I am currently 27 years old and recently been gifted 35k and need advice on
what to do with it. Currently I make 62k and contribute 6% with 60% matched
to my 401k which currently has 2,500 in it, only made 3% so far this year. I
also have a retirement account through my work which is fully employer
contributed currently at 2,200 making national bond average percent.
Additionally I have a little money in a stock account which is also around
2,200 currently, only put in 1,500 2 years ago to play around and learn the
market. My wife makes about 40k with no savings, and together we have
around 10k in credit card debit currently at 0% for 6 months then will be
around 12%. We also "own" a house bought at 141,500 and currently have
121,500 invested, 86%.
My initial thoughts were to pay off the cc debt, put money into the house to
avoid paying PMI, put a little more into my play stock account, and put the
rest into a low risk investment that is accessible next year for a down
payment on a new house, possibly a CD. I am second guessing the decision
to pay of the cc right away as this money may be better somewhere else why
the cc is still at 0%. Also I do not know what is the best low risk
investment that can be accessible when I decide to move.
Thanks in advance for any advice.
Pay the debt and pay down the house to at least 80%. That will take
about half. Next, start fully funding all of your retirement options.
Then put about $5K in a high rate of return money market with your
broker or bank. Invest the rest in mutual funds. Get rid of the
stock, stop playing, and add that to your mutual funds.
You really need to take a look at how you are living life. You two
earn over $100K, which only a small fraction of Americans do, yet you
are broke and in debt up to your eyeballs. That must be the modern
American dream. The only mistake you haven't made is to go out and
buy $90,000 worth of cars on credit.
John A. Weeks III 952-432-2708 email@example.com
I will second the advice to pay down the cc. 10k is a considerable
amount, and once 0% teaser rate expires, it's possible this amount
could grow out of control.
I would first look at the following:
1) what will taxes be on 35k? I would set this amount aside right
2) I would pay off the 10k in cc debt. This will free up the minimum
payment on the cc.
3) I would then take whatever the cc payment was and fund an IRA
(probably a Roth-if you qualify) each month
4) I would then make sure you have 1-3 months expenses "in the bank"
5) I would then spend some and save the rest.
First, pay off that credit card $10K invested for 6 months compared to
keeping the CC for 6 months at 0%... The difference is only $200 or so
and that just isn't worth the risk of missing that 6 month deadline and
having to pay the 12% interested back dated for the 6 months.
Second (assuming you don't have any other debts,) pay down your house so
you can get the PMI off.
Put the left over $17K or so in a MMA (some earn 5% and more!) for a
beginning emergency fund (you didn't mention having one.)
Frankly, with a $100K/year household income, $35K isn't a life changing
event. I wouldn't even think of moving just because the cash came in.
Buy a $10K CD for 6 months, to come due when the card 0% expires. Then
pay it off. Don't charge up more than you can pay off in full each month.
Check with the bank exactly how to get rid of PMI. Some will require an
appraisal if you pay against the principle (i.e. if you make any extra
payment such as this). It should only take $8K to get you up to 80% if I
understand your numbers, and it would be worth a $250 appraisal to get
rid of PMI if that's what it takes. The rest should be kept in CDs or
money market, as this represents your emergency money.
Given your situation, you should not be 'playing the market' in
individual stocks. You first need to find the money to improve your
retirement savings, 15% is a good target for someone earning $100K as a
family. You can certainly review your spending and find a way to bump
your 6% to 8 or 10. Then, put 1/2 of your annual raises into retirement
savings. After the 401(k) matching money (the 6%), your best bet is the
Roth IRA. 4K/yr for you and 4k/yr for your wife. That's where the next
8K should go. Into index funds, not individual stocks.
BTW, there are no taxes due on a gift to the recipient. If any tax was
to be paid, it's by the person giving you the money.
BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here.
All logos and trade names are the property of their respective owners.
Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee
neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.