Help a trust fund baby: “What should I do with my inheritance?”

91 Comments- Get free updates of new posts here

2 0 0

Just got this email from Christine, a self-described “trust fund baby” who asked for advice. What would you recommend?

I am a 22 year old female in my last year of college. I never learned how to manage my money. If I got money, I spend it. So, freshman year of college, a credit card seemed like a fantastic idea. My parents have even bailed me out a few hundred dollars. I’ve kind of come to terms with the fact that this is a stupid move on a lot of students parts, and I’m working through it.

Recently, I learned of a pretty good deal of money – $140,000 give or take – that my well-off, childless aunt and uncle have put into a trust fund for me.They have brought it up to this amount by contributing $30-40k at various times over the past 10-15 years. Anyway, my question is: what should I do with this money?

What do you think?

2 0 0

Related Articles

How to make money fast (without getting caught in a scam)

Hi, I’m Ramit Sethi, and I’m going to show you how to make more money. Legitimately (I’m ...

Read More

How to travel the world, create a life that doesn't suck, and explore the happiness of pursuit -- with Chris Guillebeau

Last month, I was travelling in Asia and had some time to kill at the Hong Kong airport. I knew ...

Read More

91 Comments

2 0 0
 
  1. Don’t touch it! Unless you’re facing Chapter 11 or 13, medical emergencies, or wondering about financing for a home, there should never be a reason at your age to touch that money.

    Talk to a financial advisor. Figure out what you want to do with your life, and how to best utilize the money given to you to achieve those goals.

  2. Playing it safe would — to me — suggest sinking it into the highest return savings account you can find and sit on it.

    Playing it less safe? Biotech stocks. Sciencewise, there’s a lot of stuff going on in terms of organ cloning, implants, etc. Find a good investment fund and pick out as much biotech as you can. Nothing’s a sure bet, but that’s where I’d put money if I was looking to invest.

    Of course, *I* don’t have your trust fund to decide about, either. ;)

  3. Do not spend it. Decide what your goals are, i.e. a house in several years, etc., and research what type of investment will fit you. Vanguard is a good place for a beginning investor.

  4. Don’t touch it! At least until you’re 30, or you learn to become honest-to-god responsible with your money. Use it to buy a house out right, or save it for your own family’s use one day.

  5. Pay outstanding debts… especially any credit cards, start a Roth IRA max the contributions on that and retire comfortably.

  6. Buy an index fund and leave it for 30 years. Profit.

  7. invest $100k into some long-term investments. some index funds, some bond funds, and such. use $20-30k to pay off/down debts, and establish a minimum $10k emergency fund in a high-yield savings account. touch that money only in an emergency. take $10-20k and use it to do stuff. buy a car, travel, buy a house/condo, whatever.

  8. My vote is pay off all of your debt (if you have any), and then put the rest away for a house.

    If you ever want a house, you’ve got a great start in saving up for it. You pay almost double for a house over the full life of a mortgage, and you pay significantly more interest than principle early on. You’re in a great position because you don’t have to pay for access to money, you can just pay cash for the house. Then you’ll free up something like 25% or more of your income to live really comfortably and start building a great amount of wealth.

  9. First, she should understand that $140,000 is not a lot of money. She will be broke before she knows it if she continues her habits.

    I suggest spending a little bit of it on something you want, giving a bit of it to charity or your church, paying off your debts, and then investing the rest.

  10. Invest wisely.
    Regarding Grace’s advice; 9/10 drugs fail when they enter phase 1 or 2 clinical trials, so invest a smallish bit (10%?) in that sector. (That’s where I work).
    Regarding Aaron and Alan’s advice; Exactly. Find a way to shuffle as much money/earnings into long-term yet stable investments.
    I am 30, just started a 150k salary and am investing max for my 8 and 5 year old. Methinks they will be thankful as I enter the rest home.

  11. Use a little to have some fun – maybe 1%. Then invest it in a balanced portfolio. Look at the statements once a year and the rest of the time FORGET ABOUT IT! In the grand scheme of things, $140,000 is not a lot of money. Left alone, it is a great start on retirement. The big lesson to be learned is that windfalls like this are not to be spent, they are to be saved for long-term goals – no exceptions! Given enough time and thought, we can all rationalize spending $140,000 in a year – I need a new car, a down payment on a house, pay off that credit card bill – but what will happen next time when the windfall isn’t there? Now is the time to learn to live below your means. That lesson will serve you better than any amount of a potential windfall. She might also want to ask her aunt and uncle how they were able to save that amount for her and see if they have ideas on what she should use the money for.

  12. The people who say “don’t touch it” are absolutely correct, but to a twentysomething with no real financial experience, the money can be a HUGE lure to do something stupid, so what’s really needed is a compromise. If you invest it all in a low-risk bond fund that pays interest on a monthly basis, you get money to spend while you figure out how to deal emotionally with the fact that you’re richer than you ever thought you would be at this age.

  13. Take 20K to blow on whatever type of frivolity makes you happy. Spread it out over time if you need to. This is a windfall; you never knew you’d be getting it, so you should use it to have some fun.

    Use some to pay down any high-interest debt.

    The rest should be divided up using one of the many asset allocation formulas found on this site and then continue adding to that (fantastic) base once you start working.

  14. I say pay off debt (credit cards) and then put the rest somewhere where it is hard to access. I know CD’s aren’t the best earning solution, but it has helped me to have the money be difficult to access on a daily level. If its in a savings account it is too easy to withdraw when I “need” some quick cash.

  15. How did you get through college? Did you finance most of it or was it taken care of by parents, grants, scholarships, etc? If there is college debt, at what rates?

    Many people rely on private student loans to make it through school. They’re a great last resort to finish a degree. But the rates are high – typically over 10% at origination. The consolidation market dried up with the liquidity of all major financial institutions. As it stands now, Wells Fargo is the last lender. The term is 15 years when previously, 30 year terms were possible and the rates are not much better than 10% dependent upon income, credit history, and in most cases the co-signer’s credit history. (If anyone else knows of another private loan consolidator – email me immediately, Mwinters1226@gmail.com). But that’s all an aside, the point is to first pay off any high interest debt; credit cards, private student loans, etc. Don’t pay off government subsidized or unsubsidized student loans because they’re at lower rates than you’re likely to earn by investing. But don’t ever fall delinquent either.

    Now, for your investing (and you should invest – try to be successful without the money): Keep it simple. Use a Life-Cycle Investment Fund. You’re young enough now to be aggessive but as you get older you should mitigate some risk in exchange for slightly lower returns – the fund will do that for you. The trust fund has provided you a great resource to ensure that your credit rating never suffers (which will cause financial suffering) and to leverage an early, enjoyable retirement. Congratulations!

    ~MJW

  16. The solution is pretty obvious — pay off debts and invest in an index fund. Never touch it except for an emergency. I get the feeling she isn’t asking for the “right” thing to do with the money so much as a plan that she can live with.

    Unless there’s some regular reward, I think simple “don’t touch it” plans will fail for her. My recommendation would be to pay off all debts, then invest everything in a dividend-paying stock like Coca-Cola (NYSE:KO). Every quarter, she’ll get a check in the mail that she can spend on whatever she wants. That check says, “This is your reward for not touching that money yet.” Meanwhile, the shares will continue to grow, and when she’s ready to have a kid/ buy a house/ send a kid to college/ provide long term care for her parents/ retire, she’ll have a nice nest egg that she can tap into.

  17. Well the question is, what CAN she do with it? Is she allowed to access it at 25, 35, when some specific thing happens (graduation, marriage, etc)?

    Regardless of whether she has full and complete access to the money, she should completely forget it exists for now and leave it invested in whatever it is in. She needs to learn to save from her own income, though, and should start a retirement fund and emergency fund when she graduates and gets a job.

    Once she gives herself a little financial education she should use the money ONLY to pay down high interest rate debt and make annual transfers to max out a Roth IRA, if she is eligible (advantage being that she moves assets from a taxable acct to a tax free one).

    Once she has worked for a few years AND is ready to live somewhere for 5+ years, she should take out no more than $50K to put a 20% downpayment on a home.

    She should leave the rest invested for times in her life where she may want to go back to school, take maternity leave from work, or pay for her own kids’ college.

  18. I think the best plan is to pretend like you don’t have it. Even though you’ve got this safety net, you should still SAVE for your first house or car. This sum of money has given you a substantial head start on your savings, but looking at the long run, it’s not huge enough to be a bottomless guarantee of wealth, either.

    Specifically, I would recommend: pay off any outstanding non-0% debt, put $10,000 in an emergency fund, put as much money as you can in a Roth IRA this year, and put the rest in a low-cost index fund — or put it in a savings account and feed it into an IRA over a period of several years.

    And thank your aunt and uncle, for God’s sake. :)

  19. Vegas baby!!!

  20. 1. Pay off all debts
    2. Travel overseas (if you’ve never been and are into that sort of thing. Life experiences are worth every penny and this is the perfect time.)
    3. See a financial planner about investing/saving the money. Diversify into funds, bonds, cash, etc.
    4. Act like you don’t have it. Eventually use it as down payment on a house, wedding, etc.
    5. If you /need/ a car (since you’ll be starting out in the “real world”) use some for that, but be MODEST. This is not an opportunity to blow $30k on something stupid. Fulfill your needs and be done.

  21. #1 – Stop thinking of yourself as a trust fund baby. With 140k, you’re not. There’s a mental adjustment to be made, to not allow your life to revolve around such a label. If you quit school and did not work, the money wouldn’t last you that long. Won’t even get you a house in most parts of the country.
    #2 – All good advice above. Don’t spend it willy nilly.

  22. I like how nobody said “sit down and figure out what your short, medium, and long-term goals are” before shotgunning a bunch of suggestions out there.

  23. The smartest thing you could do in a situation like this is first, take about $1,000 out in cash for emergencies. It’s not much money, but it’s often enough to cover any little emergencies (buying new shoes, or a fancy new iPod is NOT an emergency. Ever).

    Next, pay off all of your debts. With $140k, you should be able to pay off all of your debts and still have a little bit of fun left over. Debts include school tuition, so pay as much as that as you possibly can. Think about it, living debt free, fresh out of college… you’ll have it made!

    Finally, invest in quality mutual funds. A mutual fund is a great way to make money, fast. But you have to be smart about where you are investing. Make sure the fund has been around for at least 7 years and is trust worthy.

    Most importantly: remember that you are still young, fun can come later. Pay off all of your debts – and stay out of debt – and you’ll be able to live practically care free for the rest of your life.

  24. $140k isn’t as much as it used to be. £70k can last you frighteningly shortly in todays world, but it’s a good basis to sink into a solid investment.

  25. Tyler — yep, isn’t that hilarious? We love to assume everyone should do the same thing with money that we think is right.

    The fact that the suggestions are so different means that the “right” choice is not obvious or simple.

  26. @Tyler and @Ramit Sethi

    3rd post, Jennifer, stated that she should sit down and go over her goals.

    1st post, myself, stated that she should sit down with a financial planner and figure out what she wants to do with it.

    Reading, it’s fundamental . . .
    However, it seems comprehension, isn’t.

  27. Though $140K is not a lot of money its not a small sum either. Some of the above suggestions are fantastic but i would stongly suggest you consider your risk taking ability and your goals. The below are only additions to the above:

    The problem with investing $140K in one go is that if you invest all your money in one shot you take a view that the markets will go up in the long run. Which in most cases is true but you cant be sure. Timing the market can be very difficult. One way to help reduce that problem is something like investing small amounts on a monthly basis for a long time. In that way you even out the market timing. consider if there is something like a Systematic Investment Plan in a mutual fund where you invest $1000 on a monthly basis for 3-5 years. Select a few mutual funds and let it get off your account on a monthly basis.

    Secondly never… never… i repeat never put all your eggs in one basket. If you zero on one investment and if it fails you will be left with nothing so diversify.

    Thirdly, I would also consider investing amounts in pension funds or life insurance as the premiums tend to be lot cheaper when your younger and you have somewhere to fall back on. Some schemes have single premiums (which you can use) or have annual/semi-annual/monthly premiums where you have to make regular payments (only to be used if you can commit to it for a long term).

    Have fun.

  28. From personal experience: Pretend it doesn’t exist and talk to a financial advisor about how to invest it. I ended up letting my advisor figure out what to do with it and he’s done a phenomenal job at consistently outperforming the market so that I’m making significant gains even after capital gains tax and his commission. By not dipping into it, I learned to live on the cheap, save money, and handle credit cards–skills which all came in handy when I used half of my fund as a down payment on a house.

  29. First, learn how to manage the money that you have – before you are financially and emotionally overwhelmed (which usually ends in ‘blown it all”) should you receive this money.

    Read this blog or visit getrichslowly.com or thesimpledollar.com – Take a class, like Dave Ramsey’s Financial Peace University.

    Once you’ve got a grip on your own finances, I reiterate earlier advice – leave it alone, other than for emergencies and such. Rather than dipping into it, see what the law allows to you ADD to it. This ‘trust fund’ could later be a possible retirement home or even your retirement income!

  30. Pretend that you don’t have it! don’t touch it until you become educated about money

  31. 140k is a lot of money for a 22 y/o. The majority of Americans will not see that amount until they are well into their 30s. Put this in perspective people. You could take 140k and move to other (some) countries and have a part-time job.

    1. Set Goals
    2. Emergency Fund (High interest savings account (ING Direct etc)
    3. Pay all outstanding debt off
    4. Vanguard.com (index fund)
    5. Call me and lets go get a drink (I’m 23) lol, i.e., Life is too short not to have fun. You just won a fake lottery. Celebrate a little, not like a rockstar!

  32. 140K broken down….

    Open an ING account, 1.75% Checking 3.0% Savings,
    25K in Savings, 5K in Checking,

    110K left, Pay down debt (given you have National average of 10K in debt, leaves you with

    100K, Put This years allowable max of 5k into a ROTH IRA (use Primerica) they’re the best, ask for them to disburse the 5K into 5 different account, 1k a piece Usually Pioneer, or Van Kampen are good starts (aggressive, and Growth)

    Then also some real estate Funds (right now they’re no good, but will be in 3-5 years) So you buy MORE shares, but end up getting more once the market bounces back AND IT WILL, it always does.

    so this leaves you with 95k

    Put 50K into a Hedge Fund Find someone that does Hedge funds, the return is ridiculous about 4-5% depending on the cut your broker will charge you. after that it leaves you with 45k, PUT ALL OF IT, into a CD, from WAMU, or ING Direct, they both are at almost 5% 1 year, and then when your done, with the one year take the profit from it, put it in savings, and then the rest put it back into another year of CD 5%.

    also don’t forget to pay yourself, Every new year in the beginning of the new Tax year, put the maximum allowed into a Roth IRA, By the time your retired, or even at 55 years old you will have roughly 2.3 Million dollars in retirement money. PLUS all the money you made off your CD’s in your Savings account, AND the best thing you could do for yourself is, DON’T USE CREDIT CARDS its the worst thing you can do for yourself, but if i had your money this is EXACTLY what i would do with it. Email me at eliseo.perez@gmail.com if you need more details

  33. Buy a Porsche 911 Turbo :)

    Or, you know, follow everyone else’s smart advice and invest it…

  34. The “don’t touch it” and invest in index funds advice seems a bit too easy. When you’re young, spending that money in thoughtful ways to accumulate unique experiences (like the commenter who mentioned travel overseas) seems like an excellent investment. Sure, save some, don’t be frivolous, etc. But spending on smart things when young can help propel you on an even faster career track and financial success.

  35. I’m in a similar position. I’m 22, I’m going to graduate college in May with no debt (mostly merit scholarships), and I have roughly $200,000 in inheritance. Most of the inheritance is in a few stocks, and they are too risky and underdiversified at the moment for my tastes. But selling that much stock amounts to giant capital gains tax. I’m also at a crossroads as to what to do with it, especially how quickly to reallocate to meet my comfort level. I probably ought to talk to a financial adviser, but I’m not even sure how to begin going about that.

  36. $140k is not a lot of money for a trust fund. That’s only generates about $6000 of income per year. If I were Christine, I would first change my mentality — she is not a trust fund baby. Then I would just forget the money exists and make my own living. When it’s time to settle down and buy a house, she can think about touching some of the money as a down payment for a house … or even better, just wait until retirement to use it. It will be worth millions by then. She can seriously just live life paycheck to paycheck (after building an emergency fund of course) and not contribute to retirement. That trust fund will generate enough income for her to retire by the time she’s 50 or so.

  37. Figure out some goals (own a house, have kids, retire at 50, etc) and talk to a financial adviser. Find one with a good reputation that you think you can trust, a fee only planner might be your best bet – this means that they charge you a flat fee for their service, no matter what they do, for example they might charge $75 an hour to help you out (well worth it if you don’t know anything about money). Also, I’d take some of it and spend it. It’s nice to live below your means on a regular basis, but occasionally you have to do things that are important to you. Not sure what you think is important, but if it were me I’d probably travel around the US as cheap as possible and see the national parks, oceans, etc. But, the point is that you should do something you want to do. If you put all of it somewhere and don’t touch it until you’re 70, then you’ll probably always feel like you missed out on having some awesome experiences. Sometimes you need to a live a little bit like you’re not going to make it to 70 or even 30 for that matter (not an excuse to be totally irresponsible, and it’s highly likely that you will live a long time).

  38. *sigh* Never in a million years did I think I’d be asked (as non-directly as it is) to *help* a trust fund baby. I get just over $700 (after taxes) for referring a candidate to my company and I am over the moon!

  39. @Joe and anyone else that wants some advice but doesn’t know where to look.

    If you’re looking for some help with planning, you can search for a Certified Financial Planner using the CFP organization’s website. A CFP is a term that someone has to met certain requirements and has certain ethical guidelines, etc. It’s not something that anyone just call themselves, so it’s a step toward finding someone trustworthy.

    http://www.cfp.net/search/

    Put in your zip code and search. It’s a start on finding some names and then you can meet with some of them, get references, and then decide who you like the most (it’s a good thing to get along with your planner – if you think the guy is an asshole, then odds are you’re not going to talk to him very much).

  40. When I saw the phrase “trust fund baby,” I thought millions, enough never to have to work again. It strikes me as significant that this writer used the phrase. $140K is enough to make a very significant – even life-changing – head start but only that: a head start.

    My suggestions for consideration (not knowing her!):
    1. (Have to get this out of the way) – finance a graduate degree. Many people go this far into debt for a degree that never pays back financially. IF a graduate degree is a dream, using this money to make that happen debt free would be a luxurious, but reasonable, way to “blow” the money.

    2. Pay off debt, invest, and take advantage of the fact that you can do something you love that may not pay as much as you would like.

    3. I would NOT suggest you use the money to make a plush start to a business that would better be bootstrapped. Too much cash can kill a business. However, it might be a great strategy to pay off debt, invest, and take advantage of that safety cushion to start your business rather than clamoring for a higher-paying job.

    4. Do “blow” some of it but do it for memorable experiences. Trip around the world for $10K – great! $14,000 for an extra-fine, big screen TV – nah!

  41. give it to me? if not that, i’d sink it into a low cost index fund and wait till you retire. or go over here and ask this crowd http://diehards.org/

  42. Spend every dime!

  43. I didn’t read any of the responses so sorry if this has been said already…..

    It depends on who is getting the money. If “Christine” is getting the money (as she is), she should keep just enough for an e-fund in a liquid, high interest savings account, pay off any high interest CC debt, and then put the rest into a safe investment vehicle like a CD until she becomes financially smart. It’s quite obvious (as she readily admits) that she doesn’t know a thing about money. So rather than risking it in a market she doesn’t understand, put it somewhere safe until she is comfortable investing it in something with potentially higher returns.

    Now, if I were getting the money….I would pretty much do the same. I would pay off all my debts: CC, car, parents, student loans; put away a year’s worth of living and operating expenses in an e-fund (I own rental property so I would need to be able to cover that cost if they sit vacant for a year God forbid); and then put the rest somewhere safe for the time being. I would have to determine what my short, mid, and long term goals are. Would I pay down some of my existing real estate or would I want to invest in some more? Would I stick it all in the stock market or would I keep it all in a CD and then use it to fund a Roth IRA every year? Better yet, how about try starting the company that I’ve been wanting to, but not had the time or money?

    So, as you can see, “Christine” is not in a bad situation. She just needs to educate herself.

  44. The first thing I would want to know is its tax and fee implications, as well as its current investment structure. You’ll want to get in touch with your aunt and get your hands on as much detail about the trust as you can. Even if you don’t understand it right now, it’s OK. At least have it handy.

    When you can, I’d look through the information and find out exactly what’s involved, cross-referencing it with the IRS website. Here’s a handy link to get you started:

    http://www.irs.gov/businesses/small/article/0,,id=98830,00.html

    If you still have questions, write it down and set up an appointment with a fee-based financial planner.

    I don’t know the condition or reasoning of you or your aunt, but I’m… not entirely sure why this needs to be in a trust. If you’re feeling up to it, I’d move the money out of the trust and manage it on your own to avoid commission fees. It’s not hard. The invest it passively.

    I also agree it’s not a lot of money in the grand scheme of things. Best thing you can do is to protect it… from yourself. :-) At least that’s what I’d do. However, a graduate degree isn’t a bad investment if you must spend it.

    The good thing is, I don’t think you have to make any sudden moves overnight. I would take it nice and slow, do it right, and all the while, go on living as if the money doesn’t exist.

  45. I recently had a windfall myself, though not nearly as large: about 9k. (That’s a lot of money for me right now.)

    This is what I decided to do with it:
    10% to play with (so about $900 to spend on anything I want). Amazing, I’m having a hard time deciding exactly how to spend it!
    ~2000 into my long-term emergency fund, which brings me to an amount that equals 3 months expenses.
    ~2000 into my new car fund (I plan on driving my current car into the ground, but that will probably happen in the next few years or so and I’d like to be able to buy a car with cash when that happens instead of financing it)
    ~1400 into my tuition fund (I’m in grad school, and my company pays the bills but only AFTER the course is complete, so in the meantime I have to pay out of pocket and I’ve been pulling that money out of long term emergency)
    ~the rest into my travel fund (saving for me and my boyfriend to take a trip to Europe)

    All of my “funds” are in ING, but I didn’t invest any of the money in the stock market or contribute to my retirement… this was deliberate, because I’m trying to develop financial habits where I will contribute to my retirement and investments on a monthly basis and not “depend” on windfalls to do it with. For Christine, she’s getting enough money where it might make sense to invest some of it, but she should probably figure out her goals first, and make sure she develops good financial habits.

  46. I should also mention that I don’t have any debt except a mortgage… if I did, I’d probably throw any money towards that first.

  47. I came into the same amount of money when I was about 26. It is NOT a lot of money, as a lot of other people have mentioned.

    Here’s what I did with mine: 30k: paid off student loans
    120k: paid off my mortgage

    that’s it. Now I’m able to take all of my extra money and invest and save it. it’s easy to do when you have no debt and no mortgage/rent.

  48. This might have been mentioned in the string, and I could be totally wrong, but from the way the e-mail reads it seems as if your aunt and uncle are still living. You didn’t say you received money , yet you recently “learned” of a trust.

    You might want to research how they or their trustee have the trust built to transfer ownership.

    No need getting worked up over money you can’t touch yet. Furthermore, they might have more contributions in mind. Which may well surpass any short term return in the market!

    Plan your work and work your plan.

  49. Take this time to recognize that you may have slipped into some bad spending habits,and end the free money spending spree.You have an opportunity to learn something not taught in school.Do not have a crazy party and buy your friends anything. Recognize that your Aunt & Uncle did this for your security,your future,and do not disappoint them. Get advice from several unbiased financial folks.If you have debt pay it off,if you owe your parents pay them too.I am not privy to your parents’ financial health,so think about them if need be. Welcome to the adult world of decisions ,responsibilities,and taxes! Do your self and family proud and do your research,then make a choice and stick to it.In reality it is not a huge sum,but it can be. When you are 40 you will be most grateful. Good Luck!

  50. There’s a lot of talk here about “learn to save,” “learn how to change your ways with money,” “learn to set something aside,” “learn how to live within your means.” Nice and dandy, but in my experience, DOING something is very different from LEARNING to do it, and we’re not really doing anything different here than her parents did – “I won’t teach you how to get there, I’ll just toss you into the financial pool of adulthood and see if you swim. *calling out to thrashing child* Live within your means! Save some money! Bye!”

    That is assuming of course that her parents are even telling her the latter. :)

    The first, second, and third thoughts that came into my head were all the same: have a PRG! Don’t ask us, we don’t know what your situation or goals are, whether you have any debt or savings or any of that. Sit down with two people who have a pretty healthy relationship with money and talk to them. Get their help in making a spending plan that lets you live within your means, but in a healthy, fun, and abundant way. And in figuring out what all your options are with this money and in general.

    A PRG, by the way, is a Pressure Relief Group. It’s one of the tools that people use in Debtors Anonymous, which would also not be a bad idea. Or: it was a GREAT idea for me. My parents bailed me out of credit cards too, and didn’t teach me anything about how to manage my money (I think they tried, they just didn’t know how to explain the “how” of any of it), and so I spent money as fast as I got it, faster if I could. I didn’t know how to figure out what to spend on groceries, what to budget for groceries, what to budget for anything.

    I could pay my rent on time, but I couldn’t find any motivation to pay my bills on time, which put me in a total spiral as the bills would mount up, and then I’d get threats, and then I’d want to pay them but they would have piled up too high. I was underearning, too, because I didn’t know how much I reasonably needed to live on and I couldn’t imagine anyone wanting to give me more than like $10-$15 an hour. I was an expert at making just exactly enough to get by and creating crises to throw any smaller windfalls at – or, with bigger ones, just burning through them in bits and bobs without really noticing where it was all going. Hell, I inherited $10k one year and it was gone in a summer; some of that was to a deposit on my first apartment, some to live on for most of the summer, some god knows where, none to savings and none kept track of in any way.

    Happily, I eventually got into twelve-step programs and found DA… I won’t say I didn’t put off working the steps or using any of the tools of that program for a couple of years, but every little bit I did paid off hugely. Now I have a much healthier relationship with money; I’m in the process of being approved to buy a house; I am paying all my bills on time and it’s actually easy; I’m paying off debts and opening a Roth IRA; and I’m getting wacky little miracles as a result like getting to visit Salt Lake City for free this summer. Oh yeah, and I have a thriving small business that is two months old!

    If I were going to recommend a starting place for the 22-year-old who never learned how to manage money, has struggled with credit cards, and just got a windfall, that’d be it. Hell, it’s free. And they have some good questions and examples on their website that people can use to see if it would be helpful to them, like:

    * A tendency to live on the edge: Living paycheck to paycheck; taking risks with health and car insurance coverage; writing checks hoping money will appear to cover them.

    * Being unclear about your financial situation. Not knowing account balances, monthly expenses, loan interest rates, fees, fines, or contractual obligations
    .
    * Compulsive shopping: Being unable to pass up a “good deal”; making impulsive purchases; leaving price tags on clothes so they can be returned; not using items you’ve purchased.

    * Poor saving habits. Not planning for taxes, retirement or other not-recurring but predictable items, and then feeling surprised when they come due; a “live for today, don’t worry about tomorrow” attitude.”

    There’s that British saying, “take care of the pennies and the pounds will take care of themselves.” It’s been my experience that if I take care of all that underlying stuff, the dollars take care of themselves.

  51. she doesn’t sound like a trust fund baby at all. she just sounds like a 20-something female who needs to learn more about personal finance and money management. that should be her first step. read other sections of this blog through the “first time here?” link at the top. talk to the aunt and uncle for their advice and learn what they do with their personal finances. you took a good step in emailing this blog. now go read books, magazines, talk to trusted people, and ask about the lovely world of money. the world is relational and so is money! also hopefully you are grateful, but i just have to mention it. give thanks for you have a great sum of money that you didn’t do anything for!

  52. Hi all — I am the Christine the post is about. First off, thank you everyone for your comments. My original email to Ramit was a bit longer and more detailed, and I didn’t except it to become an open survey! Either way, all the advice is appreciated.

    It seems there is a lot of speculation that because I am a 22 year old female I am going to go and spend it… defintiely never my intentions. I had my fun with a credit card, realized that was a bad idea, and am working to clean that up. (And also cut that sucker up!)

    Spending any amount of this money is definitely not an interest of mine — any debt that I have acquired I am working to pay off, and not looking for an easy out through family money.

    I also realize, as many have pointed out, that this is not a “huge” amount of money. I’m not looking for this to carry me through the rest of my life. I love the career I have chosen, and am very independent (no sugar daddys here!) I am interested in what that money could be doing instead of just sitting there. I know that I am fortunuate to get this “headstart” and would like to turn it into something that later in life will work out very well for me.

    Thanks again for all the comments.

  53. I guess I should also add, that as some have speculated, I am not an out of control spend every penny person. I save money for things I want before I purchase them, I regularly contribute to savings — pretty much as much as a 22 year old still in college with on and off internships can do.

    The reason I said I never learned to manage money, was not becuase my parents were irresponsible. Quite the opposite — they are mortage free, no credit cards and paid for every penny of my education through their savings. They work very hard to give my brother and I a very comfortable, worry free lifestyle. I am forever greatful for this, and am looking forward to doing the same with my own children.

    I’m expecting comments about being spoiled, etc. and I’m alright with this — if parents have the opportunity to do this for their children, I think they should. I never would have had the opportunities I have enjoyed without my parents help. However, the downfall to this lifestyle is I never had to worry about living pay check to pay check or what was the best thing to do with my money. Savings accounts are about as far as I got!

    Anyway, just thought I would include this to give you all a better look at where I am coming from. I was feeling a little tension from people thinking I am a brainless girl. I am planning to speak to a financial advisor, but again I do appreciate your thoughts on getting the most out of this money in the long run. Thanks.

  54. Good comments. Thanks, Christine.

  55. Splitting the amount in half and putting both in an high interest savings account may be a good idea for you. Good Luck!

  56. First, thing you need to do is not make the mistake of blogging your situation. Anytime, you receive alot of money or just money in general, be careful of free advice. As you can see from the blogs, everybody has their own opinion, and not everybody know’s what they are talking about.

    Here is my insight. Shop around for a trusted lawyer who can set you up with an estate plan. Make sure you explain to the lawyer your situation. Then decide the best lawyer. Look up J Douglas Jennings to start with. Obviously ceck out other lawyers as well. From there, decide what you want to do.

    Look up the definition of an estate plan, therefore, I do not need to go on and on about this.

    Also, set-up a budget, and an emergency savings account. Be sure you have at least 3 to 6 months of your income or your expnses in the savings account. Sure, you can set one up with a nice interest rate. Go to http://www.bankrate.com or http://www.bestcashcow.com to check this out.

    I have a 10 step plan for people who need to understand money more, e-mail me and I will e-mail you the basic sheet. jrudd@howmoneyreallyworks.com

    I hope this helps you,
    J

  57. How about absolutely nothing (assuming the fund is invested properly)? Will be worth a ton of money in the future.

    Do this for two reasons:
    1. She admits she burns through cash. She should stay away until she learns how to manage money.
    2. Again, it will be worth a ton of money 20-30 years from now.

  58. Give it to me, I need to buy some jeans.

  59. I’m a little concerned with all of the comments that she should not touch the money at all. This is likely very unrealistic for her, and not a very motivating plan for her to follow. Money is a tool, and its use needs to be balanced. The problem is that most people go off the balance by spending it all. If we can create balance that allows for both fun and long-term savings then we can hit the sweet spot.

    Here are my thoughts:

    1. Give away 10-20% of it. But do this carefully. Research each giving option and think through each idea for at least a week before spending it.

    2. Pay off any outstanding debt. By getting out of debt you create freedom and increase your monthly cash flow

    3. Take 20% of what is left and have fun with it. – It doesn’t hurt to spend some money now. Think through how you want to use this money carefully because that is all you get for fun stuff!

    4. Save the rest – remember to save in two different ways. Save some of it for the long-term – retirement for example. Also save some for a down payment on a home. Make sure this money gains some good interest but is not locked up where you cannot get at it.

  60. Buy our school a new buildling, or at least a new weight room. The 200 pound senior boys treat gym class like its a trip to the dentist office.

  61. My advice would be to put the money in a “lazy portfolio” – like Yale endowment manager David Swensen’s example here:
    http://www.thekirkreport.com/2007/02/david_swensens_.html

  62. If you really don’t know what to do with it and you want to protect it from yourself for awhile I suggest opening up a short term CD. You can’t touch it, and its a solid savings vehicle. If you don’t want to actively invest, look into CD laddering and make sure you have a full emergency fund.

  63. Hi Christine,

    My suggestion would be the following:

    1. Close your credit card bill and also you pay up any other loans which has higher interest rate say more than 5%.

    2. Take some money for your expenses say 10k or something per year for next three years. I really don’t know how much is your expenses. Hence I suggested a random number. Try living frugally as much as possible.

    3. Split the money say 100k and put it in a Fixed deposit for 3 years and use the rest 40k for your expenses and investment. In the next 3 years, the money you had would be compounded and you will make more money. I really don’t know whether there is something called Fixed Deposit in US, over here in India it is there and it yields the highest interest rate. All that I want to convey is Move the funds to the highest interest paying account.

    I know it is very difficult to see the money lying around and you not spending it, but if you do come over it. I am sure you will be financially stable in couple of years. I have suggested based on my experience and I am just 24. :-)

    All the best with your funds! Enjoy Life!

    Saravanan

  64. I was incredibly shocked to see this post today. Precisely today. You see, I have been a somewhat shy reader of iwillteachyoutoberich.com, meaning that I read it every once in a while, because I have commitment issues, heheh. I’ve always thought that Ramit always makes a solid point about a lot of things, but have not been able to follow all of his finance advice, because financial instruments, and access to them where I live are quite different from those in the US and I don’t have a clue what an IRA is (other than “lads” with redhair and strong accents going boom boom or rat tat tat).

    Well, years ago, my grandfather gave us our “inheritance” while he was still alive (he died later on). Three relatives (who are a pain you know where) and I became owners of some coffee growing land here in a Latin American country. We could never agree on anything, two of them were chaotic in every aspect of their lives and eventually I said the hell with it, let them do whatever they want, I don’t care. Given the choices they had made in their lives up to that point, they were hoping the “finca” would take care of them, but without any agricultural experience or even a nice mindset about it, they failed one time after another, and oppossed every sane idea that would come up. I, on the other hand, had never been in touch with them growing up, so I focused on going to college and making a life on my own. I never thought I’d even inherit anything, so I didn’t plan my life around the “moment, when I’d get it”. Prior to receiving it, my relatives were like birds of prey flying around my grandfather.

    To make it short (er), today, my aunt told me that she had sold the infamous piece of land (she had our consent to do so). She wrote me a check for an amount similar to Christine’s, which given the circumstances, was a fair amount for never having to see my relative’s faces again. (Of course, that money, here is worth more. Not enough to Paris Hilton it all the way, but gets you a little more goodies than it would in the US ) I came home with a “what just happened?” feeling, not knowing what to do with it, and thought of e-mailing Ramit about some advice for a foreigner with little knowledge of American financial institutions, looking to replicate some of the advice on this site in another country. Also, before I came up with a stupid-fratboy idea that would ruin my grandfather’s “gift”. I thought there must be some cosmic thing involved when I saw this post’s title. It’s funny how the universe is wired.

    Anyway, comments here are great so far. I’m looking forward to the follow up post, and once again: great work Ramit. If you have some investing advice for foreigners (in other countries, not illegal aliens or members of an eighties band) I would be more than eager to hear it. Thanks a lot.

  65. My advice is not original, but rather stolen from the book: The Millionaire Next Door.

    Leave the money alone. Treat as if you do not have it. And do not start touching it unless you have settled into a lifestyle where you can live of the money you yourself make.
    That way when you finally touch the money it will no longer affect you and you can enjoy it for a longer time.

  66. Each person is different with many different habits, needs and skills. Michael Phelps and Tiger Woods need and use coaches. These people get paid to help the best get that way and stay that way. Free advice is worth what you pay for it. Find a financial advisor (not a stock or insurance jockey) you can trust and work with them to design a plan that works for you. Then when times get rough, they can help you stay focused on your goals.

  67. Not sure if anyone will respond to this thread but my situation is similar to Christine’s however I have come into a larger windfall of about 1.2 mil. I have some credit card debt and a mortgage but once if I pay it all off I will still have about 2/3 of the money left over. I am wondering how I should invest the money. Should I pay off all of my mortgage (5.7%) or only some of it and invest the rest? Any suggestions are welcome.

  68. I received a nearly identical amount recently as a result of a relative’s passing. FWIW, I’m late twenties with zero debt. I basically leave it entirely alone and view it as a way to avoid feeling so pressured to save for retirement. I can focus solely on saving for a house, car, etc.

    I have 50% of it invested in diversified mutual funds and 40% in money market funds. I slowly move it from the latter to the former to create dollar-cost-averaging during these recent crazy markets. I also have the final 10% in a few things I personally believe in, like an alternative energy ETF.

    Law of 72 says this amount may be ~$1.0MM to $1.5MM in 30 years. I pretty much ignore that the sum exists and go on enjoying the basic stuff in life and have told none of my friends about it (beyond very vague references to “retirement savings”).

  69. I am 39 years old and I am a trust fund baby. I most certainly don’t want to sound arrogant here but $140,000 isn’t alot of money these days and doesn’t even begin to be the kind of money that constitutes “trust fund baby” status. Since the age of fifteen, I have spent more than 2 million. I used much of my money for my college education and travel; I have also lived in almost every major US city, and now own two homes that are located on the coast of Florida and the NC mountains.
    In my opinion, you are no trust fund baby but I will give you some solid advice, based on my own experience. You must first acknowledge that this money was given to you so whatever you do, do not ever assume the position that you are “better” than others because you have assets. There are people out there who have to work very hard for their money and deserve respect (we trust funders haven’t earned a penny of our money). I say this because I once ran in circles with other trust funders who were sheer snobs and looked down their noses at others who weren’t as fortunate. I never grasped that mentality. Additonally, and equal in importance, be very careful when investing. My trust fund was set up at a very well known financial instituation that caters to the wealthy (or should I say that the wealthy caters to them in reality) when I was very young. I was thirty six years old before I recognized that I needed to stay on top on my assets and how sneaky “Financial Advisors” can be. Yes, I agree that you should invest long term (especially now with the bargain prices in the market) but educate yourself and trust NOONE until you have crossed all of your t’s and dotted your i’s. FAs will make you think that they are looking out for you but proceed with caution when interviewing someone to manage your money, if you aren’t financially savvy. With $140,000, you will probably end up at one of the smaller financial institutions- the ones who require only $100,000 for a managed portfolio. Still be careful because their goal is to make money for themselves at your expense, no matter what they tell you. Believe it…I have been in the market for more than twenty years and I know how the game works with these sharks. If you decide to invest with a firm, go with a fee based account as opposed to a commission based account; this way your account won’t be churned (as mine was for so long) and your broker will work harder to increase your portfolio value (your assets) because he/she will receive an annual fee based on the balance of the portfolio.
    I also caution you to be careful about telling people that you have any money; in fact, pretend that you don’t. Go out of your way to be modest and simple; this way, noone will try to take advantage of you.
    Being a trust fund baby can be a blessing but it can also be a curse. It can make you lazy, unproductive and very lonely inside, especially if you aren’t productive and rely on your hand out to get through life. Been there once too.
    Just be careful and proceed with caution. If you aren’t wise, you can lose $140,000 in only one year.

  70. If you don’t have a good track record when it comes to saving/spending money, I suggest contacting a Financial Planner and threshing out a plan where you can spend some money to invest in yourself (travel, continued education, etc) and to invest most of it towards your future retirement or other long term plans.

    I’ve discovered that money I don’t see, is money I don’t spend so if you’re the same, this may be the best way for you to build a nest egg.

  71. Do some good with it, give it away, start an NGO or invest in a way that keeps it out of your own hands.

  72. Hi Lena. There’s not enough information to give you decent advice, except that your mortgage interest rate is pretty low. I would set up a separate house fund that will allow you to pay off the house slowly. Doing so will not only allow you to take advantage of the low interest rate, but also take the tax deduction on your house, as well as build your credit. And if you do your homework, you can also find investments that will not only earn interest, but even grow the fund as well.

    You may also want to make the house fund big enough to also pay for the house’s expenses in near perpetuity.

    Great story, Mary! Very good advice too. Thanks for sharing!

  73. Las vegas baby!

  74. Thank you ekrabs the idea of a house fund sounds sensible.

  75. Hi,

    Sounds like you got lucky. Yes, yes, $140k isn’t much more than a couple years’ salary, but it’s still a windfall that should not be considered minor.

    Have you considered furthering your education? Getting an MBA, or a masters in something else? Most people have to take loans out for that sort of thing, but, with the money you have now, you can invest in yourself, and possibly get the chance to be doing something in your career that you never thought possible. I’m looking at business school now and you almost need an inheritance just to apply!

    Good luck!
    Sean

  76. i too am not very good with money. but the first thing is – - i wouldn’t tell a soul about it.
    i would take some time learning about property prices and find an old residential area that is either very close to a good area (because the wealthy are will ensure that the slightly cheaper area doesn’t degrade tooo quickly, but often they make a plan to uplift tha bordering lower class areas – therby increasing the prices and value of their own properties aswell) or if the property price will allow; in a good area which is close to town. i would try find a 1 level (facebrick – cos u wont need to paint the outside) property with 1 but hopefully 2 bedrooms a small enclosed garden and a garage or safe parking area.
    the property that i would look to invest in would cost no more (inclusive of transfer and bond registrations) than 4/5th’s of the money. then i’de paint it and rent it out to a responsible young couple/ married parents with a child / elderly (single level allows for more option – old/sickly people try stay away from houses with stairs, so do people with young children)
    i would open an account for the property and all rent will be paid into the account. the spare money is to be place into the account aswell for things like a burts geyser, or new shower head or other things that might be requested or needed by your tennant.

    i would allow the money to increase. Every year i would check what repairs need done and what trouble could possibly be avoided with a bit of attention or early care and i would take any left over money (keeping the ‘buffer ammount’ in the account) and pay of a lump sum on the bond. by doing this you would lower you interest and years of payment drastically – i would aim to pay the property off within 5-7 years.

    when the bond is almost paid up – i would consider if there are better rates available at the time otherwise i would take a loan on the almost paid off house to fund the next property and do the same.

    short – medium – long term

    although there are some people that have said buy a car – keep in mind that a car costs you money – it doesn’t make you money. but if you still want to do it – look at a secondhand small, fuel efficient car and check that the parts are redily available and relatively inexpensive. ie: it’ll probably have to be an older model.

    hope this helps. trust yourself – you will make the right decision for your future – i know this because you had the sense to ask this question instead of just going ahead and gambling on an uninformed whim.

  77. Christine,

    I think it’s great that you are seeking advice about what you should do with your potential ‘trust fund’. Like everyone here I have a couple of suggestions. However, as an experienced financial advisor my perspective is a little different.

    1. Get professional advice. Blogs and friends are great, but as you can tell, everyone has an opinion and not all of them are correct.
    2. I recommend you go to the Certified Financial Planner (CFP) Board of Standards website (cfp.net) and do a search for a local CFP. The CFP designation is the premier designation in the industry and I would look for someone who had it. Depending on where you live you are likely to get more than a few people on the list.
    3. Interview the CFP. Here are some questions to ask. What are your credentials? How long have you been in practice? If I were to become a client, what type of service would you give?

    Once you pick a CFP and begin working with them they will be able to help you through this process. They can provide financial planning, many of them can help you invest the money, and they can generally act as the quarterback of your finance team-coordinating estate planning, accounting and other things you may need.

    I hope this helps.

  78. [...] at I Will Teach You To Be Rich and Free Money Finance have recently described two such situations here and [...]

  79. Too much advice here if you really want to know how money really works e-mail me I have an e-book titled Getting a Financial Education In 7 Days or Less. This will hopefully help you understand How money really works.

    This book is awesome, it weeds through alot of the unnecessary information about money and gets right to the point. I wil e-mail you this book for free until Sept 30th. Otherwise it is $14.95.

    Here is my e-mail jrudd@howmoneyreallyworks.com

  80. Diego Gonzalez Link to this comment

    I would take the money all out of the bank, and go on a shopping spree all over Europe with it. Buy a Cartier watch, Bulgari jewelry, Tiffany DIamonds, Hermes scarves, then fly on a prIvate jet back to the states, and wear all you fancy clothes to a cocktail party to impress all your friends. Splurge on Champagne, fine wine, go to the spa, and live your life to the fullest. Wake up and wear expensive perfume, and Prada shoes, with couture quality clothes such as Yves Saint Laurent. Then and only then are you a REAL trust fund baby. Hope you have fun!

  81. Nope, not a chance of it. A “REAL” trust fund baby doesn’t take their money OUT of the bank because trust funds are rarely established at a bank; they are set up at a financial institution and invested in stocks, bonds, etc.
    Trust fund babies don’t pull their money out of the bank and go on shopping sprees…. they live on the interest from their initial trust fund and don’t go out and spend money erratically on labels. Anyone who knows the real trust fund world knows that most trust funds are the result of “old money” and not something for the nouveau riche. Why? Well, because old money people and new people are very different in that the latter of the two spend spend spend to impress people because they never had money and want to show it off. Old money people and children with trust funds don’t have to show it off because they are generally very confident and so over the whole illusion of portraying a wealthy lifestyle.

  82. Diego Gonzalez Frausto Link to this comment

    I know that. DUH. It was simply satire for what the noveau riche would do with an unexpected inheritance. First off, 140,000 is not considered what I would call “trust fund material”. For those of us who actually have a real trust fund, we don’t wish to let people know our net worth, because this is seem as bragging and people always assume you are lazy and never lifted a finger. Also we tend to be very discreet with our spending habits. Yes we do buy expensive things, but because we know quality, and not because we wish to impress. That is why I HATE over the top logos emblazoned on clothing, it’s why my mother won’t wear Dior anymore, because its only the new money Russians that that will buy this when in Paris. Anyways now that we have established that this 22 year old is NOT a trust fund baby. I would advise her to diversify, but take some risk. Someone that is a trust fund baby, will want their money very safe, and have a lower level of risk, because they are very rich already and their goal is to protect what they have. Hence most of my money is in bonds, stocks, and very stable companies. But trust me, when my grandfather had a small unexpected inheritance he risked it all, and now heads a multinational corporation. This is what Bill Gates did, what Steve Jobs did, what the founder of L’oreal did. They risked it all, and became wealthy. So different advice to you, If you have an idea then risk it. What’s the worst that can happen? You lose it all, then you are just where you started, big deal? Right?
    Anyways good luck!

  83. Pay off all of your debts, buy a home with a rental property that will offset the expenses of the house then DON’T TOUCH IT!

  84. Give it away. To a relative, to charity.

    Earn your way to $140K.

  85. Honestly, I am your age and finishing up college too and drowning in credit card debt. However, my mistakes I won’t ask people to bail me out I will pay them off. If I were you I would put that money into a CD they come in various amount and for various time periods. For example if you put some money into a 6 month CD you cannot touch that money for 6 months. If you do want the money back you only get what you paid and i think the interest it has already made. If you keep the money there for 6 months then it wil earn more money. Talk to someone at a reputable bank and also ask how much money is protected by federal law and put that much into either a CD or a savings account that will give you more money back as interest grows. That’s my advice and good luck. Don’t just blow it. That much money is a gift. Cherish it and do as much as you can with it.

  86. Gold is always a good way to preserve wealth. Keep enough cash on hand for medical and emergency expenses.

    As for some of it, redistribute the money in the education system to help give someone in an underpriveledged school district the tools she or he needs to come out with the brain power to contribute to society. The more people who drag on society the worse all of our lives are. If the masses are more educated and more prosperous, we are all better off.

  87. Hey, $140K is not *that* much and it certainly doesn’t qualify you as a “trust fund baby”. My advice is to splurge it all on a new car, maybe a used Aston Martin DB9, or a new, top-of-the line Mercedes. Just spend it and enjoy being young!

  88. alright, first of all 140k is not alot of money for a trust-fund, I know people, myself included, that will get over 2 million when they turn 21. save this for a nice car, or some cushion in this recession if you can’t find a job

  89. These days, in view of the decline in the market, 140k could potentially grow into a much much larger figure if invested wisely. I will once again caution you, however, to be very selective about the financial advice you obtain about investing. I’ve been in the crazy trust fund world since the age of fifteen (my mother was my trustee til I was 25) and it took me a very long while to recognize the ridiculous amounts of money Merrill Lynch and others were making off of my “trust fund.” There is one thing to remember, whether you have 20 million + or $140,000, or even $10,000. Knowledge is power… and trust no one but yourself.

  90. Travel through Europe and Latin America. Be generous and self-actualize!