Life insurance payout

The following post from "Hypnotized" was incorrectly returned to him.
Shown below is a copy of the post.
A quick background on my situation:
My mother-in-law passed away two weeks ago. My wife (26), and her
sister (22) have no father, and no grandparents on either side of the
family. They will be splitting a 100k life insurance policy and need
My wife and I:
Financially we are in a pretty good place at the moment. We are both
college graduates with full-time jobs. I am bringing in 50k and she
earns around 35k. We have one 5k car loan (at 4%) with a minimum
payment of $185. We have been paying it off slowly to improve our
credit rating. We have zero credit card debt and my wife has 12k
worth of federal student loans (at about 3%) which she pays double the
minimum payment. (we don't plan on having kids for at least another 4
We rent an apartment at $690/month and our only utilities would be
electricity which is about $50 and our cell phone/internet bills which
run about $120 combined.
I have 15k in a savings account, 4.5k in stocks (purchased about 2
years ago) and my wife and I have another 3-5k in checking. My
employer contributes 11% of my salary value into my retirement
Our plan before my mother-in-law passed away,(and still now) was to
buy a house when our current lease runs out in June 2012.
Is our best financial plan to put that entire 50k towards a home down
payment? By that time I expect to have an additional 15k saved so we
will have about 80k available.
We have also discussed paying off my wife's school loan, but I
hesitate because it is such a low interest rate and is a tax
deduction. I feel that money may garnish a larger return in the
housing market. Or some other investment I have not considered. Your
My sister-in-law is in a totally different situations.
She is currently in school, and will be getting her bachelors in
nursing this December. Her 4.5 years of state college was all funded
on student loans. Her workload with school and clinicals means she
only can work part time at her nursing assistant job.
She has no savings and a meager checking account, however her cost of
living is cheap as she splits rent/utilities with her 3 other
roommates. She lost insurance coverage when her mother died, so my
wife and I have paid for her school plan to cover her through
I know she will need to take some of the 50k payoff to cover herself
until she finds a nursing job. She is single so no wedding expenses
in the near future, and has no plans of buying a house by herself.
The question is how much should she invest and where/how should she go
about doing it?
---------------end of post
Reply to
HW "Skip" Weldon
[above included for reference, post snipped]
Your sister-in-law's sit is more complicated than your own.
My thesis on real estate to live in is that you can establish a 'footprint' in the market at a low cost today. The inescapable costs of home ownership are taxes and insurance (mortgages can be paid off, utilities economized, maintenance DYI, but taxes and insurance are based on the value of the property at purchase). Both taxes and insurance may increase, but hopefully by modest amounts (part of inflation).
Given the importance of a living space, and if you are not periodically required to move (job-related transfers), I'd go for using the 50k as a downpayment. She already has the student loan covered, and it is a declining balance. Housing prices have dropped almost in half, so it's hard to not argue that an opportunity exists. Assuming you're not in SF or NYC or LA, you should be able to find a nice place, and establish yourselves at a low base cost. The usual and VERY significant caveats about buying a specific property apply - make sure you double-inspect, verify the title twice, make hard, accurate, estimates for maintenance costs, appliance age and replacement costs, utilities, etc..
For your sister-in-law, the "thrower" on your question is "where/how should" she invest. It's possible to exclude some things - The Ghaddafi Permanence Fund, Ancient Greek Rare Coins, The Free Medical Plan, Alien Spaceship Reconstruction LLP, Mansions of the Rich and Famous - but the range of investments and of advice is too broad to cover without more info on her personal perspectives and plans. Stay conservative with some flexibility until she has her career on a reasonably solid footing. I just personally suggest that an investment in a short course, or a couple of good texts, on personal accounting and budgeting would probably pay off handsomely over the course of many years.
Reply to
I just personally suggest that an investment
That is an excelent idea. Also, a short book on real estate basics before buying the house would be a good idea. It might be wise to limit the purchase price of the house or condo to a figure such that the $50,000, (or what is left of it after a nice vacation for fun to celebrate the good fortune) would make a substantial down payment. Do not buy too much house. And by all means check out this site for lots of advice on how to save money when shopping for a mortgage:
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Just researching, persisting, and getting a mortgage at 5% instead of 6% will save an enormous amount of money over a period of years. Because of your good financial situation, jobs, and good credit, you will have excellent negotiating power with mortgage lenders.
Reply to
A lot of people on this forum may disagree with me but if she were my sister I would suggest she use the money for two things. First, establish a cash reserve for emergencies. The common rule of thumb for this is six months living expenses. Second, pay off as much of the school loan as possible with the balance.
Nurses are in high demand so your sister should be able to get a job quickly. A quick check shows that starting salaries for RNs with a BSN and no specialty training are close to $50K/year. This will, of course, vary from area to area but generally salaries vary in relation to living costs. In any case, she should be able to make a comfortable living starting the day after she graduates.
In spite of the low interest rate on student loans they are like any other long term debt in that you pay a very large amount in interest over and above the amount of the loan if you make the minimum payment each month. Getting out of debt sooner will save a lot of money in the long run and that is money that can better be put into her long term savings and investment program.
As others have suggested, learning the basics about budgeting, saving and investing will be an investment that will pay big dividends for the rest of her life.
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