Small inheritance, What to do

[fixmy59bug]

I dare not ask this in TCL since I don't want a miata or E30.

So I just found out tonight that I will be receiving a small inheritance from my grandma since her passing. It is expected to be around $10k, but no more than $12,500.

I have less than 1 months emergency funds in savings, my 401k and ROTH are both on track for full funding by the end of the year, $3k in revolving debt (all still in introductory 0%APR), and just less than $11k left on my car loan (at 6% APR).

I have spent years repaying my debts, rebuilding my credit, and finally getting myself in a better position than I was.

I believe i am in a secure enough position with my job that i am not worried about my emergency funds. So I would be ok with paying off (almost) all debt then put those monthly payments into savings.

So I think it would be most beneficial to put the whole thing towards the car. Then I could put those car payments towards revolving debt and be debt free before 2013 arrives.

And my last consideration is to take my Jetta which has about 6k trade in equity and combine it with the $10k and get into a '13 Passat.

What are your opinions?

[Egilbe]

I have less than 1 months emergency funds in savings, my 401k and ROTH are both on track for full funding by the end of the year, $3k in revolving debt (all still in introductory 0%APR), and just less than $11k left on my car loan (at 6% APR).



And my last consideration is to take my Jetta which has about 6k trade in equity and combine it with the $10k and get into a '13 Passat.

What are your opinions?

Buying a new car is a bad idea with less than 1 month emergency funds available.

[fixmy59bug]

Ha ha ha ha, Yeah. I know.

I wasn't completely serious about that. It would be a want, not a need.

So I think it would be most beneficial to put the whole thing towards the car. Then I could put those car payments towards revolving debt and be debt free before 2013 arrives.

I still believe this would be the best scenario...

[SAPJetta]

I'd look to refi the car into a lower rate and then throw most of what you get into savings somewhere so you have a bit more cushion in your emergency fund. If you do decide to pay off the car, definitely throw as much as you can into savings to beef up that fund a bit. 1 month is a scary short amount of time.

[dunhamjr]

So you owe $11k on the car @ 6% and $3k on CC @ 0% for now.

I say.

Pay off the car completely.
Then kill the CC debt.

Once that is done, you really do need to build an emergency account... no matter how safe you feel about your job.

So build up at least a 6 month emergency fund.

THEN think about buying your new car and eating thousands in instant depreciation.

[fixmy59bug]

I'd look to refi the car into a lower rate and then throw most of what you get into savings somewhere so you have a bit more cushion in your emergency fund. If you do decide to pay off the car, definitely throw as much as you can into savings to beef up that fund a bit. 1 month is a scary short amount of time.

So you owe $11k on the car @ 6% and $3k on CC @ 0% for now.

I say.

Pay off the car completely.
Then kill the CC debt.

Once that is done, you really do need to build an emergency account... no matter how safe you feel about your job.

So build up at least a 6 month emergency fund.

THEN think about buying your new car and eating thousands in instant depreciation.

Wait.... No..

I was wrong. 6.89% was my original APR on the car. I Refinanced it a year ago through my credit union at 3%. I forgot about that.

Does that change anything?

Another question....

Seeing as I feel secure in my job, would it unwise it put 50-75% of the inheritance in a share account (Credit union version of a CD)? That would put me with my 8 month emergency fund with the potential of earning money on it. But if I need it, the majority would be available after the penalty.

Maybe split it up into three $2,500 CD's of varying time limits (For example 12, 24, and 36 months) and when each expires, roll it into the 36 month CD or start a new slightly longer CD?

[dunhamjr]

Wait.... No..

I was wrong. 6.89% was my original APR on the car. I Refinanced it a year ago through my credit union at 3%. I forgot about that.

Does that change anything?

truthfully, for me, no.
the car loan is a guaranteed 3% extra out of your pocket.

my own method is to pay off the debt with the highest interest rate first... minus mortgages and student loans. because those balances are just usually too high, plus part of the interest is allowed to be written off.

i would still pay the car off, then hit the CC debt. build out 6 months savings. then onto the new car, next year if necessary.

but i would maybe even forgo the new car if you can. i recently got rid of my car/car payment... i traded in 2 cars with loans for one car paid off outright... so i am loving having no car payments.

[fixmy59bug]

I think you might have missed my response about the new car.

I'm not going to be buying any time soon. It was a head in the clouds moment.

I have made the resolution to my self that I WILL NOT buy the Passat until the Jetta is paid off for atleast a year (This was made before I knew about any inheritance, so that means atleast 2015 before I get the passat), UNLESS the car is totalled out from under me (say for example in an accident).

The passat is out of the equation for now.

What do you think about the CD idea?

I can continue making timely payments on the car (building my credit in the process), I can consider the CD's as my emergency fund which will get a return for me, and I can take the remaining $2500 or so and pay off all my CC debt.

[dunhamjr]

Another question....
Seeing as I feel secure in my job, would it unwise it put 50-75% of the inheritance in a share account (Credit union version of a CD)? That would put me with my 8 month emergency fund with the potential of earning money on it. But if I need it, the majority would be available after the penalty.

Maybe split it up into three $2,500 CD's of varying time limits (For example 12, 24, and 36 months) and when each expires, roll it into the 36 month CD or start a new slightly longer CD?

not unwise. IMO nothing about saving is unwise.

you arent going to earn much interest really no matter how you layout the cd ladder, maybe 1.5%
so paying off the car loan would provide twice the 'earnings' since you wouldnt be paying that extra 3% anymore.

then without a car payment or CC payment, you can just dump that money into savings each month until you have a sufficient 911 fund.

[dunhamjr]

I think you might have missed my response about the new car.

I'm not going to be buying any time soon. It was a head in the clouds moment.

I have made the resolution to my self that I WILL NOT buy the Passat until the Jetta is paid off for atleast a year (This was made before I knew about any inheritance, so that means atleast 2015 before I get the passat), UNLESS the car is totalled out from under me (say for example in an accident).

The passat is out of the equation for now.

What do you think about the CD idea?

I can continue making timely payments on the car (building my credit in the process), I can consider the CD's as my emergency fund which will get a return for me, and I can take the remaining $2500 or so and pay off all my CC debt.

i missed your reply. but in the OP you said 2013, which means purchasing by NEXT Sept at the latest. no biggie.

take a look at what CD's return. not much. better then savings acct, but not much.

https://www.ally.com/bank/compare/
0.89% to 1.49%

[SAPJetta]

My only issue with paying the car off, and it isn't a bad idea as it does save you the 3% or whatever your going rate is, is your lack of emergency fund. How far does your current fund carry you if you are out of work and you no longer have the car payment?

If you pay off the car and then suddenly find yourself out of work before you can push some of those car payment funds into savings, how long can you stay afloat? Saving 3% on an $11k balance if you have 3 years left on the loan is only about $600 savings over those 3 years. Would you rather have the extra $600 at the end of 3 years (not a bad return on investment so to speak) or the extra cushion in case something happens?

If you feel like your job security is solid, pay off the car. If you're not sure, I'd figure out a savings vehicle for that money.

[fixmy59bug]

My only issue with paying the car off, and it isn't a bad idea as it does save you the 3% or whatever your going rate is, is your lack of emergency fund. How far does your current fund carry you if you are out of work and you no longer have the car payment?

If you pay off the car and then suddenly find yourself out of work before you can push some of those car payment funds into savings, how long can you stay afloat? Saving 3% on an $11k balance if you have 2 years left on the loan is only about $400 savings over those 2 years. Would you rather have the extra $400 at the end of 2 years (not a bad return on investment so to speak) or the extra cushion in case something happens?

If you feel like your job security is solid, pay off the car. If you're not sure, I'd figure out a savings vehicle for that money.

See the corrections.

I only have about 2 years of payments left. So the savings would only be about $400. That's why I am not as concerned with paying off the car as Dunham is suggesting. I am more concerned about paying off the CC debt (since the promotional APR expires soon) and shoving the rest into savings.

If I were to lose my job with the savings in place, I be able to comfortably survive for about 6-8 months. At which time I would have to consider selling the car and buying a used clunker to replensih the emergency funds for another 6-8 months.

If I were to lose my job with the car paid off and no savings, I have maybe 1 month where I could survive, then I would have to consider selling the car and I would have about 10-12 months sustainability.

[dunhamjr]

See the corrections.

I only have about 2 years of payments left. So the savings would only be about $400. That's why I am not as concerned with paying off the car as Dunham is suggesting. I am more concerned about paying off the CC debt (since the promotional APR expires soon) and shoving the rest into savings.

If I were to lose my job with the savings in place, I be able to comfortably survive for about 6-8 months. At which time I would have to consider selling the car and buying a used clunker to replensih the emergency funds for another 6-8 months.

If I were to lose my job with the car paid off and no savings, I have maybe 1 month where I could survive, then I would have to consider selling the car and I would have about 10-12 months sustainability.

so you ARE concerned with your emergency savings... contrary to your OP.

I believe i am in a secure enough position with my job that i am not worried about my emergency funds. So I would be ok with paying off (almost) all debt then put those monthly payments into savings.

if you want a 911 account, then drop half the inheritance into savings and put the rest into debt.

[fixmy59bug]

Sorry, I chose the wrong words when I created my OP.

I am not worried about my emergency funds in the sense that I am flipping out about not having anything. However, I am worried about it in the fact that I know I should have one and would like to start building one.

My family was lower middle class, maybe even upper low class.

We were raised with no teachings of "Save for tomorrow, because you never know". If we had money, we spent it because we needed something fixed or fed. So I am treading foreign soil.

I currently have about $17k in my 401k and ROTH and everytime I log in to check the balance, I get excited for a minute and think about what I could buy with it. But almost instantly I think "NO! STUPID! That's Retirement!".

When I received my inheritance at age 18 from my dads passing, that was almost $45k. Since I was never taught to save, I blew it all on stupid sh*t. I have nothing to show from it.

[SAPJetta]

From the sounds of it, pay off the CC since that 0% is going away soon. Don't want that jumping to 20% or so.

Throw the rest in savings so you have some cushion.

As for your 401k .... definitely don't touch that. I pump money into mine each month and rarely even look at it other than to see the monthly performance. It has another 30 or so years to sit there, grow and build interest. No reason to mess with it.

[GeoffD]

Sorry, I chose the wrong words when I created my OP.

I am not worried about my emergency funds in the sense that I am flipping out about not having anything. However, I am worried about it in the fact that I know I should have one and would like to start building one.

My family was lower middle class, maybe even upper low class.

We were raised with no teachings of "Save for tomorrow, because you never know". If we had money, we spent it because we needed something fixed or fed. So I am treading foreign soil.

I currently have about $17k in my 401k and ROTH and everytime I log in to check the balance, I get excited for a minute and think about what I could buy with it. But almost instantly I think "NO! STUPID! That's Retirement!".

When I received my inheritance at age 18 from my dads passing, that was almost $45k. Since I was never taught to save, I blew it all on stupid sh*t. I have nothing to show from it.

Before the OP wrote this, I was going to ask if the OP had family he could use as financial backup if something horrible went wrong. The answer to that question is clearly a NO.

The OP needs an emergency fund. Put it somewhere that it's at least a little difficult to get at like a 2 year CD. I presume the OP will also want to enter the housing market at some point. A 2009 VW TDI should last for years. Drive that and get it paid off. Get that revolving credit paid off before the zero interest promo expires. Keep saving.

[fixmy59bug]

From the sounds of it, pay off the CC since that 0% is going away soon. Don't want that jumping to 20% or so.

Throw the rest in savings so you have some cushion.

As for your 401k .... definitely don't touch that. I pump money into mine each month and rarely even look at it other than to see the monthly performance. It has another 30 or so years to sit there, grow and build interest. No reason to mess with it.

That's pretty much what I had in mind. Just wanted some reassurance, and to see if anyone had any other opinions.

As for the 401k, I will not be touching it. That much I know.

[fixmy59bug]

Before the OP wrote this, I was going to ask if the OP had family he could use as financial backup if something horrible went wrong. The answer to that question is clearly a NO.

The OP needs an emergency fund. Put it somewhere that it's at least a little difficult to get at like a 2 year CD. I presume the OP will also want to enter the housing market at some point. A 2009 VW TDI should last for years. Drive that and get it paid off. Get that revolving credit paid off before the zero interest promo expires. Keep saving.

You are correct about financial back up. My family would help if they could, but they are in just as much of a spot as I am. if not worse.

I am undecided on buying a house though. I currently live in an apartment where all I pay for is rent and utilities. All up keep, maintenance, landscaping, and repairs are covered by the property management. Maybe I am used to my growing up situation where stuff was always needing repair, but buying a house and not being able to afford it scares the hell out of me.

I don't plan on ever getting married, I don't plan on ever having kids. If something ever happens to me, I don't really have anyone to pass a house on to.

I do have a sister and a few nephews, but if anything ever does happen to me they are the beneficiaries of my life insurance and I think I can will them my savings. So they will be ok.

[Egilbe]

I would stay as liquid as possible. Eventually that CC debt will have interest to pay off. CD's aren't great investments, but they are safe. I'd do what Geoff suggested, part towards savings and part towards paying off your debt.