not a windfall like winning the lottery. Put it all in mutual fund. Keep paying down your unsecured debt & live beneath your means. Is any of this unsecured debt medical debt of your wife's? Is so pay her medical bills with settlement monies & put rest in mutual fund.
Get extra jobs to pay your debts. If you have 17k plain consumer debt on 55k salary, you need adjust your spending dramatically.
I appreciate the advice. We aren't looking at this like it's a lottery winning lol, we aren't going to make it rain while riding on a boat headed to the Maldives.
The debt we accrued was with both of us working, when our combined income was around $90k. We have always lived beneath our means overall, as we are Dave Ramsey believers!
The other issue not yet brought up is you probably owe taxes on the settlement. So if you haven't taken that into consideration, you need to.
I agree with paying off all debt and building up savings.
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We worked closely with an attorney through this process, and WC settlements are not subject to taxes. We're very thorough with these things.
This is some great advice, as our lack of retirement savings had always been a concern of mine. Wife has a 401k, but I haven't started mine. From what I'm reading in articles and in here, it seems that the best bet is to put a majority of this into an IRA/ 401k.
We worked closely with an attorney through this process, and WC settlements are not subject to taxes. We're very thorough with these things.
Ok, that's good to hear!
Quote:
Originally Posted by PeytonC
This is some great advice, as our lack of retirement savings had always been a concern of mine. Wife has a 401k, but I haven't started mine. From what I'm reading in articles and in here, it seems that the best bet is to put a majority of this into an IRA/ 401k.
I think your plan of paying off debt and putting some in cash savings is a good idea, as well as something for a down payment on a house, if you really want one. That might gobble up most of the 60k right there. But I do think carving out at least some of that 60k for retirement savings is important. You may not have as much time as you think[/quote]
Quote:
Originally Posted by PeytonC
Thank you again.
You're welcome. It sounds like you're overall being pretty sensible. Good luck.
Did you receive any WC payments? If so, you may have to repay a portion of it.
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