Inherited 100k and soon to be college grad. What to do with money?

[Coronet]

Hi all, I'm new. I have a question about financial planning.

A bit about me, I'm 22, a college senior and I will graduate in the next 6 months. I am debt-less and live on my own without the assistance of family. I am currently contemplating graduate school (not in a related field. I majored in computer science an am contemplating a 1 year BS program for nursing), but I'm not 100% sure of that yet, so depending on that situation I will either have no financial burdens in 6 months and have a solid income (at least $50k a year starting salary) or graduate school to pay for (which I estimate could be up to $40k).

I recently inherited $100k from a dead parent. The money is currently sitting in a regular checkings account. I don't know what to do with it and I'm unsure of what would be a wise decision for it. I don't want to spend it and if do spend it I would want to only use it to further my education.

If you were me and had no outstanding debt, but the possibility of graduate school, what would you do with the money? I want to start making a profit off it through some sort of investment, but I'm not sure what to do as I don't know anything about investing. Any suggestions or help would be greatly appreciated.

[FrugalTexan75]

First of all, welcome. Second of all, I am sorry for your loss.

Conventional wisdom says that when you come into a large sum of money, either through inheritance or through lottery, etc., that it is a good idea to put it in something like a CD or money market account. I.e. something that you won't touch for 6 months to a year. The reasoning behind this is that gives you enough time to either not spend it on spur of the moment things (which you may later regret, especially as inherited money), and it also gives you time to really research the best way to use it in your life.

What I would suggest:

1. Put 50,000 in a CD or some other vehicle that you can't touch for up to a year.

2. Call 10,000 of it your 'Emergency Fund" and put it in something more easily accessed than a CD - perhaps a money market account.

3. Put the remaining 40,000 in an account you can access, but use it *only* for grad school.

This way you will be able to take the next year or two to really figure out the best use for the 50k, you will be covered in case of any emergencies that come up, and you will be able to know that you got something very worthwhile from the money - i.e. your education.

[Junebaby]

Excellent advice, Frugal Texan, but I would add this: Start a 401k A.S.A.P.!
Put in the max for this year, then leave it alone until you have a steady income. When you get full-time work, either add to it or start another one with your employer.

[elessar78]

First off, sorry for the loss of your parent.

What are you thinking of going to grad school for?

I wouldn't go to grad school straight after graduating. I'd work a few years, maybe you'll change your mind or the work experience will enrich what you get out of grad school.

But since you're self admitted that you know nothing about investing, I'd go to the library and get some personal finance books. There are a lot of smart money people on this message board, but nothing beats learning for yourself, since ultimately, it's your money and you won't really know if the info you get here is sound and reliable.

But one of the foundations of a solid personal finance plan is the Emergency Fund. Which is money you have readily available in an emergency and DO NOT use unless you really, really have to. 6-8 months worth of expenses is sound, a year's worth is very solid. So if you make 50K/year, your "EF" should 25K-50K depending on what kind of safety net you feel you need. This fund helps you stay out of debt.

Do you eventually want to buy a house? A down payment plus "hand money" can easily run to tens of thousands of dollars.

The thing with grad school is that once you pay for it, the money is gone. You MAY make more money with your advanced degree, but there's a chance you may not. Just to point out, if you invest that money for the next 43 years (which would take you to age 65) by the time you retire, assuming an average return of 8%, you'll have over 3 million in your retirement account.

"Investing," the way I view it, is money that you don't need in the next 10 years (at minimum). At 22 and just starting out, you probably have a lot of short-term needs.

But look at it this way, you have a $100K headstart on things. You wouldn't need to save for an emergency fund. You wouldn't need to save for a down payment for a house. You're debt free. Basically, you can start investing all your extra income from the time you get your first paycheck.

With 50K of income, you're taking about $3100/month. Assuming generalized expenses for a 22 year old living on his own, you should have around $800 extra a month to invest.

[jIM_Ohio]

First of all, welcome. Second of all, I am sorry for your loss.

Conventional wisdom says that when you come into a large sum of money, either through inheritance or through lottery, etc., that it is a good idea to put it in something like a CD or money market account. I.e. something that you won't touch for 6 months to a year. The reasoning behind this is that gives you enough time to either not spend it on spur of the moment things (which you may later regret, especially as inherited money), and it also gives you time to really research the best way to use it in your life.

What I would suggest:

1. Put 50,000 in a CD or some other vehicle that you can't touch for up to a year.

2. Call 10,000 of it your 'Emergency Fund" and put it in something more easily accessed than a CD - perhaps a money market account.

3. Put the remaining 40,000 in an account you can access, but use it *only* for grad school.

This way you will be able to take the next year or two to really figure out the best use for the 50k, you will be covered in case of any emergencies that come up, and you will be able to know that you got something very worthwhile from the money - i.e. your education.

this is good advice

Let me add something to this

It is OK to spend some of the money
maybe 5k or 10k- take a vacation, buy something you might desire. This might also help you cope with the loss of the parent if that is an issue.

If you go to grad school, you mentioned cost of 40k. What about living expenses and other incidentals? What field?

My overall advice would be
a) find a job (in this economy that will be tough, but try)
b) keep most of money in the CD as mentioned above
c) have an emergency fund of 3 months expenses in a money market account
d) go to grad school while working- if your employer sees this, it means more than getting the degree, then finding a job (consider that entry level positions with a Bachelor's and masters might be the same, the difference is by working now, you learn more about your field). Most of what you need to be a good worker is not learned in school- for most fields anyways.

[maat55]

As suggested also, find some personal finance books and read them. Here are some suggestions:

The Total Money Makeover by Dave Ramsey
The Automatic Millionaire by David Bach
High Finance on a Low Budget
Personal Finance Desk Reference (the latest version)

[Coronet]

Thank you for all the advice and condolences.

As for my major, I'm in computing. I have one year of real work behind me in the field through co-op experience. I am not exceptionally worried about finding quality work.

As for graduate school, it's not really graduate school in the same field. I've always had a passion for medicine and I'd like to get a nursing degree. I got a computing degree because it always interested me and I was good at it. Working in the field for a year I don't know if I feel this could be a 30+ year career for me. My interest was always more academic than business. I feel that I'd contribute more to society as a nurse and I feel that it'd be more satisfying in the long run. Since I have the funding to pay for this, I figure I should shoot for my dream.

My family has a number of nurses in the field and I respect the field. It'd be a second bachelors in a way because they would take all my previous credits and apply them to my Nursing degree and thus it'd be a one year program. However, it's expensive and I've factored in $40k for this if I go to the most expensive college for this and get no scholarships/grants/etc.

The $40k also accounts for living expenses.

The thing with grad school is that once you pay for it, the money is gone. You MAY make more money with your advanced degree, but there's a chance you may not. Just to point out, if you invest that money for the next 43 years (which would take you to age 65) by the time you retire, assuming an average return of 8%, you'll have over 3 million in your retirement account.

What time of investing are you talking about in regard to this statement? This is ideally what I would love to do. Make sure I'm setting myself up for a safe retirement in the future.

I am planning on buying a house in the next 5 years once I figure out exactly where I'd like to live. I am not planning on starting a family for at least 8 years, but I would like to own property for personal and investment reasons.

Please keep the information coming. I'm taking notes on this and plan on reading up more on your suggestions.

[snafu]

Welcome Coronet: You've been given solid advice. Laddered CDs are a safe 1st investment as you can set the due dates. They give you the time you need to understand your choices and learn about investments. Nearly all investment segments and institutions offer free seminars to tout their products, and teach participants their options. Investing requires a minimum 5 yr. committment.

My suggestion is to work for a year to gain some experience in the 'real' world before going to grad school. It has the benefit of enhancing your grad sch application and ensuring you are in the field that is your passion. Too many people find their work unsatisfying. It would be horrid to work for obligation for a 35 yr career!

If the job market is blocked, would you consider traveling? It opens so many doors for you in the future and helps you understand the changing world. Perhaps you would consider teaching English somewhere in Japan for three months.

If you plan on buying a home, this looks like the best possible time since rates are low and the market is may be weak in your area...providing you know where you want your home.


Books: The Wealthy Barber...not the title most obvious but so readable, practical and workable.

[Coronet]

Welcome Coronet: You've been given solid advice. Laddered CDs are a safe 1st investment as you can set the due dates. They give you the time you need to understand your choices and learn about investments. Nearly all investment segmentsand institutions offer free seminars to tout their products, and teach participants their options.

My suggestion is to work for a year to gain some experience in the 'real' world before going to grad school. It has the benefit of enhancing your grad sch application and ensuring you are in the field that is your passion. Too many people find their work unsatisfying. It would be horrid to work for obligation for a 35 yr career!

If the job market is blocked, would you consider traveling? It opens so many doors for you in the future and hels you understand the changing world. Perhaps you would consider teaching English somewhere in Japan for three months.
Books: The Wealthy Barber...not the title most obvious but so readable, practical and workable.

Thanks for the advice. I'm thinking of grad school in a totally unrelated major that would bring me great personal satisfaction.

I've also traveled extensively. I've lived in Japan for 3 years and South Korea for 7 years. I've also traveled all around the USA. I'm a big fan of traveling.

[swanson719]

Roth IRA. Max it out. Regular IRA. Max it out. Do this every year. It will cost you $10,000 a year to do this, but will fully fund a very comfortable retirement. Then put $10,000 into a money market mutual fund. This leaves $80,000. Take $40,000 and put it into laddered CD's. Take the other $40K for grad school, etc. and put it into an interest bearing savings account that doesn't have a debit card attached. You're money would all be well invested, enough would be easily accessible, and you have it in places you can't get to it at the spur of the moment for impulse purchases.

[snafu]

Happy to learn you've spent many years in foreign countries, unusual for a 22 y/o. Perhaps your parent[s] were in the military. If you have a passion for medicine go for it! Have you submitted your transcript to the receiving faculty for evaluation? Keep a list of negotiating points to get the most credit possible for completed courses. The Registrar's office never admit it but they have vast flexibility in granting equivilancies. It helps to have the calendar's course synopsis.

[elessar78]

What time of investing are you talking about in regard to this statement? This is ideally what I would love to do. Make sure I'm setting myself up for a safe retirement in the future.

I didn't have a specific investment vehicle in mind, it was just numbers I plugged into an investment calculator. But the numbers are very plausible a rate of return of 8% return isn't astronomically high and it isn't low.

To get those kind of returns, I'd suggest several kinds of mutual funds (to be diversified). But since all you have to your name right now is the $100,000 I don't think it would be prudent to stick it all in the stock market.

The other responses here have good ideas.

The only other caveat that I'd put out there is to resist all the temptations that comes with having a huge amount like that in your checking account. From my own experience, I've had to "self-proof" my finances by removing the temptation ahead of time (automatic deductions from my paychecks into retirement accounts for example).

$100K is a lot of money, but at the same time it isn't. If that makes sense.

[jIM_Ohio]

Thank you for all the advice and condolences.

As for my major, I'm in computing. I have one year of real work behind me in the field through co-op experience. I am not exceptionally worried about finding quality work.

As for graduate school, it's not really graduate school in the same field. I've always had a passion for medicine and I'd like to get a nursing degree. I got a computing degree because it always interested me and I was good at it. Working in the field for a year I don't know if I feel this could be a 30+ year career for me. My interest was always more academic than business. I feel that I'd contribute more to society as a nurse and I feel that it'd be more satisfying in the long run. Since I have the funding to pay for this, I figure I should shoot for my dream.

My family has a number of nurses in the field and I respect the field. It'd be a second bachelors in a way because they would take all my previous credits and apply them to my Nursing degree and thus it'd be a one year program. However, it's expensive and I've factored in $40k for this if I go to the most expensive college for this and get no scholarships/grants/etc.

The $40k also accounts for living expenses.



What time of investing are you talking about in regard to this statement? This is ideally what I would love to do. Make sure I'm setting myself up for a safe retirement in the future.

I am planning on buying a house in the next 5 years once I figure out exactly where I'd like to live. I am not planning on starting a family for at least 8 years, but I would like to own property for personal and investment reasons.

Please keep the information coming. I'm taking notes on this and plan on reading up more on your suggestions.

This post gives lots of good information. Let me add to what I have previously mentioned.

If you want 100k to set you up for life, I would go to a website like Vanguard, T Rowe Price or Fidelity and read up on investing. In general, money will double in value if invested within reason every 7-10 years.

For example
100k now
7 years later 200k
14 years later 400k
21 years later 800k
28 years later 1.6 M
35 years later 3.2 M

so in 35 years having 3.2 M is surely a reasonable goal.

Money doubling every 7 years is a 10% rate of return. To get this return you will want to invest primarily in stocks.

S&P 500/large cap stocks
small cap stocks
foreign stocks

a 60-20-20 split might make sense, but the websites above will all help you find a split which makes sense for you.

That is NOT a straight line up though.
It might be 100k now
60k in 2010
40k in 2011
50k in 2012
100k in 2013
130k in 2014
160k in 2015
180k in 2016
120k in 2017
etc...
it will be a bumpy ride- the investment returns are not guarantted, just projected. Since you are decent with Math I assume, know that the 10% return has a deviation of about 15 (someone might need to remind me of the standard deviation of a 100% stock portfolio over last 100 years). Meaning +25% will happen as often as -5%.

I am invested this aggressively, but it is not the way everyone should do it.

After reading your other post, I would advise-

put about 10k in an emergency fund
put 90k into investments for retirement
then borrow money for school (rates on student loans are really low, OK to borrow because the expected investment return is probably 8-10% and rate you borrow at is probably under 4%).

[Junebaby]

Student Loan

You have the money for nursing school, but a student loan is a good way to get good credit. You know you will be able to pay it off if you invest in something that's not a 401k, so you can get at it without penalty. Even if you already have a student loan, it makes sense to get another for the next phase so you get that good credit rating, which you will need when you want to buy a house.