I'm 23 and was given $50k. What should I do?

Question

Recently I was given 50k from my grandmother in her will. I am 23 years old and have no idea what to do with it.

I make $33k a year.
I have zero savings.
I owe $35k in student loans over 6 years 0% APR
I owe $5k in medical and credit cards.
I have zero monies towards retirement.
I also need to purchase my own car.
I currently pay 0 rent but that will change within the next year.

I'm looking to find the best way to help start my life and have this money make me as much money long term. My job is stable and know absolutely nothing about investing.

that's pretty amazing, I am totally confused about what to say since you are not the upper middle class investment advice seeking demographic. I'm very curious what others will say is best for you — CQM, Sep 22 '15 at 22:30
Your ten-year-from-now self will thank you for asking this instead of going out and buying a $50,000 car. — corsiKa, Sep 23 '15 at 08:37
Pay off your loans, medical, credit card bill. That leaves you debt free with 10000 in savings. If you NEED to buy a car, get one for 3000 to 5000. — atw, Sep 23 '15 at 14:53
Not enough detail to be an answer, but for the money you invest, I recommend an automated investing service (Betterment being one example). This way you are investing into well known funds, but still have liquidity (the ability to use/take out your funds without penalty/difficulty). If you chose to invest in retirement funds you will have more difficulty taking that money out before retirement age. — n00b, Sep 23 '15 at 16:12
If you are likely to wish to live in the same area for at least 5 years, see if you have enough for a deposit on a home. — Ian, Sep 23 '15 at 17:29
John - can you comment or edit in two points - Does employer offer matched 401(k)? If yes, do they also offer the Roth 401(k)? — JTP - Apologise to Monica, Sep 23 '15 at 18:58
Please be aware that the money can be subject to some sort of taxation, either as an inheritance or income tax for you. This can be very state-specific. I would speak to a qualified CPA or other tax representative who can tell you what your tax burden is likely to be. The tax burden may be less if you put the money into retirement savings, pay off some student loans, etc. But make sure you save enough to meet your tax obligations at the end of the year. — ps2goat, Sep 23 '15 at 18:58
Buy and read 100 financial investment books. 10 will be good. Then you will know. — Chloe, Sep 23 '15 at 19:58
What interest rate will the student loan be if not paid off within the 6 years? — Luke, Sep 23 '15 at 21:53
@ps2goat - No. In the US, the beneficiary has no tax due on an inheritance. If the estate is over a certain amount, it's responsible for the tax. Both federal and state operate this was. None of your comment is applicable. (NOTE - I AM WRONG HERE, SEE ps2goat comment below) — JTP - Apologise to Monica, Sep 23 '15 at 22:36
I would because I would feel better. You don't need 50k to start investing and make a large some of money in the long term. @corsiKa — atw, Sep 24 '15 at 08:33
@corsiKa because then he doesn't have to make the monthly payment. I'm assuming the OP is American. In the US 33k per year can either be comfortable or marginal depending on locality (NYC vs. Midwestern small town) but either way loan payments could put a crimp of varying severity in the budget. — Jared Smith, Sep 24 '15 at 14:57
@Jared the logic doesn't follow, though. You'd be much better off putting that money in an investment with positive interest and withdrawing money from that fund for the monthly payment. At the -very- least, you want to pay that money off when it's worth the least since money loses value between 1-4% a year. Instead of paying it off, I'd sock it in an interest bearing account and make monthly withdrawls to make the loan payments. Those loans are 0% so you don't have to feel compelled to pay them off right away. — corsiKa, Sep 24 '15 at 15:04
@corsiKa actually your response to jared isn't very well thought out. You're neglecting interest rates, withdrawl penalties, deferrred payment penalties on the 0% loan. You're forgetting that you need money to make money. The OP is in a heavy debt situation and may make some in the short term with interest, but will be worse off in the long run. See http://money.stackexchange.com/questions/47856/oversimplify-it-for-me-the-correct-order-of-investing — Josh Hibschman, Sep 24 '15 at 15:26
@y3sh It is quite thought out, there's just only 600 characters to work with. I had considered adding something like "monthly (or quarterly, to avoid penalties)" but it didn't make the cut for my comment. — corsiKa, Sep 24 '15 at 15:46
@y3sh Also consider that the answer you linked ranks student loans way way way above mortgages. It can be assumed from that ordering that they're assuming a typical student loan which is between 5 and 8%, higher than your typical 2 to 3% mortgage, and much higher than the 0% student loan. — corsiKa, Sep 24 '15 at 15:48
@corsiKa The discussion about the 0% interest is getting quite involved. How about turning the point into an answer ("Here's how to handle the loan")? — GS - Apologise to Monica, Sep 24 '15 at 16:15
@Ganesh because it's a small piece of the puzzle - Micheal has a great answer that doesn't included the student loan because it doesn't require special attention. If anything, I would edit my thoughts into Micheal's answer (because it would appear we agree). If you feel the comments are unbecoming of a Stack Exchange post, I won't be offended if they're removed. :-) — corsiKa, Sep 24 '15 at 16:43
@JoeTaxpayer, it depends. Not at the federal level, but some states do have inheritance taxes: https://en.wikipedia.org/wiki/Estate_tax_in_the_United_States#Estate_and_Inheritance_taxes_at_the_state_level — ps2goat, Sep 24 '15 at 19:11
@corsiKa First, the math doesn't work. 35k in student loans/72 payments is $486 each. Assume he finds an investment that yields a guaranteed 5% annual, no withdrawl penalites (heh). $208/month. Which means he either dips into principle or pays out of pocket, for the rosy scenario with a fixed return and no changes (i.e. job loss). But the real benefit is flexibility: more career options. Ones with huge upside potential (like working at/founding a startup), ones that are more fulfilling. He's not going to retire on 50k, so what he does for $ will probably be important for the next 30+ yrs. — Jared Smith, Sep 24 '15 at 21:09
Sorry for the double post, last thing is that paying off the debt, even at 0% interest, unencumbers his greatest asset: his income. — Jared Smith, Sep 24 '15 at 21:11
@JaredSmith That's the entire point. In your scenario (which admittedly is "rosy") his portion of the monthly payments would be much smaller. If I accept your math (I'm trust it's accurate) if he starts with 208 a month he'll average 104 a month over the life of the loan. So instead of paying $486 a month, he effectively pays $372 a month. It earns him an extra $7400. Like you said, not enough to retire on, but that's $7400 in his pocket he wouldn't have if he paid the loan off right now. — corsiKa, Sep 24 '15 at 22:02
@corsiKa we're arguing past each other, I don't think we disagree over any facts here. So he pays $372 a month. That assumes he can pay $372, and that he can for the better part of the next decade. What if he loses his job? Has to quit to care for an aging parent? Gets to ill too work and can't get disability payments? I'd go on, but I think I've made my point: a young man with no debt and 10k in the bank for emergencies has more options (liquidity) than one with $35k in debt and his assets encumbered. I fully concede he will earn less by paying off the loan, again, if nothing goes wrong. — Jared Smith, Sep 25 '15 at 03:03
@JaredSmith So... spending a small amount each month and putting the rest in a savings account is somehow more limiting than spending $35k upfront and having much less in savings? In both cases, he has $35k less in his bank account, but in yours he can't touch any of it because it's been spent. In mine, he can use that capital to get by until he gets back on his feet. The -only- benefit to paying it off I see is debt-to-credit ratio... — corsiKa, Sep 25 '15 at 03:32
Now that all the accountants and bean counters have responded... buy a Lamborghini, a mansion in Columbia, a helicopter, a Russian bride and just live life to the max! — Dave, Sep 25 '15 at 22:28
Many are suggesting you buy stocks. Before doing this, look at the evolution of stocks over the last couple of decades. If you bought at the wrong moment, you could easily lose 50% in short thrift. What's to prove that today is a good time to buy? Just a suggestion. — smirkingman, Sep 28 '15 at 11:57
Check out the Total Money Makeover by Dave Ramsey. Practical advice that will navigate you through this (awesome) situation. — Trevor, Sep 28 '15 at 17:47
No matter what you'll do: Pay your debts and NEVER, NEVER get a debt again (avoid credit cards). Money is only a tool, use it wise.
It will be interesting @john-wall sharing what worked (and what not) into 5 or 10 years from now. — quantme, Sep 29 '15 at 17:18
@John - You never mentioned your degree, your job & strengths. It would be something valuable in providing more Context as well. I know of people who have taken such savings and created passive earning business & investments in high growth developing nations. Something that would pay your debts and get you extra cash + equity while you still have interest free loans. — Alex S, Oct 01 '15 at 07:47

score 146 · Answer 1 · edited Sep 23 '15 at 11:59

146

Here are some possibilities:

pay off the credit cards (and don't incur anymore revolving debt)
if your employment has a 401(k) or 403(b) fully fund (to the maximum extent % possible) and keep doing that- choose equities (stocks) funds from low cost providers
if no employment retirement available, open an IRA, depositing the annual maximum (but do it in monthly installments). Call Vanguard & talk to them re: Vanguard Wellington Fund (60% stocks, 40% bonds)- a good, balanced and dependable fund. Once you start this program, never quit, and don't pay any attention to "the investing news".
put $5000 in savings/emergency account dedicated to that. It won't earn much/interest, but you'll feel better.
avoid buying a car for as long as you can; if forced to own one, buy a used dependable car like a Toyota Corolla- 4 cyl and don't abuse it.
open a Roth IRA, depositing max possible, the plan on doing so until you've investing the remaining balance. A Roth IRA, while not tax deductible now (you're in a low tax bracket now) will provide for tax-free distributions when you are both older and not in a low bracket. of course, invest in low cost equity funds. Come back for more ideas once the dust settles, you've got money left over and some of the above accomplished. You've got one asset many of us don't have: time.

edited Sep 23 '15 at 11:59

JTP - Apologise to Monica

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answered Sep 22 '15 at 22:31

michael

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This this this. I strongly agree with everything said here except the fund recommendation. It seems too conservative for someone so young. I'd recommend something like an S&P Index Fund. Or at least a good chunk in an equity index. – Rocky Sep 23 '15 at 02:30
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Yeah, I second @rocky. Solid answer, but no way a 23-year-old should be in bonds at all. 100% equities, split between indexes and low-cost funds with a yield. – Ben Collins Sep 23 '15 at 03:53
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That is the straight dope. But what about the medical debt? How does that behave? – fie Sep 23 '15 at 05:40
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+1 for investing and then "don't pay any attention to "the investing news"". – jawo Sep 23 '15 at 06:21
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@michael, Why would you want to avoid owning a car? Cars are... pretty handy. I'm also surprised that you suggest a used higher end model (at least by European standards) like a Corolla instead of a new entry level model (e.g. your aunt's Fiat Punto). – Tobia Tesan Sep 23 '15 at 07:08
@Sempie: I would be interested in explanation for that anyway. – Zaibis Sep 23 '15 at 12:39
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@TobiaTesan really tiny cars like that aren't common in the US; and what are available tend to either be cheap junk (of the you're better off buying an older car of a better base quality level type) or are equipped and priced for affluent buyers who're buying a tiny car as a fashion/political statement but don't want to sacrifice any comfort features to do so. A base model Corolla still has Toyota's historically good reliability but doesn't have you paying for any frills; making them good cheap cars on the local market. – Dan Is Fiddling By Firelight Sep 23 '15 at 14:03
@michael: thanks, I find this answers the second part of the question. But why would you advise against buying a car in the first place? – Tobia Tesan Sep 23 '15 at 14:35
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Good points, but I feel like the student debt the OP mentions should be in there somewhere. It's obviously not a priority but he should budget for paying it all off in the next 6 years to avoid incurring fees or interest. – Lilienthal Sep 23 '15 at 15:16
At his current income, I think #6 should be higher on the list. Like maybe swap with #3. – InbetweenWeekends Sep 23 '15 at 15:26
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@Tobia because cars are expensive to buy, and to maintain – corsiKa Sep 23 '15 at 15:40
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Putting money into Roth IRA's turns liquid funds into harder to use money (i.e. penalties for withdrawl). At his age liquidity is important (think near term expenses, like house, kids, vehicles, relocation expenses, hospital bills for having kids, etc). Its good to invest but liquidity is more important then retirement funds at this point. – n00b Sep 23 '15 at 15:48
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@TobiaTesan, see http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/ – Charles Duffy Sep 23 '15 at 16:52
Pay off the credit cards/medical AND the student loan debt 2. 6 months of expenses in savings, mayb $5K 3. You have $5K left for a car or as a start for saving for a car.

AbraCadaver

Sep 23 '15 at 17:32

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Personally, I would opt to pay off the medical and credit card debt; put $5k into savings for any bumps in the road; and then put the rest in retirement. That's a big step toward securing yourself at the other end of your life. My only consideration would be how much disposable income you have each month now. If you are living paycheck to paycheck, paying off the student loans will free up $480 a month, which will protect you against any hard times you may experience. If you have a couple hundred extra each month, then invest. – Benjamin Sep 23 '15 at 18:00

@corsiKa / CharlesDuffy of course cars are expensive to buy and mantain... but not having a car can be more expensive in some parts of the world (like literally, 10 short-medium distance taxi rides easily add up to one year of auto insurance in Europe). But I see your point, if you live in some place like Manhattan it's beyond pointless. – Tobia Tesan Sep 23 '15 at 18:16

He is going to being paying more in rent than interest on 50K will make. Would it make sense to use it as a downpayment on a mortgage? In my region 50k is more than half the price of a bachelor pad. – Shane Sep 23 '15 at 20:19

Clearly (already voted +35) it's a good answer. I'd caution, however, that #2 should contain a warning - "If the annual fees are sub .75% or so. If much higher, and no match, pass on the 401(k) just save in IRAs and regular brokerage accounts." – JTP - Apologise to Monica Sep 23 '15 at 21:04

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@n00b - The Roth IRA has no penalty for the amount deposited, only the growth. Deposit $10,000 over 2 years, and 10 years later you have $20K? You can withdraw $10K and not pay a dime in tax or penalty. – JTP - Apologise to Monica Sep 23 '15 at 22:24

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re: fund selection- sure, 23 yr. old can handle more risk....but the kid has no clue what he's doing, will behave badly when things inevitably hiccup, and is faced w/major changes in his life. Get rich slowly. RE: "ignore investing news": blood sells newspapers, stampedes the buffaloes over the cliff: don't panic, be optimistic, time is on your side. RE: no car=money pit, assets are good, but cars are liabilities (insurance, service, depreciation, where to keep it, etc.) while likely inevitable, keep your controllable costs down, if you can. re: ROTH IRA-liquidity isn't the point- think long. – michael Sep 24 '15 at 03:28

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+1 for not buying a car even though you easily could at this point. The only justification for a car is it being the only way to increase your income more than the car costs you. Even then, consider the time you would spend commuting and increased risk of surprise mechanical and medical costs. – Archonic Sep 25 '15 at 18:09

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+1 "You've got one asset many of us don't have: time." It will be interesting @john-wall sharing what did work into 5 or 10 years from now. – quantme Sep 29 '15 at 17:11

employer match in 401k is awesome. having a safety net is imperative. paying off high interest loans like cc debt is high-priority. buying used cars in cash is a lot smarter than buying a new car for 3x the price, just to lose 15% of its value as soon as you drive off the dealership parking lot. a lot of good advice here. I can't disagree with the majority of it. – FluffyFlareon Jun 13 '21 at 19:27

score 70 · Answer 2 · edited Apr 13 '17 at 12:25

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First, I would point you to this question:

Oversimplify it for me: the correct order of investing

With the $50k that you have inherited, you have enough money to pay off all your debt ($40k), purchase a functional used car ($5k), and get a great start on an emergency fund with the rest.

There are many who would tell you to wait as long as possible to pay off your student loans and invest the money instead. However, I would pay off the loans right away if I were you. Even if it is low interest right now, it is still a debt that needs to be paid back. Pay it off, and you won't have this debt hanging over your head anymore.

Your grandmother has given you an incredible gift. This money can make you completely debt free and put you on a path for success. However, if you aren't careful, you could end up back in debt quickly. Learn how to make a budget, and commit to never spending money that you don't have again.

edited Apr 13 '17 at 12:25

Community

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answered Sep 23 '15 at 04:12

Ben Miller

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If the interests on his student loan are lower than those paid by an investment, it doesn't make much sense to repay it sooner. A bit, yes. It depends on how safe are those eventual investments. – o0'. Sep 23 '15 at 08:07
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-1: having a debt with 0% interest and at the same time an investment of the same value with a positive interest is a net gain, even when it is a very conservative one. Also, when the debt is in a currency which has an average inflation rate larger than the interest, you essentially safe money by paying the debt as late as possible. – Philipp Sep 23 '15 at 09:05
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"...commit to never spending money that you don't have again." Does that include never borrowing money to buy a house? – Victor Sep 23 '15 at 09:24
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@Victor That is up to the OP. For me, I'm okay with taking out a reasonable mortgage for a house. – Ben Miller Sep 23 '15 at 11:41
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Good answer and that link to where we both offered a nice list of priorities. – JTP - Apologise to Monica Sep 23 '15 at 12:01
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+1 - while, in pure numbers, 0% debt and making 5% on an investment will net extra money - I'm one to enjoy and agree with the simplicity of not having any debts. Add to that the fact that within the next year bills will increase (rent increase, car insurance, etc) - the one thing that will make life easier in the next stage is having ZERO debts from this stage. Never underestimate the importance of simplicity. – WernerCD Sep 23 '15 at 14:07
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Also agree with this answer - while there is no risk in not paying off your student loans with a 0% APR in the next 6 years, there is risk that your $50k can turn into $40k (unlikely, but you never know) depending on your investment choice. If I were OP, I would invest an amount that would equal exactly $35k in 6 years by putting it in a GIC or bond. The rest can go into those long-term strategies. – sjagr Sep 23 '15 at 14:21
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+1 Philipp raises a fair point but Ben mentions the possibility of investing the money instead. Whether the OP prefers the safety and peace of mind that Ben suggests or an investment is up to him, though @sjagr's suggestion might be the best of both (though I'd elect to have the bond mature in 5 years to avoid cutting it too close). – Lilienthal Sep 23 '15 at 15:20
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What a stupid answer, even if you put the money due for the student loan in a no risk bank account earning 1% to 2% and not touch it you would be better off. The difference between the rich and the middle class, the rich take calulated risks and don't keep it simple. If you don't take any risks in your life all you will have is a humdrum life. I would rather live than take it safe all the time. – Sep 23 '15 at 21:33
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@Geprge Renous, your perspective is... interesting. – barbecue Sep 24 '15 at 00:43
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This is potentially the best answer. By far. One thing that makes a huge difference in any business (and a person's finances are quite like a business in this respect) is cash flow. 0% interest or not, those student loans have to be repayed. Every month. The OP by not paying them off is severely limiting his/her employment options to jobs that pay enough, right now, no matter how soul-sucking they may be, to afford those loan payments and the lifestyle he/she desires. You miss out on all of the options that come from not having to earn more, today. – Jared Smith Sep 24 '15 at 14:39
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+1: I would concur. In the current market, it is really hard to see where things are going. Being debt free is a significant plus. The 0% $35k may provide tempting leverage, but unless you are very market savvy (and even then...), I would say you should clear your debts (and save!). – copper.hat Sep 24 '15 at 15:12
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I'm torn between this and the higher rated answer above it. The mathematician in me likes the answer above. But, having been paying off student loans for way too long now, I'm just like "pay off those friggin' things and get them out of your life." – Kevin Sep 24 '15 at 16:57
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-1, the point of financial advisement is to get away from old wives' tales like "it's bad luck to have debt hanging over your head" so just "take care of it first." – djechlin Sep 24 '15 at 17:01
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@djechlin It's not that it's "bad luck" to have debt hanging over your head; it's that if you have debt hanging over your head and then bad luck comes along, that debt makes everything worse. And that is not an "old wives' tale"; that's simple prudence that's been shown by hard experience over and over and over again. And with the economy looking like it's teetering on the brink of another crash right now, favoring paying down debts over entering into (highly risky!) investments is currently the best possible strategy. – Mason Wheeler Sep 24 '15 at 19:22
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Just what I was going to say. Pay the loans and cards. Unnecessary debt is risk. Get out from under it. – superluminary Sep 24 '15 at 21:23
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@MasonWheeler Sounds like the OP should buy a car and pay rent while retaining some low-interest debt, instead of pay off all debt then take out a high-interest loan to buy a car or pay rent. But that's just my opinion. – djechlin Sep 24 '15 at 22:27
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@djechlin OP should pay cash for a reliable but inexpensive car if he needs one, or use public transport if he doesn't. The only reason he would not pay cash is if he can get a < 1% interest loan, which he's unlikely to do on a used car. – corsiKa Sep 24 '15 at 22:40
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@JaredSmith Huh? There's absolutely no benefit whatsoever to this strategy compared to putting the money into a bank account and paying the monthly payments from the aforementioned bank account. There are a few upsides to the latter strategy though: You earn interest and if there's actually some emergency you can use the saved money to pay for it instead of taking the first loan you can find at that particular moment while presumably under lots of stress. – Voo Sep 25 '15 at 16:26
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What kind of interest do you guys earn on your bank accounts? Because it sounds like I really need to start banking there. Even money market accounts (for a smaller than 50k investment) don't pay squat. And technically aren't guaranteed to not lose value. Suppose he follows your plan and gets sued? Married and then divorces? He still has the debt (not even bankruptcy erases student debt in the US). The quarter of a percent interest that he would otherwise earn is not worth leaving that door open, period. You are giving advice oriented towards a perfect world, not the real world. – Jared Smith Sep 25 '15 at 17:27
Agreed. If you pay off your debt, in 6 years you will profit by only ~$11k (7% interest on $35k investment) vs paying off the debt and investing the monthly payment (about $490). That works out to be about a $38 per week loss. Piece of mind is worth far more than a dinner out. The fees for missing a single payment or a single late payment are a far higher risk. – Aaron Butacov Sep 26 '15 at 11:43
Paying off a 0% loan has nothing to do with math and 100% to do with psychology. I agree, pay off the loan asap, and be a free man. – Trevor Sep 28 '15 at 17:49

JTP - Apologise to Monica · Answer 3 · 2015-09-28T23:07:53.890

I'll add 2 observations regarding current answers.

Jack nailed it - a 401(k) match beats all. But choose the right flavor account.

You are currently in the 15% bracket (i.e. your marginal tax rate, the rate paid on the last taxed $100, and next taxed $100.)

You should focus on Roth. Roth 401(k) (and if any company match, that goes into a traditional pretax 401(k). But if they permit conversions to the Roth side, do it)

You have a long time before retirement to earn your way into the next tax bracket, 25%. As your income rises, use the deductible IRA/ 401(k) to take out money pretax that would otherwise be taxed at 25%.

One day, you'll be so far into the 25% bracket, you'll benefit by 100% traditional. But why waste the opportunity to deposit to Roth money that's taxed at just 15%?

To clarify the above, this is the single rate table for 2015:

For this discussion, I am talking taxable income, the line on the tax return designating this number. If that line is $37,450 or less, you are in the 15% bracket and I recommend Roth. Say it's $40,000. In hindsight on should put $2,550 in a pretax account (Traditional 401(k) or IRA) to bring it down to the $37,450. In other words, try to keep the 15% bracket full, but not push into 25%. Last, after enough raises, say you at $60,000 taxable. That, to me is "far into the 25% bracket." $20,000 or 1/3 of income into the 401(k) and IRA and you're still in the 25% bracket. One can plan to a point, and then use the IRA flavors to get it dead on in April of the following year.

To Ben's point regarding paying off the Student Loan faster -

A $33K income for a single person, about to have the new expense of rent, is not a huge income. I'll concede that there's a sleep factor, the long tern benefit of being debt free, and won't argue the long term market return vs the rate on the loan. But here we have the probability that OP is not investing at all. It may take $2000/yr to his 401(k) capture the match (my 401 had a dollar for dollar match up to first 6% of income). This $45K, after killing the card, may be his only source for the extra money to replace what he deposits to his 401(k). And also serve as his emergency fund along the way.

"One day, you be so far into the 25% bracket, you'll benefit by 100% traditional" Can you please revise this sentence? I feel like it's missing a few words in a few places, which is preventing me from understanding what you mean. — TylerH, Sep 28 '15 at 14:10
Thanks! I think it's mostly just missing words actually. I'm reading it as "One day, you'll be at the high end of the 25% bracket that you'll benefit from committing 100% [to the traditional route?]. But why waste the opportunity to deposit your money into a Roth IRA, which is only taxed at 15%?" — TylerH, Sep 29 '15 at 03:38
@TylerH - thank-you, and welcome to Money.SE. I'm always happy to clarify one of my responses or offer a new one. — JTP - Apologise to Monica, Sep 29 '15 at 12:40

score 8 · Answer 4 · edited Sep 23 '15 at 11:59

If your employer is matching 50 cents on the dollar then your 401(k) is a better place to put your money than paying off credit cards

This. Assuming you can also get the credit cards paid off reasonably soon too (say, by next year). Otherwise, you have to look at how long before you can withdraw that money, to see if the compounded credit card debt isn't growing faster than your retirement. But a guaranteed 50% gain, your first year is a pretty hard deal to beat.

And if you currently have no savings, unless all of your surplus income has been reducing your debt, you're living beyond your means.

You should be earning more than you're (going to be) spending, when you start paying rent/car bills. If you don't know what this is going to be, you need to be budgeting.

Get this under control, by any means necessary. New job/career? Change priorities/expectations? Cut expenses? Live to your budget? Whatever it takes.

I don't think you should be in any investment that includes bonds until you're 40, and maybe not even then - equities and cash-equivalents all the way (cash is for emergency funds, and for waiting for buying opportunities). Otherwise Michael has some good ideas.

I would caveat that I think you should not buy any investments in one chunk, but dollar average it over some period of time, in case the market is unnaturally high right when you decide to invest.

You should also gauge possible returns and potential tax liabilities.

Debt is good to get rid of, unless it is good debt (very low interest rates - ie: lower than you could borrow the money for). Good debt should still get paid off - who knows how long your job could last for - but maybe not dump all of your $50K on it.

Roth is amazing. You should be maxing that contribution out every year.

score 7 · Answer 5 · answered Sep 24 '15 at 13:57

Pay off the credit and medical debt
Put 8 months expenses aside in a savings account as an emergency fund
Buy a reliable used car, 3 years old, Honda, Toyota. Pay cash or, if they give you a deal, finance and pay off within a year as long as the interest paid will be way less then the discount. This will help build credit.
Invest the maximum amount for the year in a Roth IRA in an S&P 500 index fund
Invest the rest in a normal investment account in an S&P 500 index fund
Use $1000 to treat yourself to something

score 6 · Answer 6 · answered Sep 23 '15 at 05:05

To add to @michael's solid answer, I would suggest sitting down and analyzing what your priorities are about paying off the student loan debt versus investing that money immediately. (Regardless, the first thing you should do is, as michael suggested, pay off the credit card debt)

Since it looks like you will be having some new expenses coming up soon (rent, possibly a new car), as part of that prioritization you should calculate what your rent (and associated bills) will cost you on a monthly basis (including saving a bit each month!) and see if you can afford to pay everything without incurring new debt. I'd recommend trying to come up with several scenarios to see how cheaply you can live (roommates, maybe you can figure out a way to go without a car, etc).

If, for whatever reason, you find you can't afford everything, then I would suggest taking a portion of your inheritance to at least pay off enough of your student loans so that you can afford all of your costs per month, and then save or invest the rest. (You can invest all you like, but if you don't live within your means, it won't do you any good.)

Finally -- be aware that you may have other factors that come into play that may override financial considerations. I found myself in a situation similar to yours, and in my case, I chose to pay off my debts, not because it necessarily made the best financial sense, but that because of those other considerations, paying off that debt meant I had a significant level of stress removed from my life, and a lot more peace of mind.

+1 for considering not having a car. Since the original question mentioned a possible rent change, that implies to me that the OP is thinking about moving. If you're going to move, you can save a lot of money by choosing a home close enough to work/school to be able to use public transportation--or walk or ride a bicycle, which is great for your health if you can do it. — dodgethesteamroller, Sep 23 '15 at 18:31

score 5 · Answer 7 · edited Sep 23 '15 at 11:58

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The best option for maximizing your money long-term is to contribute to the 401(k) offered by your employer. If you park your inheritance in a savings account you can draw on it to augment your income while you max out your contributions to the 401(k). You will get whatever the employer matches right off the bat and your gains are tax deferred. In essence you will be putting your inheritance into the 401(k) and forcing your employer to match at whatever rate they do. So if your employer matches at 50 cents on the dollar you will turn your 50 thousand into 75 thousand.

edited Sep 23 '15 at 11:58

JTP - Apologise to Monica

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Jack Swayze Sr

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First priority is getting rid of the credit card debt. There is no investment on Earth that reliably brings in a higher return than he's paying in interest. – Mark Sep 23 '15 at 02:47
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If as Jack suggested, the 401(k) has a dollar for dollar match, that would be higher than the CC rate, and since the OP owes $5K, but is getting $50K, the point is moot. – JTP - Apologise to Monica Sep 23 '15 at 03:48
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If your employer is matching 50 cents on the dollar then your 401-K is a better place to put your money than paying off credit cards I know of no credit card that charges 50% interest per year. – Jack Swayze Sr Sep 23 '15 at 03:51
@JackSwayzeSr The employer doesn't continue to match 50 cents on the dollar every year after the initial deposit is made. Yes, it's good to max out an employer-matched program like this, but don't make it sound better than it really is. – Monty Harder Sep 24 '15 at 20:11
I realize that. Only the initial deposits are matched. Still, he can turn $50,000 into $75,000 by maxing out his 401(k) contrubutions. And that is only if his employer matches 50 cents on the dollar. No credit card charges 50% interest. So maxing out his 401(k) right now is better than paying off credit cards. – Jack Swayze Sr Sep 24 '15 at 21:17
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If you're 23, you should NOT make 401k contributions while you still have credit card debt. You won't be touching your 401k nest egg for another 36 years, so that 50% from your employer works out to about 1.2% per annum over that period. Unless your 401k is invested in something with a return that comes within 1.2% percent of the interest rate that's incurred by your credit card, (it doesn't), then contributing to it while paying interest on your credit card is foolish. ALWAYS pay off your credit card debt first. – Dawood ibn Kareem Sep 26 '15 at 22:45

score 4 · Answer 8 · edited Sep 23 '15 at 18:58

First of all, I am sorry for your loss. At this time, worrying about money is probably the least of your concerns.

It might be tempting to try to pay off all your debts at once, and while that would be satisfying, it would be a poor investment of your inheritance. When you have debt, you have to think about how much that debt is costing you to keep open. Since you have 0%APR on your student loan, it does not make sense to pay any more than the minimum payments.

You may want to look into getting a personal loan to pay off your other personal debts. The interest rates for a loan will probably be much less than what you are paying currently. This will allow you to put a payment plan together that is affordable. You can also use your inheritance as collateral for the loan. Getting a loan will most likely give you a better credit rating as well.

You may also be tempted to get a brand new sports car, but that would also not be a good idea at all. You should shop for a vehicle based on your current income, and not your savings. I believe you can get the same rates for an auto loan for a car up to 3 years old as a brand new car. It would be worth your while to shop for a quality used car from a reputable dealer. If it is a certified used car, you can usually carry the rest of the new car warranty.

The biggest return on investment you have now is your employer sponsored 401(k) account. Find out how long it takes for you to become fully vested. Being vested means that you can leave your job and keep all of your employer contributions. If possible, max out, or at least contribute as much as you can afford to that fund to get employee matching. You should also stick with your job until you become fully vested.

The money you have in retirement accounts does you no good when you are young. There is a significant penalty for early withdrawal, and that age is currently 59 1/2. Doing the math, it would be around 2052 when you would be able to have access to that money. You should hold onto a certain amount of your money and keep it in a higher interest rate savings account, or a money market account.

You say that your living situation will change in the next year as well. Take full advantage of living as cheaply as you can. Don't make any unnecessary purchases, try to brown bag it to lunch instead of eating out, etc. Save as much as you can and put it into a savings account. You can use that money to put a down payment on a house, or for the security and first month's rent.

Try not to spend any money from your savings, and try to support yourself as best as you can from your income. Make a budget for yourself and figure out how much you can spend every month. Don't factor in your savings into it. Your savings should be treated as an emergency fund.

Since you have just completed school, and this is your first big job out of college, your income will most likely improve with time. It might make sense to job hop a few times to find the right position. You are much more likely to get a higher salary by changing jobs and employers than you are staying in the same one for your entire career. This generally is true, even if you are promoted at the by the same employer. If you do leave your current job, you would lose what your employer contributed if you are not vested. Even if that happened, you would still keep the portion that you contributed.

+1 for recommending low-interest loans for late-model used cars. Spending $3-5K on a 10-year-old economy car, even one with a good reliability record like a Corolla, can be a recipe for disaster if the owner's not mechanically knowledgeable. Not everyone wants to change their own oil let alone do more advanced maintenance. A $10-15K late model used car if chosen well can be nearly 100% reliable, and the loan payments will cost no more than the maintenance costs on the older car would have, amortized. — dodgethesteamroller, Sep 23 '15 at 18:19
+1 for "You should shop... based on your current income, and not your savings." Apply this to your entire budget, not just your vehicle. Make sure that each month your expenses are less than (or worst case, equal to) your income for the same period. — Dan Henderson, Sep 26 '15 at 04:21

score 3 · Answer 9 · answered Sep 23 '15 at 16:46

I'd be tempted to pay off the 35k in student loans immediately, but if you have to owe money, it's hard to beat zero percent. So I don't think I would pay it all off. Maybe cut it in half to make it a more comfortable payment. Currently, you are looking at $6K a year to pay them off, which is about 20% of your income. Cut that in half and you will sleep better!

Definitely pay off the medical and credit cards. You're probably paying 20% on that. Clean it up.

If you need a car, buy yourself a car.

You have no savings, so I would put the rest in some kind of money market savings account. You are at an age where many people go through frequent changes. Maybe you get your own place, and you'll need to furnish it. Maybe you go back to school. Maybe you get married or have kids. Maybe you take a year off and backpack through Europe or Asia. You have a nice little windfall that puts you in a nice position to enjoy being young, so I would not lock it up into a 401k or other long term situation.

Put the $35k for the student loan aside in a savings product of some kind, don't pay the free loan off. You will be able to make several hundred dollars in interest. — rjmunro, Sep 24 '15 at 17:22

score 3 · Answer 10 · answered Sep 24 '15 at 15:14

Here's what I'd do:

Pay off the cards and medical.

Deposit 35k in the best interest bearing accounts you can find (maybe some sort of ladder). Link your student loans payments to this account. This frees up $486 a month in income, and generates a small amount of interest at the same time.

Now, set up some sort of retirement account. Put $400 a month in it.

This leaves you with $86 a month to use as you please.

You still have $10 000 cash, out of which you could buy an inexpensive used car, and bank some as emergency funds.

Rdster · Answer 11 · 2015-09-24T13:55:57.087

Wow, hard to believe not a single answer mentioned investing in one of the best asset classes for tax purposes...real estate. Now, I'm not advising you to rush out and buy an investment property. But rather than just dumping your money into mutual funds...over which you have almost 0 control...buy some books on real estate investing. There are plenty of areas to get into, rehabs, single family housing rentals, multifamily, apartments, mobile home parks...and even some of those can have their own specialties. Learn now!

And yes, you do have some control over real estate...you control where you buy, so you pick your local market...you can always force appreciation by rehabbing...if you rent, you approve your renters. Compared to a mutual fund run by someone you'll never meet, buying stocks in companies you've likely never even heard of...you have far more control.

No matter what area of investing you decide to go into, there is a learning curve...or you will pay a penalty. Go slow, but move forward.

Also, all the advice on using your employer's matching (if available) for 401k should be the easiest first step. How do you turn down free money? Besides, the bottom line on your paycheck may not change as much as you think it might...and when weighed against what you get in return...well worth the time to get it setup and active.

Of course you have control over mutual funds. Just like choosing which house to buy, you can choose which fund to invest in. And while rehabbing a rental can work, you're not going to get very far with 55k, plus, now you're a landlord...which tends to have a lot more overhead than a fund investment does. — DA., Jan 20 '16 at 07:34
Really? Sure, you can pick which fund, but that is the end of your control. If you don't like certain stocks in that fund, or how it is run your only option is to change funds entirely. And you can always flip a rehab if needed, becoming a landlord also doesn't have to be a huge time investment, you can use a property management company if you bought right. My point was that no one even mentioned real estate for investing. — Rdster, Jan 20 '16 at 11:49

score -2 · Answer 12 · answered Sep 24 '15 at 22:22

I would be realistic and recognize that however you invest this money, it is unlikely to be a life-changing sum. It is not going to provide an income which significantly affects your monthly budget, nor is it going to grow to some large amount which will allow you to live rent-free or similar. Therefore my advice is quite different to every other answer so far. If I was you, I would:

Pay off the credit card and healthcare debts.
Buy a reasonably priced used car, looking for one which will be reliable and low maintenance.
Put three months' salary (after tax) in an instant access savings account, to get you through an emergency.
Don't touch the student debt - it is enforced saving for the future. Not only are you not paying any interest, you are probably obliged to pay something off each month. If you paid it off in one go, the extra dollars in your paycheck might get spent on nothing much very worthwhile.

I reckon this might get you through half the money. Take the other $25,000 and go travelling. Plan a trip to Europe, South America, Asia or Australia. Ask your job for 3 or 6 months off, and quit it they won't give it you. Find a few places which you would really like to visit, and schedule around them a lot of time to go where you want. Book your flights in advance, or book one way, and put aside enough money for the return when you know where you'll be coming back from.

Stay in hostels, a tent or cheap AirBnB. Make sure you have a chance to meet other people, especially other people who are travelling around. Figure out in advance how much it will cost you a day to live basically, and budget for a few beers/restaurants/cinema/concert tickets/drugs/whatever you do to have fun.

It's really easy nowadays to go all sorts of places, and be very spontaneous about what you want to do next. You will find that everywhere in the world is different, all people have something unusual about them, and everywhere is interesting. You will meet some great people and probably become both more independent and better at making friends with strangers.

Your friends in other countries could stay friends for life. The first time you see Rome, the Great Barrier Reef, the Panama canal or the Tokyo fish market will be with you forever. You have plenty of years to fill up your 401K. You won't have the energy, fearlessness and openmindedness of a 23 year old forever. Go for it.

If the OP leaves the student debt alone and then blows the money on a vacation, how is that "enforced saving for the future"? That's not saving; that's borrowing from your future to pay for a vacation now. — Ben Miller, Sep 24 '15 at 23:57
@BenMiller By this logic, if you have a mortgage which you are current with, you find a dollar on the street, and you use it to buy a lottery ticket, this means you have borrowed money against your house to buy lottery tickets. — jwg, Sep 25 '15 at 05:32
There's a big difference between a cheap diversion and a vacation around the world. That having been said, I don't buy lottery tickets, and I don't go on $25k vacations, either. To each his own. — Ben Miller, Sep 25 '15 at 11:01
It looks like this doesn't take into account everything the OP posted about his situation. He has lasting financial changes coming his way that may mean he either needs to find a new job, or use the money he has inherited to pay off debt/keep him above water. To make this a good answer, I think you need to add what you think about that part of his situation and possibly qualify your recommendation based upon those thoughts. (Or to put it another way, explain how he should prepare for post-vacation life, given that he has significant financial changes coming.) — malachi1990, Sep 25 '15 at 17:07
@malachi1990 He should get a job which allows him to pay his rent? I don't think anyone else is recommending something to do with the $50,000 that wouldn't mean that he has to do this. — jwg, Sep 26 '15 at 19:32
Welcome to Money.SE. This is awful advice. OP has debt to repay, at a rate of $6K per year, and a rent payment coming up soon. There is a not so small chance that once paying rent, he's in a situation where he can barely make ends meet. Spend half on a vacation that only a 1%er can afford? This is why lottery winners, on average, go broke before 5 years have passed. — JTP - Apologise to Monica, Sep 29 '15 at 15:14
While I agree that this isn't great financial advice, it's not the worse life advice. — DA., Jan 20 '16 at 07:39

alekop · Answer 13 · 2015-09-29T19:14:59.277

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I would advise against "wasting" this rare opportunity on mundane things, like by paying off debts or buying toys - You can always pay those from your wages. Plus, you'll inevitably accumulate new debts over time, so debt repayment is an ongoing concern.

This large pile of cash allows you to do things you can't ordinarily do, so use the opportunity to invest. Buy a house, then rent it out. Rent an apartment for yourself. The house rent will pay most (maybe all) of the mortgage, plus the mortgage interest is tax-deductible, so you get a lower tax bill. And houses appreciate over time, so that's an added bonus.

When you get married, and start a family, you'll have a house ready for you, partially paid off with other people's money.

edited Sep 29 '15 at 19:14

answered Sep 29 '15 at 18:04

alekop

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First, OP hasn't visited since posting, so we're not likely to get any more details. Your answer is interesting, but may not even be possible for him. Real Estate is not homogeneous within the US. If he lives in an area where starter homes are over $250K, he's not going to get financing. And he'd have no safety net. In other places, a duplex, with him living in one unit, might actually make sense. Investing in RE is passive for taxes, but can require a lot of work in real life. Overall, not good advice for OP. – JTP - Apologise to Monica Sep 29 '15 at 18:27
Even in Los Angeles, you can find starter houses for 250k. With a 20% downpayment, and a 33k/year job, why wouldn't he qualify for a loan? Also, why would he have no safety net? Despite the required work, RE is the safest form of investment, especially for someone with no investment knowledge. – alekop Sep 29 '15 at 18:38
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Because he has no savings? 20% = $50,000. He only has this $50K. Closing costs can run over $5K. Say he gets this house, finds a great tenant who moves in the day he closes, and then there's a $5000 expense. Where does he get the money? – JTP - Apologise to Monica Sep 29 '15 at 18:41
My bad on the 25% figure, I update the comment. As for maintenance, he has a job. He can take out a home equity line of credit. He can use his existing credit cards. And while we don't know where he lives, there are many areas in the US where a single family house can be cashflow-positive, so that's another source of income. – alekop Sep 29 '15 at 18:49
I understand. You can find areas where this will work, and there are areas it really doesn't. My real issue is the unknown rental situation he alluded to. He's been paying no rent, saved nothing, and will have this expense coming soon. Where does that rent money come from? (And again, all rhetorical, OP not returned) – JTP - Apologise to Monica Sep 29 '15 at 18:57
"And houses appreciate over time" = heh. "He can take out a home equity line of credit" = not the day after one closes. – DA. Jan 20 '16 at 07:35
@DA You can say "heh" about any investment - stocks, bonds, gold, real estate... Everything fluctuates, and you can lose money on any of them. But even if a house loses value, it still provides a place to live, and/or rental income, and tax deductions. And eventually, even an underwater house will at least break even thanks to your tenants paying off your mortgage. – alekop Jan 21 '16 at 23:47
@alekop yes I would say "heh" at any investment that claims "will appreciate over time". I agree completely about fluctuations but that wasn't mentioned in the answer. – DA. Jan 21 '16 at 23:53

I'm 23 and was given $50k. What should I do?

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