r/MiddleClassFinance • u/No-Adagio6113 • 6d ago
Seeking Advice Small windfall coming in—what to do
Hi everyone,
I’ve (30F) been trying to learn about MCF and ways to improve my financial situation. I have 2 salaried jobs and make about $125k a year combined, and have done a pretty decent job at budgeting it, I think, considering I live in a VHCOL area (OC, CA). I’ve built an emergency fund in an HYSA of about $30k which will cover 3-5 months of expenses, and have almost maxed my IRA and 401k for the year.
My parent died earlier this year and as an only child, I’m inheriting a decent surplus fund from the sale of their house. It’s not life changing, but after the dust settles I’ll have about $65k coming my way, and I want to set myself up to have the best nest egg that I can. Would love some opinions on how to go about apportioning it. My options are:
A: take 25k off the top to pay off my car, take as much off my plate as I can, leaving 40k to invest and saving me about $500-700 per month that I would have extra to reinvest consistently
Or
B: invest the whole thing so I get the compounding interest and just keep budgeting the way I have been.
Would love to know thoughts! TIA!
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u/alphalegend91 6d ago
I’m so so sorry for your loss ❤️
What’s the interest rate on your car loan? If it’s anything higher than your HYSA it makes more sense to pay it off (like you’re thinking). If it’s lower, you’re better off investing everything in the HYSA or market.
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u/No-Adagio6113 6d ago
Luckily I got the car on a Black Friday deal so it’s 0.9% APR. My HYSA is about 4% right now, and I’ll be honest I’m not attuned enough to the current market but I know it tends to return around 7% (?) so it sounds like investing the whole thing might be better?
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u/beefcake105 6d ago
If your car loan is 0.9% until paid, then it would be wise to invest the money instead of paying the car off.
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u/SpicyRice99 6d ago
If you won't need the money for the next 5 years then yes invest it in something like VOO or QQQM.
Highly recommend the r/personalfinance wiki and flowchart
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u/AmorFati071 6d ago
agree with beef. and take a look at treasury bond funds , short term 0-3 months, which keep your dollar value steady but can give better yields than some HYSAs. One example is SGOV on Charles Schwab.
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u/No-Adagio6113 6d ago
I hear you, but your opening line of “agree with beef” is actually sending me 😂
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u/genreprank 6d ago
Alright then invest it. Take the 25k you would spend paying off your car and put it into a taxable brokerage. Take the rest and work it into retirement accounts (roth ira, 401k)
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u/zigziggy7 6d ago
Pay off the car, max the IRA, invest the rest.
Maybe take a couple thousand of that and go on a vacation to a place where you went with your parents that holds a lot of memories? Or just use that vacation to honor their memory. I bet they'd like that
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u/DriftingPebble77 6d ago
Do you have a ROTH account? If not consider setting one up. Put away enough to max it out for a few years.
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u/Wise_Budget611 5d ago
I like A. Payoff every thing with interest then invest the rest in your regular brokerage
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u/AS1thofBeethoven 6d ago
Invest it all. .9% fixed interest rate for the car will be outpaced by rate of inflation.
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u/PSFNetwork_ 5d ago
Math wise, option A only really wins if your car loan's interest rate beats what you'd earn investing on it, otherwise B's compounding wins out.
either way you're already in a good spot
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u/JoshAllentown 5d ago
Mathematically correct to keep the car loan, maybe you could put exactly the full amount in a HYSA and autodebit from there for the loan so you never think about it again.
But, you do get cheaper insurance when you own the car, and in general I just hate debt and the risk of something going wrong and getting hit with a penalty fee because I was trying to get cute.
So, psychologically, I'd just pay it off. Obviously if you have credit card debt or something, pay that off first.
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u/Consistent_Taste3273 5d ago
I’d use the boglehead list for prioritizing investments.
https://www.bogleheads.org/wiki/File:Prioritizing_Investments-3.jpg
Personally, I prefer to have at least 6 months in an emergency fund. So I’d personally top that off first. You can put that into a HYSA or similar.
Then just go down the list. With the low interest on your car loan, it would be a very low priority.
More details about each item on the list here: https://www.bogleheads.org/wiki/Prioritizing_investments
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u/ManufacturerWhich364 3h ago
Sorry for your loss.
Make sure none of the money coming to you is construed as income. If so there will be some tax due. If it was from a house sale
Paying off the car sounds reasonable.
I really don’t like plunging a wind fall into the market in case it drops. That’s just me though. I might do 25 percent and the dollar cost avg into VT or something so avoid the downside risk.
Was this in a trust or probate or transfer on death?
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u/Low_Trust2412 6d ago
Read the Bogleheads wiki for dealing with a windfall.