Navigating the best use of an inheritance can significantly impact your financial future.
Managing a $180,000 inheritance wisely can ease debt and pave the way for growth.
Understanding Your Financial Landscape
Your husband’s financial situation includes a $168,000 mortgage with 25 years remaining and a monthly payment of $1,800. In addition, he pays $1,500 annually in private mortgage insurance (PMI). With $15,000 already invested and $5,500 per month in disability income, decisions regarding this inheritance must be thoughtfully made.
Your husband faces a drop in income in four years, leading to increased financial strain. By taking a proactive approach, you can both benefit from sound financial advice.
Paying Off Mortgage with Inheritance
Consider using $100,000 from the inheritance to pay down a substantial portion of the mortgage. Paying off the mortgage will not only reduce your monthly obligations but also improve overall financial stability. This strategic move can potentially alleviate the financial burden your husband faces once his income decreases.
Advantages of Paying Down Debt:
- Lower monthly payments that ease financial stress.
- Increased cash flow once the mortgage is paid down, freeing up funds for other uses.
- Savings on interest over time, especially with your current low interest rate of 3.5%.
High-Yield Investment Accounts
The remaining $80,000 should be considered for investment. Investing in a high-yield investment account can offer substantial long-term growth potential while providing liquidity in case of emergencies. Research platforms that specialize in high-interest savings accounts or certificates of deposit (CDs) that can yield better returns than traditional savings accounts.
Consider ETF Investments:
An excellent choice for part of your investment could be the Vanguard Total Stock Market ETF (VTI). This ETF provides broad exposure to U.S. stocks and is designed to grow over time. Investing in ETFs minimizes individual stock risks and offers diversified exposure within a single investment.
By allocating $10,000 to $20,000 into this ETF, your investment can benefit from historical market fluctuations in the long term. This type of strategy allows for potentially higher returns without the stress of picking individual stocks, which can be risky and volatile.
Private Mortgage Insurance Negotiation
As equity in your home increases from mortgage payments and as you make a substantial payment with the inheritance, consider negotiating your private mortgage insurance (PMI) costs. Reducing or eliminating PMI could further improve your cash flow, allowing you to allocate funds to savings or investments.
Budgeting for Emergencies
Keep an emergency fund of at least $5,000 in a checking account. This ensures that unexpected costs are covered without derailing your investment strategy. The economy can be unpredictable, and having accessible funds is essential for financial security.
Diversifying Your Investments
Monitoring your investments periodically can help you determine whether adjustments are needed based on market conditions or changes in your financial goals. Consider diversifying your asset allocation into:
- Stocks: Suitable for your long-term growth, especially low-cost index funds or ETFs.
- Bonds: Look at shorter-duration bonds or mutual funds that provide stability and income.
- Cash investments: Have a portion allocated in cash or cash equivalents for liquidity.
Planning for Future Financial Security
Reviewing retirement accounts and estate plans now is crucial. As your husband’s income is projected to drop, planning ahead can safeguard your financial future. These discussions can also help address potential complications that could arise as you age.
Conclusion: Balancing Your Life and Investments
Deciding on the best course for handling a significant inheritance requires careful thought and planning. Paying down the mortgage brings immediate relief and lessens future burdens. Meanwhile, directing funds into high-yield investment accounts or opportunities like the Vanguard Total Stock Market ETF (VTI) can support your long-term investment objectives. Keep in mind the importance of preserving capital and ensuring enough liquidity for life’s unforeseen circumstances.
Ultimately, a balanced approach that includes both debt reduction and strategic investing will help secure your financial future.