Just inherited $90k, now what?

I love getting your email questions. I really do. I received one the other day that may be one of my all time favorites. Check it out.

Pete

Love your blog, there's a lot of great advice on it. Between you and Dave Ramsey I can almost always find the answer to any question of situation. Thanks for putting so much information out there!

I come from a family that has a horrible relationship with money. On one end of the spectrum family members practically hoard money and can't have a logical conversation about buying anything that costs more than $10, and on the other end my "most successful" family, makes 7 -figures and still manages to have a negative net worth. So figuring out money has been a challenge for my husband and I and we really don't have good person to run ideas by... So I thought I'd ask you.

We currently have about 6K in savings that we don't touch in the event one of us would lose a job. We make a combined 102K a year. We have almost 220K in student loans left to pay off.

My husband just inherited 90K. Some think we should stick it under the mattress, and others think it would make a great down payment on a 500K home. Neither of those are a good option, clearly, so here is what we were thinking.

We don't have any children yet, 20K of the 90K would go towards adoption. With the other, we would like to purchase a property for $70K. Our 3 options are a property ready to go, one that would cost $20K and need about $40K in work, and a lot that is $20K with a house plan that we can build for $40K. Although we could start the adoption process now, we were told it is much better if we have a house, rather than saying we would be moving out of our tiny 1 bedroom when we adopted.

Our thought is, if we didn't have to pay rent/mortgage each month, it would take us a lot less time over all to finally pay off that $220K in student loans. But we are wondering if we are hurting ourselves in the long run by not throwing that $90K at student loans initially.

Any thoughts, just wondering if it sounds like a good idea? I think I've thought of everything, but I thought I would run it by a third person for some feedback.

M.A.

Awesome question. You have the chance to make an AMAZING decision right now. I have seen several people inherit much more than $90k, and in most cases the money was either wasted, or it didn't provide the sort of impact that this $90k will have on you. Here is what you need to consider.

• Taxes- Don't forget about taxes. I don't know the details of your inheritance, but don't forget to set some aside for Uncle Sam. That is unless you inherited the money from your deceased Uncle Sam. If that's the case, then I'm sorry for the Uncle Sam reference. This is spiraling out of control. Just pay your damn taxes.

• Emergency reserves- Having only $6k in savings given your $100k income is a bit worrisome. I'm not going to lose sleep over it, but you should. You should have AT LEAST three months expenses set aside. You make at least $6k net per month. That means that if your expenses are anywhere near your income, then you need $18k set away. I think you should at least put $4k of the $90k in savings to get you up to $10k, and then set money aside from your income on a monthly basis.

• Student loans- I'm not going to lie. $220k in student loans made me throw up in my mouth a lil bit. That's a ton! I usually tell people that student loans are like a having another house, but one that you can't live in. But you are talking about getting a house that is 1/3 the cost of your student loans. Based on my ideal household budget, you can put 25% of your household income towards housing. Since you don't plan on having a house payment, you can put that hypothetical $1,500 per month towards your student loans (that's in addition to a what you are already paying towards those loans). Let's assume for a second that you don't pay anything in interest (which obviously isn't the case), it's going to take around 12 years to pay off these student loans with $1,500/month payments.

• Your house- So you want to be a homeowner? Cool. I'm glad that you are thinking straight in regards to not using the inheritance as a down payment, but instead viewing the inheritance as a full payment. This restraint will serve you well. Just know that you will still need to pay property taxes, insurance, increased utility bills, and maintenance expenses. I'm not trying to piss in your Cheerios, I'm just letting you know that paying cash for your house won't end the costs associated with homeownership.

• Adoption- Congrats! What a great decision. Not to get all sappy here, but adding a family member in the wake of losing a family member is a wonderful thing. However, it's been my experience (assisting several peeps over the years) that adoption will cost more than $20k. I hope this isn't the case for you, but I believe it will be. Just know that you may need to set more aside for the adoption than you think.

All in all, M.A., you are in a pretty sweet spot. But the decisions you make now will impact you greatly over the next few decades. I believe that you are thinking straight, and I hope that my "things to consider" helps you even more.