How AI Legalese Decoder Can Simplify Your Inheritance Process of $30,000
- May 17, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Financial Snapshot
I’ve pretty much, in my mind earmarked the money already.
### Current Financial Situation
– Current savings: $1000
– Credit Card Debt: $6000 (will be $4000 by the time I get inheritance)
– Car Debt: $8000 (will be $6500 by the time I get inheritance)
– Student Loan Debt: $13,000, (paying $140/month)
### Retirement Accounts
– 401(k): $115,000
– Roth IRA: $500
– Age: 42
– Salary: $60,000
## Plan of Action
So my plan is…
– $4,000 to be done with credit card debt forever
– $6,500 to pay off car
– $6,500 to max out my Roth IRA for 2024
That comes to $17,000 and leaves $13,000.
Dave Ramsey would tell me to pay off my student loan debt. It’s interesting that the inheritance almost perfectly fits my total debt plus what I need for the Roth IRA.
### AI Legalese Decoder Solution
Using AI Legalese Decoder can help you make informed financial decisions by analyzing the legal jargon in your financial documents and providing you with clear and actionable insights. It can assist you in understanding the implications of different choices, such as whether to pay off your student loan debt or invest in an index fund, based on your specific financial goals and circumstances.
I want to buy a house sooner, rather than later, and I’m tempted to throw that money either into an index fund, or into a high yield savings.
Others had told me not to pay off the car, and instead put ~$20,000 into an index fund. I can stomach having to pay the $140 a month for the loan, but I personally would love to have the car payment gone.
What would you do?
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Paying off debt is going to be a personal choice. If you’re a robot optimizing your decisions and assume you won’t make money mistakes in the future, sure it makes sense to invest this cash into a safe place if the interest on that debt is low enough.
Personally? I’d make sure I have a 6 month emergency fund, especially in this layoff economy, and I’d shove away the debt regardless of interest rate. Debt makes me feel owned and I hate that, so that’s my personal preference.
Either way, I don’t think the difference in those two decisions would have such a significant impact on your life that you’d regret either decision.
Based on this post it seems like your student loan debt is under 5% interest, I think it would be insane to pay a penny of that off early rather than simply investing it into VTI. Same if your car loan is under 5% or so.
No matter what though, don’t be tricked into thinking this $30k is life-changing money or that you can change your lifestyle, that would be the worst mistake you can make. Good luck!
>What would you do?
1. Pay off all debt.
2. Focus on retirement. At age 40 you should have 3x your annual salary. You’re super behind and approaching age 45 fast which you should have 4x.
3. Without having to worry about debt, you can super focus on saving.
Forget Dave Ramsey – what’s optimal for you? I’d pay off the credit card and car, contribute to the IRA and put the rest aside for the proverbial rainy day. Take the money you’re currently putting to the credit card and IRA toward the student loans, paying extra on the one with the highest interest rate first.
Just an fyi Roth limit is $7k for 2024
Pay off all debt:
– Credit Card
– Car
– Student loan
Use remaining cash to max IRA.
Continue life as if you never had that money and be better off
At 42 years old, the sooner and the more you can put into retirement savings, the better off you’ll be in the long term. BUT it’s clear you’re not managing your money well, in the short term!! You have about $23,00 in debt. You don’t own a home, and you have only $1000 in cash savings. The reason for this, is BECAUSE you are stuck paying off debt every month, rather than directing that money into savings and investments. You need to learn how to budget your money, how to set outcome based goals, and how to live within your means. Most of all, you need to recognize that all the money going to creditors, is money with which you could be doing something much better to build wealth! Retirement is 25 years away, and it’s definitely something you need to plan for…but there’s little point if you aren’t really making good decisions in your working years.
Start by setting aside another $2000 into cash savings, and don’t ever use it unless it’s a dire emergency!! Put the rest, except what is needed to pay off your credit card, into a higher interest CD account for a year or 18 months & just forget it for now. Next, pay off your credit card in one lump sum.
Now, knuckle down!! Start putting the monthly amount you WOULD have been sending to your credit card, WITH the regular car payment and start paying the car down faster. If you run a little leaner household budget and can chop off $50 or $100 of extra spending by cutting a little of your discretionary spending, add that savings to the bigger monthly car payment and you’ll soon be out from under the car payment completely.
Once you’ve paid off both the credit card and car loan, all that’s left is your student loan. Take ALL that extra money you’d been sending for the car, add it to your regular student loan payment, and start knocking that loan down fast. If you get a bonus or a tax refund, send it in. Don’t let up, challenge yourself to be done with it in a year’s time from having paid off your car.
If you keep plugging at this consistently over 18 months or so, and resist temptation to spend beyond your budget, you will have cancelled out $23,000 in debt, AND still have about $23K of your inheritance in the bank. Your net “gain” of wealth will be equivalently to over $45, 000.
Your goal should be to have NO debt and $30k in the bank, not including retirement money, by the age of 44. At that point, you will also have learned how to consistently manage your money, AND you will have freed up your full net income with which to meet living expenses, invest in savings and for retirement, and maybe even manage a mortgage payment. You will have your full inheritance back in your pocket.( Btw, before you throw money into a Roth, make sure you’re putting enough into your 401k to get the maximum annual employer match. Then you can consider investing additional after-tax money into a Roth.)
When you’re on solid ground, if you’re not sure you want to put down your full inheritance on a house, then save some — or ALL — of the monthly funds that you were using to pay off your student loan previously, and add it to your reserve. Build up enough that you can make a decent down payment with some additional funds left over. Buy only what you can afford to maintain and still keep your lights on, gas in the tank and food on the table. If you’re smart about it, you will build equity AND fund your savings and retirement, so that by the time you’re 67, you’ll have your house paid off, or very nearly, and a nice nest egg to carry you along, without having to scrape & sweat month after month.
Personally, I’d pay off all debt, including the student loans – unless you expect them to be forgiven somewhere in the future (in which case, even though Dave would tell you to pay up, paying doesn’t make any sense whatsoever).
Clean slate feels great.
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Pretty much what you describe, but you didn’t state what interest rates you’re paying. I’d put the money towards all debt that has a higher interest rate than you can reliably earn on the money. Otherwise, put the (remainder of the?) money into a high yield savings or Roth IRA.
Option 1: Invest the $30K over 15 years at 6% with no monthly contributions, and pay off $30k debt over 15 years at $237/month at 5% interest. Calculator used: calculator.net/payment-calculator.html
Result: Total of Payments for Loan is ~$43K, while your $30K has grown by ~$42K. Total money in your bank account at 15 years is: $42K + $30K – $43K = $39K.
Option 2: Pay off the $30K debt and invest $237/month at 6%.
Result: Your money has grown by ~$66K. Total money in your bank account at 15 years is: $66K
Summary
Option 2 leaves you with more in your bank account than Option 1. I’d go with Option 2. Pay off that debt, even though the interest is lower by 1 percentage point. I see what Dave Ramsey is saying. Even though the interest of the loan is 1% lower than the ROI of your investment, your Total of Payments ends up being higher at the end. Plus, the compound interest of your investnemt gives you more because the 6% is being calculated against the total money in the pot as it fills up over time.
Calculators used:
[https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator](https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator)
[https://www.calculator.net/payment-calculator.html](https://www.calculator.net/payment-calculator.html)
It’s hard to save money and invest it. Just paying off debt will not promote a lifestyle of investing. I would at the minimum buy $20,000 VTFXX Vanguard Money Market at 5.30 interest. You need to invest and not just 401k or a Roth. The 10k can go to pay off something for your mental health but you need to learn to not have debt in the first place! Always remember, buy assets and not liabilities! Assets pay you and liabilities take away your hard work at making money and put chains on you. The rich people who are smiling, know their assets pay for their lifestyles, while the poor and workings class look to consume and buy on credit.
Here is the breakdown of my student loans:
$2800 at 3.15%
$400 at 6.55%
$3100 at 4.04%
$3600 at 3.51%
$3800 at 5.50%
Pay everything off. And put the rest in a high yield savings or use it as an emergency fund. Then use your income to stack up for the house. 30k is life saving money because it’s helping you out and you’re that closer to buying a house. Forget all of the interest loans. Those don’t matter. Throw 15% into any type of investments then the rest put that in saving/high yield savings account to save for the house. You got this. When you have all of your income, you’re able to do more, be more and have more. When you pay others, you are moving your goals further and further.
My only advice is if you pay off debt dont go back into debt. So many times people use the breathing room to live a little more abundantly and find themselves back in the debt within a few years. In particular if you pay off the car please oh please dont go get another car in a few years. You need to drive that car into the ground or until it makes financial sense to replace it with something newer due to annual costs exceeding the costs associated with a newer car.
I say that because Ive known several people who did pay off a car and then a year or two later on a whim traded it in for something new. Went from small debt to no debt then to big debt. Dont fall into that trap. It may not seem like a big deal but that one single thing is hamstringing them from getting into a better situation in life. Most of them do not have much if any money set aside for retirement. Most of them wont retire, but will simply drop dead one day or be forced out of work due to health issues. Dont be them.
Some other ideas, what they may advise
r/TheMoneyGuy has a financial order of operations
r/MrMoneyMustache has a savings rate chart and other good information
There’s a how-to when-to wiki at r/PersonalFinance and it’s helpful reading.
Pay off all your debt and invest the rest or start an emergency fund. You get a chance at a clean slate – that money is a big deal and a important gift to remember someone by.
You can’t be “done with the credit cards forever” without an emergency fund. Pay off the CC then lock the rest away in a HYSA.
If I were you, I would fully fund my emergency fund before low-interest debt repayment! You want to aim
for 3-6 months salary ($15k-$30k) in an accessible account.
Pay your credit cards off, leave the other debts. Start chipping away at them moving forward.
Put the rest in a HYSA.
If I were you, I *might* throw $5-10k at the student loan debts, starting with those that are above 4.5%. But definitely get your emergency fund fully funded and leave it alone (for emergencies only!)
Pay off all your debt higher than 5% interest and put the rest towards a home or into index funds would be my move.
Quick contribution: Credit card debt is terrible. Clear that ASAP and make sure you pay it in full each month moving forward.
I had $35k and decided to pay off my car balance which was 9k – payment was $430/mo – very happy with that decision! Do you have your savings in a HYSA? If not, do that. I would have at least have 3/4 Months in there to cover emergencies and/or living expenses. I would not pay off the student loan. Better late than never to start getting finances in order. Good luck!
Honestly just go for it and pay all your debts off. You’ll feel so much better!
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Mmm. Look if you can handle the debt I’d use that to get a nest egg going. It’s hard for some to build a up a nest egg in the first place and the interest difference may be worth “paying” to do so.
I wouldn’t count on this AT ALL. Don’t do anything until after the money is transferred to you officially.
Taxes are taken before they disperse funds.
Pay off all debt, max Roth, have a bit of fun in their memory.
There will be other paydays. Pay off the credit card and student loan. It sucks, but when you make those payments it is a nice freeing feeling. Nobody has a hand in your pocket every month taking your cash.
I would pay off the credit cards. Put 3-6 months or expenses (including the car) in emergency savings. Place the rest in saving and or rolling CDs and take 30-90 days before deciding what is next.
Look at the fine print on your car alone. A LOT of them have early pay off penalties. Consider making partial early payments each month in addition to the balance on the due dates. Or just paying a little extra each month. But, again check your loan terms.
Depending on the interest rate of you student loans you could do the same. Making partial early payments, or making a few extra payments each year.
Keep in mind using your inheritance to pay the car AND/OR student loans all at one time may not be your best choice. If you do pay off the car ASAP or even 3-12 months early. Instead of using your inheritance you could take the money you were spending on the car payment and put it towards the principal on your student loans (or vice versa.)
This leaves you with more liquid accessible money for housing, emergency or continuing to build up retirement.
David Ramsey is an idiot when it comes to anything relevant in today’s world. Especially with any one under 60 without a pension. or that has to pay for housing in today’s economy.
Treat this windfall as your future. Put it in an index fund and let it ride.
Don’t sell your future for your past.
Pay off your debt from money you earn.
Move cc debt to a zero interest card(s) so they don’t keep accruing. Then tear them all up!
I’m not reading all that but when I saw debt and savings. Pay your debts first. Is better financially and better mentally becuase you won’t have that burden. Only invest the money you don’t need for the next 5 years. A guy in comment section talked about emergency fund that’s good and 100% should have unless you got someone that will send you money whenever you need. Good luck
If you have an ounce of heart give it to the charity.
Pay off the debt first OP. And shred the cards.
Pay off all debt. You will feel a profound sense of relief.
Don’t get yourself in a credit card hole ever again. Only buy what you can pay off at the end of every month or don’t buy the thing.
Low interest debt is cheap money. As long as you avoid using credit cards that cheap debt can be paid off slowly. Build up that emergency fund. Dollar cost average into your Roth IRA from earnings and some of this inheritance. Contribute to your 401k up to the match. I think Dave Ramsey gives some good advice, as well as a lot of bad advice. Savings in a HYSA will outpace those low interest loans, even if it’s by a small margin. Good luck.
Hey,
My condolences for your loss. It is great that you are seeking financial advice in advance of receiving the inheritance.
Can you provide a breakdown of your monthly budget? You mentioned you own a vehicle what is the value of your vehicle? Do you have any other assets or liabilities not mentioned? What interest %s? What are the investments inside your accounts? What industry do you work in? What is the outlook for your job? Do you expect your future earnings to increase? Are you the sole income in your household? What’s your living situation? Do you have any other financial goals other than retirement and owning a home? How would you prioritize these financial goals and when do you want to achieve these goals? Are there any known future life events (marriage, child, school, care for parents, etc.)? Hows your credit history?
You should definitely meet with a QUALIFIED financial planner. They shouldn’t give biased advice to support their own sales. A financial planner will need to understand your full financial picture and your own personal circumstances in order to provide solid advice.
I’m from Canada. I don’t have in depth knowledge of 401k’s can you withdraw/loan funds from the 401k in order to put towards a down payment? What are the terms of your 401k? Are there borrowing provisions?
Everything should be explored to determine how you can reach your financial goals sooner.
Again, it’s great your seeking advice months in advance. You can be confident that you’ll be able to reach a good solution by the time you receive the inheritance and also by then be committed to putting the funds toward accomplishing your financial goals.
Personally, I’d pay off the credit card debt and the car. Just so that I’d never have to waste energy thinking about it again. The money you’d get every month from an extra $6.5k in index funds doesn’t go very far.
Pay off CC debt – pay off car – max Roth for this year – rest in emergency fund and DO NOT touch.
Oh my, I dream of inheriting some money, but sadly that won’t happen.
Personally, I would put it all in debt and pay off everything. Then I would pretend I still have the debt for a few months months, but put all the money into a savings fund instead to fill it up faster 🙂
Pay your debts off, then leave the rest for rainy day/emergency
If you want to buy a house you should pay off all the debt as soon as possible. Every day you wait it’s accruing interest which means you lose money. You save more money in the long run having no debt
I’d pay off credit cards and use the rest as a down payment on a house.
I also understand the appeal of going completely debt free. Then you can rack up savings really fast (with proper discipline).
Yes, on average investing the money and carrying the low interest debt will give you the highest net worth by retirement. But I also view this as a guaranteed return. You immediately earn whatever your interest rate is by paying off debt. You can PROBABLY get more investing, but you could also lose it. If you lose your job, you have fewer payments to worry about. It may be an emotional decision, but mental comfort is worth a lot. And odds are, you’ll come out a few hundred bucks ahead doing it the “right” way. I’d spend a few hundred, maybe even a couple thousand, to buy years of financial comfort.
If you were smart, you would wipe your debt, then save and invest on repeat. It’s a no brainer.
Go to the nearest dealership and get yourself a brand new car