Hi Money Minder,
I’m 26 and single, making about 90k a year. I’m also inheriting 100k. I have a car loan with a crazy 11% interest rate, almost 14k left to pay off. On top of that, I have about 5k in other debts. I’m planning on wiping out those debts ASAP.
I have a 401k where I’m contributing 10% and my company matches 3%. I think there’s around 15k in there. The idea of buying a house seems cool, but I’m torn between that and investing the money. Should I put 50k towards a house and invest the rest? I’ve never had this much money before, so I’m feeling pretty anxious about what to do next.
Cheers,
Financially Clueless Kylie
Response from THE MONEY MINDER:
Hello There,
Congratulations on inheriting 100k, it’s a significant milestone and an opportunity to make some strategic financial decisions. It’s commendable that you are thinking about paying off your debts with this newfound inheritance. With a car loan at 11% interest and other debts totaling 5k, clearing them out should be a top priority. This will free you from high-interest payments and put you in a more stable financial position.
Regarding your dilemma between investing the money or putting it towards a house, it’s essential to weigh the options carefully. While investing can potentially provide returns, paying off debt is a guaranteed return on investment, saving you from paying interest in the long run. Given your existing debts and no mention of an emergency fund, it might be wiser to pay off all debts first before considering other investments.
When it comes to buying a house, consider your overall financial health. Putting 50k towards a house and investing the rest could be a good balance. However, make sure you have an emergency fund set aside (ideally 3-6 months of living expenses) before committing to a large expense like a house.
As for your 401k contribution, it’s great that you contribute 10%, especially with a 3% match. Make sure to continue this consistent saving habit for retirement. Taking steps to secure your financial future now will pay off in the long term.
In summary, prioritize paying off high-interest debts, securing an emergency fund, and then consider investing and potentially purchasing a home. It’s normal to feel nervous about handling a significant amount of money, but with a practical approach and strategic planning, you can make the most of this opportunity.
Farewell from THE MONEY MINDER.
