Inheritance

[shortbun]

I think it depends on where you are in the mortgage. Is the interest already paid leaving just the principle or close? In that case, keep your mortgage and pay off the rest. You should really check with a good financial advisor. Remember to pay yourself first. Fully invest in your own retirement and then your children's college funds. Your goal for your children should be that they perform well enough, or you find funding for their educations. Chant with me, 'full ride, full ride.' Seriously, fully fund your retirement every year before contributing to a college fund.

 

[dvcgirl]

First is pay off Credit Cards, Car, Student Loans, and the Mortgage (in that order). Then try to put an amount equal to six months of normal living expenses in an emergency fund, such as a Money Market Mutual Fund. Next is max out your annual retirement contributions. Then set up college funds for all the kids. Finally go for other investments.

Since you will no longer have a mortgage, make sure that you keep a special account so you will be able to pay your Property Tax and Homeowner's Insurance when they come due.

With the money you have saved from not having monthly payments you should be able to pay all credit card bills in full in the future.

You may also want to set up a car replacement account. Less than six onths ago I was buying a new car. I had indicated I needed to talk financing with the dealer. Once we got to the best price I pulled out my checkbook and was able to write a check for almost $30,000 in full payment. I think they were not happy since they had figured in some financing kickbacks when they computed the final price.

This is a great post....and exactly what I would do. Exactly what we *did* do. We have never received an inheritance but did well when we were younger coming into large chunks of income in the form of stock options. We didn't own a house at the time, but we paid cash when we did.

There is no feeling like being debt-free. And if you learn to live beneath your means and begin saving that old house payment, car payment and student loan payment.....you'll end up very wealthy. As time goes on we find that we're able to save more and more. We're to the point now where we live very comfortably on 40% of our net income. We save the rest.

This idea that you need to keep a mortgage hanging around for 30 years for the tax break is just ludicrous. If we can all do so much better in the market and beat the interest rate on our mortgage than why not keep one forever? If you're keeping up with the news lately, you'll see that highly leveraged homes aren't always a blessing or a savvy financial move. I've read estimates that by the time this market bottoms a full 20% of Americans could owe more on their homes than the home is worth. Just something to think about.....

 

[a1tinkfans]

I used to be jealous of friends who inherited money from a father-in-law or grandmother or aunt. Sadly, I stand to inherit about $40,000 once my mom's condo sells. I would give everything we possess to have her back. Everything.

Very sorry for your loss. I feel your pain having lost my own mom WAY to early in her life!

 

[bdcp]

I have a question for all of you pushing the mortgage payoff and calling not doing it ridiculous. Do you use a financial planner and have you ever discussed any of this with them? I do and I have and he as well as most I've talked to say keep the mortgage and invest in your future retirement NOW! You will in the end have a heck of a lot more put away than if you do it the way most of you are suggesting. It's short term thinking and will cost a lot of interest income over the years.

Most people I know retiring now or looking at it in the next few years who can actually afford it have mortgages and invested heavily early on and consistently in their retirement accounts. Those that I know that paid off their mortgages early cannot afford to retire early because they cannot live on their retirement annuity alone because instead of putting money away for retirement and using the time value of money they paid off debt.

 

[1blessedmom]

I am in your exact shoes. First thing we did was meet with a tax accountant to estimate our taxes as some of the inheirtance was an IRA. We then set aside enough to pay taxes.

Next, we paid off the mortgage. I cannot tell you how that feels. It is amazing and humbling all at the same time to know that we OWN this house. LIke Dave Ramsey says, even the grass in the back yard feels different!

My DH and I are very disciplined when it comes to money, so we took the payment that we were making on the mortgage and put it straight into a monthly investment into Roth IRAs for each of us. Imagine putting your house payment into an investment account every month ~ it grows very quickly!

We did not have any credit card debt or car payment.

My parents changed their family tree in a huge way, but I would give it all back in a heartbeat to see my mother with the grandkids she so anxiously awaited. My life is very bittersweet.

 

[crisi]

We choose to pay off much of the debt, but also set some of it aside. We didn't invest much of it (which was good, we inherited in 2000, some of the investments we made at that time STILL haven't recovered). It wasn't enough to get rid of the mortgage completely, but it helped a lot.

 

[PastorsWife]

I would give it all back in a heartbeat to see my mother with the grandkids she so anxiously awaited. My life is very bittersweet.

You remind me of the old song "I'll be waiting on the Far-side banks of Jordan"...

 

[forgop]

I'm not paying PMI, so paying that down isn't a concern. I will obviously pay down the credit cards first and ensure those are paid monthly again. I will only use my Discover as I get 2% back, so that will help me earn a nice "bonus" each year. It's used for gas, groceries, utilities, and as many other purchases as possible.

As far as being able to get grants and such for the kids when they go to college, that's a joke. I learned when I applied to college that I didn't get a dime because I'm a white male and my parents made too much money. The same will happen for mine I'm sure.

I will take $25k and put it in a savings account for emergency use only. I'll see what I may do for meeting with a planner of some sort. There will obviously be tax implications of how much I put where before the end of the year.

 

[ameraumi]

I have a question for all of you pushing the mortgage payoff and calling not doing it ridiculous. Do you use a financial planner and have you ever discussed any of this with them? I do and I have and he as well as most I've talked to say keep the mortgage and invest in your future retirement NOW! You will in the end have a heck of a lot more put away than if you do it the way most of you are suggesting. It's short term thinking and will cost a lot of interest income over the years.

Most people I know retiring now or looking at it in the next few years who can actually afford it have mortgages and invested heavily early on and consistently in their retirement accounts. Those that I know that paid off their mortgages early cannot afford to retire early because they cannot live on their retirement annuity alone because instead of putting money away for retirement and using the time value of money they paid off debt.

You have to be disciplined enough to take what would have been your mortgage payment and put it into an investment/retirement/savings acct.

In our case, we do not have enough in mortgage interest to itemize, so there is a not a tax deduction for us. I would pay off the car & CC, put 3-6 months in savings, fund college for my kids and then pay off the house. Since we are already saving for retirement (DH's 401K, my IRA) we would bump those up after everything was paid off.

 

[Zephyr]

No matter what you decide to do with your money, I would recommend looking into buying some umbrella insurance. When I had it it a few years back it was was just a few hundred dollars to get 1 million worth of insurance.

 

[zazu1971]

I used to be jealous of friends who inherited money from a father-in-law or grandmother or aunt. Sadly, I stand to inherit about $40,000 once my mom's condo sells. I would give everything we possess to have her back. Everything.

This just made me cry. We lost my grandparents this year... and I feel the same way.

 

[TammyAlphabet]

No matter what you decide to do with your money, I would recommend looking into buying some umbrella insurance. When I had it it a few years back it was was just a few hundred dollars to get 1 million worth of insurance.

I think this is good advice.

As for the mortgage, I think most financial planners can't do basic math. Why would you pay interest of 20,000, for example, to avoid paying taxes on 25% of 20,000? (Assuming a 25 percent marginal tax rate for simplicity) So it is smart to pay 20,000 to the mortgage company just to avoid paying 5000 to Uncle Sam? I am sure that you have heard Dave Ramsey say this, but, surely, this is just common sense? Also, all investments have risk, the higher the return, the higher the risk. Paying off your home automatically returns the rate of your interest, risk-free, guaranteed. 15,000 a year adds up over time to quite a nice nest egg. Just my opinion, of course.

 

[lowie]

7 Baby Steps from Dave Ramsey...a Christian financial advisor. Check out his website for lots of great tips. If you are still confused, find his radio program, buy The Total Money Makeover, or go to his show!
1) $1,000 to start an Emergency Fund
2) Pay off all debt using the Debt Snowball
3) 3 to 6 months of expenses in savings
4) Invest 15% of household income into Roth IRAs and pre-tax retirement
5) College funding for children
6) Pay off home early
7) Build wealth and give! Invest in mutual funds and real estate.
The reason to pay off ALL of your bills is because you can make 10%+ on good growth mutual funds. You said you will be paying off $3K of monthly bills. If you add that up over just 1 year that is $36,000 + the money you will make off investing that much vs. the $15,000 in tax savings.

although i agree with much of the above, i think that if your inheritance is enough to pay off ALL your debt then $1000 is not even close to enough to fund an emergency fund.

invest in real estate??? man oh man, i'm not touching real estate now. why throw away your money? let the professionals deal in real estate.

also, if anyone here thinks that they can consistantly get 10%+ on a mutual fund should buy this bridge in brooklyn i'm selling.

my advice would be to figure our how much you can realistically get on a very safe investment. if that amount is higher then any of your current interest rates, then pay off those amounts only. if your interest rate is lower then keep paying on that and invest that money.

but in reality what would happen in my house is that my DH would take all the money away from me, cause he knows i'd blow it on cruises and disney world. he'd pay off EVERYTHING. then he'd burn my debit/credit cards.

 

[forgop]

This just made me cry. We lost my grandparents this year... and I feel the same way.

My dad lost his 6 year battle with cancer in January. One grandma was buried 8 weeks to the day of my dad. My mom appears to have up to a week left. One remaining grandpa (who lost his wife of 56 years in March and will lose his oldest daughter very soon) is in pretty poor health himself. I wouldn't be surprised if he didn't give up and not make it through the end of the year.

I knew at the start of 2008, it wasn't going to be a very good year.

 

[Cheshire Figment]

I am a CPA.

I remember many years ago (when tax rates were higher and all interest was deductible) asking one of my clients (who was in the 25% bracket) who was "proud" of having a lot of CC interest but having tons of money in low interest bearing savings accounts:

Would you rather pay $40,000 in interest and no tax or pay $10,000 tax and no interest?

And I still have a couple of clients who have no mortgage and are able to claim the standard deduction.

 

[Karenj2]

My dad lost his 6 year battle with cancer in January. One grandma was buried 8 weeks to the day of my dad. My mom appears to have up to a week left. One remaining grandpa (who lost his wife of 56 years in March and will lose his oldest daughter very soon) is in pretty poor health himself. I wouldn't be surprised if he didn't give up and not make it through the end of the year.

I knew at the start of 2008, it wasn't going to be a very good year.

Oh - I feel so sad for you! I just lost my grandma in June, and that was bad enough... I'm sorry you're having such a bad year. No amount of money is worth losing someone you love.

 

[PaulaSue]

Pay off the debt, and invest the rest, and take what you used to pay in debt and add that to your investments as well!!

Ditto.

 

[Bob NC]

My friend is a financial planner and we've had this very discussion before following an inheritance. For your age, and current interest rates on your debt, any good financial planner would tell you to keep the mortgage at the great rate you have which is actually costs you 4.3% if you are in the 25% tax bracket (after your itemized tax deduction).

Financial planners will ALWAYS recommend that you invest with them. Paying off your mortgage will NEVER benefit a financial planner.

 

[EthansMom]

My condolences on the loss of your family members.

I would pay off the credit cards and car first. I would put some money away in liquid savings accounts (Emergency Savings). And I would consider spending at least some small part of it on something frivolous as a celebration of my family members' lives. If there is still some money left, I would pay off/down the student loans.

Since paying off/down those items would increase the amount of money I would have for discretionary spending (no cc, car, or student loan payments), I would increase my 401k contributions and start/increase contributions to college savings plans for the kids.

With this plan, you would be debt-free except for the mortgage, have an emergency fund, and get a good jump on retirement and future college costs.

As long as the house mortgage is reasonable, I wouldn't worry too much about it... maybe pay it down, if there's so much money that I don't know what to do with it. I'd be more likely, to make a few small maintenance items on my house with "extra" money than to pay down the mortgage.... especially if the mortgage is a fixed rate one.

 

[LoveBWVVBR]

Financial planners will ALWAYS recommend that you invest with them. Paying off your mortgage will NEVER benefit a financial planner.