Photo: Robert Trachtenberg
Q. I'm about to inherit around $300,000 from my grandfather's estate, and I'm wondering how my husband and I should use the money. He's a carpenter, and I own a pet salon; we have 6-year-old twins and about $20,000 in retirement savings (not great, I know, but we did just open Roth IRAs). We have mortgages on two separate properties—one is the home we live in, the other we rent out—each hovering around $150,000.
Suze: First things first: You must decide if you want to move the money into a joint account with your husband or keep it in your name only. No, don't roll your eyes or "Oh, Suze" me. I wish you infinite happiness in your marriage, but I have worked with far too many women who ended up watching an inheritance—whether it was cash, real estate, or a treasured possession—fall prey to divorce proceedings.
Okay, now on to making the most of your grandfather's magical gift. You should first settle the mortgage on the home that provides a roof over your family's head. As for the remaining $150,000 or so of the inheritance, before you consider paying off the other mortgage, I want to make sure you have some important goals taken care of. (However, if that loan has a fixed rate above 4 percent and more than 15 years left on the term, you should look into refinancing; today's roughly 3 percent rate on 15-year loans is a great deal, and you can now afford to pay more per month—getting out of debt faster and saving thousands in interest.)
Establishing emergency savings, which seem to be absent from your current equation, is a must. In addition to the standard eight-month cushion I recommend for everyone—enough to cover your family's living expenses throughout that duration—I would also set aside a minimum of four months' carrying costs on the rental property. You never know when you might have some turnover and the house sits unoccupied for a period of time. I realize that your carpenter husband can probably manage the maintenance on both homes, but it's also wise to keep cash on hand for inevitable problems; eventually some items need to be replaced, not just repaired.
I also want you and your husband to fund those Roth IRAs to the maximum. With such young kids, you two are probably younger than 50—which means you can each contribute $5,000 a year to your individual Roth IRAs, assuming your joint income for the year is below $173,000. (Anyone 50 or older can contribute $6,000 a year.)
Overall, don't rush to use every penny of the found money immediately. A federally insured credit union or bank account is a fine parking spot for any funds that don't go toward the steps I've outlined. In a year or two, reassess where you are and what new goals you have. Then you can make your next set of smart choices.
More Money Advice from Suze
From the November 2012 issue of O, The Oprah Magazine