How to utilize $100k cash

Hi, our family will be receiving about $180k. We are trying to figure out what to do. I am 59 years old and don't have much saved up for retirement (only about $30k in IRA account). We still owe about $183k in mortgage and have credit card debt of $50k (not paying too much interest as I transfer amounts accordingly) and car loan and other bills ($15k). Which one of these options would you favor in this situation? (we plan on selling the current house and buying one we really want within next two years, which will be around $300k. We might only get $10k out of the house when sold. So we need a heavy down payment for the New House)
1- Pay CC debt off along with some other debts, which would leave us around $115k to invest. Put the money in high interest checking or saving account until we sell our house and find one to buy & use the $115 for down payment.
2- don't pay the CC debt off---Pay off the current mortgage instead and just wait till the house sells. Then take the $180k and apply it as a down payment to the New House.
3- don't pay the CC debt off---buy couple of cheaper houses with the $180k and rent them out (anticipating around $2,200 per month in rent for the two). And make heavy payments toward the CC debt with this income.
4- pay the CC debt off and invest the remaining $115k into the stock market for a few years to see if we can make more money to help buy the New House. (I know the stock market is on top now and it probably will go down soon so not sure if short selling could be an option at this point).
5- Add the entire $180k onto my IRA account which has a low $30k balance right now.
6- Something else?
Another question is our kid (9 years old) will be getting $18k. How should we invest that money? College fund that we can contribute additional each month?

Best Response

take advice you get here with a grain of salt. this forum is largely populated by people in investment banking or college students wanting to get into investment banking, not financial planners. I am a financial planner, and this advice will be harsh, but I think you need to hear it.

first, you need to change your behavior. you don't have hardly anything saved for retirement (your words), and you're talking about buying a house you "really want." instead, you need to stay in your current house, maybe even downsize, and save aggressively for retirement.

as far as paying down debt or investing, that decision is a moot point, because if you invest the money only to take it out to buy a house you can't afford, it won't matter what return you earned on it. if you decide to payoff CC's and then run up the balances again, it won't matter how much interest you didn't pay.

assuming you will change your behavior (as much as I hate their investment advice, their budgeting/spending advice is good, you should look at suze orman and dave ramsey), I would payoff the car, other bills, and CCs.

after that, make sure you're adequately covered in life insurance. since you have so little in assets & home equity, assuming you're the main breadwinner, your child and spouse will be severely disadvantaged if you die. I'd recommend at least $400k, that will cover the mortgage, college, and leave a little bit leftover. have the term matchup with your mortgage & kid's college timeline.

next, you'll need to cut your expenses. look to cut them by at least 25%, maybe more. you can't change your mortgage unless you downsize, but you can cut discretionary expenses. you need to go on an expense lockdown. no new cars, no new clothes, no vacations involving an airplane, no jewelry, limited eating out, etc. if your financial situation reverts to its current state when you finally retire, you will be in dire straits. if you change aggressively, you can still not go broke in retirement.

as far as investing, there are myriad options for you, but first things first: pay off debts, cut your expenses, and change your behavior aggressively. this windfall will mean nothing if you don't change your financial habits.

again, sorry for the tough love, but I think you need to hear it. feel free to follow up with more questions.

haha, that's fair. My time horizon as a 33 year old is slightly different than this guy, and so is my risk tolerance (i'm guessing). OP - maybe don't put it all in bullion. However, there is a really sexy 3x levered junior gold miners ETF (Ticker: JNUG) that could either make you fantastically wealthy or have you mumbling to yourself under an overpass. ;)

Never understood why content like this isn't in off topic.

I think you have a fundamental misunderstanding of basic financial planning that is typical of a lot of households that aren't sure where to get guidance.

Think about your question for a second; how are people even supposed to answer you?

Your finances aren't like a recipe where just eyeballing ingredients is enough to do a reasonable job at cooking.

You need to be measured and consistent in your approach. Go hire a fee based adviser.

When I read your post here were my questions;

  • Why didn't they list the amount of credit cards? Their rates? Individual balances?

  • What is the mortgage rate?

  • Rate and balance on car loan? Make, model, mileage of car?

  • Costs of upkeep on the house? Costs of upkeep on the smaller houses?

  • TAXES?

  • Monthly budgeting?

  • Household income?

I'm sure that the numbers lurking behind those aren't good but you need to get them together and have a financial planner put a plan together for you.

If I had to guess based only on the information provided I would say that you can't afford the house you are already in. If homes in your region are going for around $180,000 then $50,000 in CC debt is a large red flag. You've been needing to move the balances around because you have too many cards and the time to the next bill where you need to borrow more has probably been tough. Consolidate the CC debt and consider whether trading the car or paying it off is a good idea.

I wouldn't touch the kids money, put it into a tax advantaged government account or something.

Once again, go get a fee based adviser.

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