I am a financial idiot. Help me be less of a financial idiot.
March 31, 2019 11:03 AM Subscribe
I've never had enough money to cover my basic expenses before in my adult life. My father passed away about a year and a half ago and left me a chunk of money - not a hideously huge amount, but exponentially more than I've ever had in my life. I am utterly lost about what to do next that's best for my own financial situation, and I am sufficiently lost enough that I'm not even sure a financial advisor is right for me. Help me figure out my next steps?
I've been a student since I've been and adult - undergrad, grad school, now perpetual grad school while being an adjunct professor. All of this means I have never had enough money to cover basic expenses, so I've never been able to do anything more than pay off my perpetual credit card debt and otherwise ignore said debt to minimize my anxiety. But now I have money in various places and I'm completely befuddled about how to manage it appropriately.
I am now the owner of 4 stocks (which are total crap and I'm trying to sell them, but they're all low so I am sitting on them - I'm content for this to be a long-term thing, considering the volatility of the stock market. The stocks are the least of my concerns for these reasons), a money market account with Vanguard, a Traditional IRA which is earning virtually no money (this obviously has to move, but to where?), a savings account earning nearly 2% APY, and two checking accounts. The very thought of all of this gives me agita, but logically I also know none of this money is working nearly as hard for me as it should be. I just don't know what to do.
My main goal is to earn enough passive income to supplement my really horribly low adunct pay. Before the inheritance I was on food stamps and am still on Medicaid - that's how low it is. Any improvement will help, but I also desperately don't want to burn through this money - I want it to take care of me for as long as possible.
I've had people tell me a financial advisor is "too expensive." In what I've been able to learn, I cannot for the life of me figure out what a financial advisor might cost, nor do I feel like I even know enough to ask the right questions and be sure I am getting the best advice for me.
Where should I go next? I'd love to get educated on this but I have little time (cf. that I'm a dissertating grad student & professor) and my head is NOT economic in any way, shape, or form. I'm a person who learns by doing, not by reading - and that scares me when it comes to money.
Help?
I've been a student since I've been and adult - undergrad, grad school, now perpetual grad school while being an adjunct professor. All of this means I have never had enough money to cover basic expenses, so I've never been able to do anything more than pay off my perpetual credit card debt and otherwise ignore said debt to minimize my anxiety. But now I have money in various places and I'm completely befuddled about how to manage it appropriately.
I am now the owner of 4 stocks (which are total crap and I'm trying to sell them, but they're all low so I am sitting on them - I'm content for this to be a long-term thing, considering the volatility of the stock market. The stocks are the least of my concerns for these reasons), a money market account with Vanguard, a Traditional IRA which is earning virtually no money (this obviously has to move, but to where?), a savings account earning nearly 2% APY, and two checking accounts. The very thought of all of this gives me agita, but logically I also know none of this money is working nearly as hard for me as it should be. I just don't know what to do.
My main goal is to earn enough passive income to supplement my really horribly low adunct pay. Before the inheritance I was on food stamps and am still on Medicaid - that's how low it is. Any improvement will help, but I also desperately don't want to burn through this money - I want it to take care of me for as long as possible.
I've had people tell me a financial advisor is "too expensive." In what I've been able to learn, I cannot for the life of me figure out what a financial advisor might cost, nor do I feel like I even know enough to ask the right questions and be sure I am getting the best advice for me.
Where should I go next? I'd love to get educated on this but I have little time (cf. that I'm a dissertating grad student & professor) and my head is NOT economic in any way, shape, or form. I'm a person who learns by doing, not by reading - and that scares me when it comes to money.
Help?
Could you give any indication how much this is and how it compares to your debt? That’ll have bearing on what people will tell you.
posted by koahiatamadl at 11:14 AM on March 31, 2019
posted by koahiatamadl at 11:14 AM on March 31, 2019
Response by poster: Fair point, koahiatamadl! My current cc debt is less than 10% of what I have in the estate checking account, which is maybe.... 55% of the total estate? 65%?
(Frankly, I could pay off the CC debt right now but it's a psychological thing - I struggle mightily with paying my credit cards off because of the "omg what if I need the cash later" panic that still grips me from back when I was deeply financially insecure. I get that it's totally illogical; I'm working on it.)
posted by AthenaPolias at 11:19 AM on March 31, 2019
(Frankly, I could pay off the CC debt right now but it's a psychological thing - I struggle mightily with paying my credit cards off because of the "omg what if I need the cash later" panic that still grips me from back when I was deeply financially insecure. I get that it's totally illogical; I'm working on it.)
posted by AthenaPolias at 11:19 AM on March 31, 2019
Sorry for your loss. I've managed some money offshoots from dead parents over the past decades and have some advice.
1. is everything free and clear and yours now (i.e. is the estate settled) and are you on top of your taxes?
2. Speaking of taxes, there are tax implications to selling stocks so make sure you're aware of that. If you sell stocks and make money, that's, generally speaking, income you need to pay taxes on. Rule of thumb is 15%
3. How old are you (you don't have to tell me but just for your own ideas)? If the IRA you own was your parent's and they were already taking distributions from it, you will also have to take distributions. There are also tax implications for taking money out of an IRA that are a little more complicated so worth talking to someone (could be a friendly banker or person at the place that holds the IRA)
4. If you're on Medicaid, your new situation might affect that, check in with someone.
5. Do you have debt now? Rule of thumb is pay that off before doing anything else because the lack of debt service fees is likely a bigger deal than your small interest rates. I know it's tough but pay off the debt.
Passive income is pretty tricky unless you're working with really a lot of money. For example, a million dollars making about five percent (which is what people tell you that you can rely on 4-5% and even that is not a sure thing) is only 50K. Which isn't nothing, but that's if you have a million dollars. Generally speaking the best thing to do with money you want to last is invest it prudently, stay on top of taxes, pay down debt (and don't incur more) and wait.
So if you like learning by doing I usually suggest to people to get a Mint.com account (free) and use it as a dashboard where you can view all your money. You may be able to call a person at the company where the IRA is held (a company like Vanguard or Fidelity maybe?) and tell them "Hey my dad was XX years old, I am YY years old, is this investment sensible for my needs?" and they can answer some basic questions for free. The "Do I need a money person?" is a question that, again, hinges ton whether this is low six or high seven figures. The former, no. The latter, probably. There are good AskMe threads about finding a fee-only finance person that are pretty good.
It's okay not to know things, obviously, but I'd be careful about knowing only parts of this. Like having sort of a plan for stock-selling but also wanting passive income. Also if half the estate is in a checking account, it might make sense to lock up MORE of that money, not less. I know that money agita is real and I feel you there. It's also worth dealing with that on its own (talking to a friend or a counselor) and not having it take over your money decisions.
posted by jessamyn at 11:24 AM on March 31, 2019 [7 favorites]
1. is everything free and clear and yours now (i.e. is the estate settled) and are you on top of your taxes?
2. Speaking of taxes, there are tax implications to selling stocks so make sure you're aware of that. If you sell stocks and make money, that's, generally speaking, income you need to pay taxes on. Rule of thumb is 15%
3. How old are you (you don't have to tell me but just for your own ideas)? If the IRA you own was your parent's and they were already taking distributions from it, you will also have to take distributions. There are also tax implications for taking money out of an IRA that are a little more complicated so worth talking to someone (could be a friendly banker or person at the place that holds the IRA)
4. If you're on Medicaid, your new situation might affect that, check in with someone.
5. Do you have debt now? Rule of thumb is pay that off before doing anything else because the lack of debt service fees is likely a bigger deal than your small interest rates. I know it's tough but pay off the debt.
Passive income is pretty tricky unless you're working with really a lot of money. For example, a million dollars making about five percent (which is what people tell you that you can rely on 4-5% and even that is not a sure thing) is only 50K. Which isn't nothing, but that's if you have a million dollars. Generally speaking the best thing to do with money you want to last is invest it prudently, stay on top of taxes, pay down debt (and don't incur more) and wait.
So if you like learning by doing I usually suggest to people to get a Mint.com account (free) and use it as a dashboard where you can view all your money. You may be able to call a person at the company where the IRA is held (a company like Vanguard or Fidelity maybe?) and tell them "Hey my dad was XX years old, I am YY years old, is this investment sensible for my needs?" and they can answer some basic questions for free. The "Do I need a money person?" is a question that, again, hinges ton whether this is low six or high seven figures. The former, no. The latter, probably. There are good AskMe threads about finding a fee-only finance person that are pretty good.
It's okay not to know things, obviously, but I'd be careful about knowing only parts of this. Like having sort of a plan for stock-selling but also wanting passive income. Also if half the estate is in a checking account, it might make sense to lock up MORE of that money, not less. I know that money agita is real and I feel you there. It's also worth dealing with that on its own (talking to a friend or a counselor) and not having it take over your money decisions.
posted by jessamyn at 11:24 AM on March 31, 2019 [7 favorites]
You can reasonably think of credit card debt (and all debt) as being like a negative investment. So, if you have a 20% annual interest rate, and you pay it off, it's somewhat equivalent to investing that money with a guaranteed 20% annual return. That's a ludicrously good deal, far better than any investment you could actually make. That's why you probably want to pay your debt off first.
posted by vogon_poet at 11:30 AM on March 31, 2019 [18 favorites]
posted by vogon_poet at 11:30 AM on March 31, 2019 [18 favorites]
I'm sorry for your loss. Would you feel comfortable posting some rough numbers? I think it'd be a lot easier to advise if you did.
posted by praemunire at 11:37 AM on March 31, 2019
posted by praemunire at 11:37 AM on March 31, 2019
Pay off the credit card debt, then establish an emergency cash reserve in a high interest paying savings account. DO NOT TOUCH THIS MONEY except in case of calamity. This money should be enough to keep you pay living expenses and possibly buy a cheap replacement car in case of an accident. After you have debt and emergency fund covered, then you can try to have actual financial goals.
Unless you are talking about >$100k+ of capital, a financial advisor is probably a waste of money. As jessamyn mentions, substantial passive income is pretty tricky unless you have a ton of cash.
If you are on food stamps, you should not be investing in high volatility assests such as individual stocks.
Also, if you're an academic, look at this as a chance to learn about a new topic, there are a million reasonable personal finance books out there that are less than 100 pages and cover the basic rules (I read this one back in the day). At your income level you don't need an exotic guide to investing.
posted by benzenedream at 11:39 AM on March 31, 2019 [2 favorites]
Unless you are talking about >$100k+ of capital, a financial advisor is probably a waste of money. As jessamyn mentions, substantial passive income is pretty tricky unless you have a ton of cash.
If you are on food stamps, you should not be investing in high volatility assests such as individual stocks.
Also, if you're an academic, look at this as a chance to learn about a new topic, there are a million reasonable personal finance books out there that are less than 100 pages and cover the basic rules (I read this one back in the day). At your income level you don't need an exotic guide to investing.
posted by benzenedream at 11:39 AM on March 31, 2019 [2 favorites]
Unless you are talking about >$100k+ of capital, a financial advisor is probably a waste of money.
Honestly, on an ongoing basis, we're talking more like $1mil, maybe even $5mil. I have retirement savings of more than $100K and I can't imagine a financial advisor actually being worth the cost, especially when you factor in the attention cost (having to research and decide on options being presented to me). My retired mother has roughly the same as me and I refused to hire her a financial advisor when she retired. I "manage her money," which consisted in the past of (a) discussing her budget with her and (b) selling all the crappy overpriced funds "her guy" sold her for the 5.75% kickback, I mean front-end fee, and a few other wholly unsuitable "investments," and putting all the money except an emergency fund into two Vanguard funds, from which I now once a year punch a button that sends the required minimum distribution to her bank account.
posted by praemunire at 12:12 PM on March 31, 2019 [6 favorites]
Honestly, on an ongoing basis, we're talking more like $1mil, maybe even $5mil. I have retirement savings of more than $100K and I can't imagine a financial advisor actually being worth the cost, especially when you factor in the attention cost (having to research and decide on options being presented to me). My retired mother has roughly the same as me and I refused to hire her a financial advisor when she retired. I "manage her money," which consisted in the past of (a) discussing her budget with her and (b) selling all the crappy overpriced funds "her guy" sold her for the 5.75% kickback, I mean front-end fee, and a few other wholly unsuitable "investments," and putting all the money except an emergency fund into two Vanguard funds, from which I now once a year punch a button that sends the required minimum distribution to her bank account.
posted by praemunire at 12:12 PM on March 31, 2019 [6 favorites]
Dave Ramsey podcast and his website was really helpful In teaching me the very basics when I was totally clueless about money. He explained things in a way I understood them. And from there I was able to get a handle on what questions to ask a financial advisor. (He does get religious at times, but I was able to overlook that since his info was so helpful to me.)
posted by ilovewinter at 12:14 PM on March 31, 2019 [3 favorites]
posted by ilovewinter at 12:14 PM on March 31, 2019 [3 favorites]
Nthing the advice to pay off the debt first - especially if it's less than 10% of the cash! That's a no-brainer.
I'd also repeat the suggestion to keep a nice big chunk as emergency money that you don't touch or invest. Typical advice is 6 months of earnings, but I'm personally more comfortable with 1 year of earnings.
I struggle mightily with paying my credit cards off because of the "omg what if I need the cash later" panic that still grips me from back when I was deeply financially insecure.
The biggest impact of having a year's worth of savings that you don't touch is being able to let go of this panic. It's a sanity saver.
posted by clawsoon at 12:29 PM on March 31, 2019 [3 favorites]
I'd also repeat the suggestion to keep a nice big chunk as emergency money that you don't touch or invest. Typical advice is 6 months of earnings, but I'm personally more comfortable with 1 year of earnings.
I struggle mightily with paying my credit cards off because of the "omg what if I need the cash later" panic that still grips me from back when I was deeply financially insecure.
The biggest impact of having a year's worth of savings that you don't touch is being able to let go of this panic. It's a sanity saver.
posted by clawsoon at 12:29 PM on March 31, 2019 [3 favorites]
I've had people tell me a financial advisor is "too expensive." In what I've been able to learn, I cannot for the life of me figure out what a financial advisor might cost, nor do I feel like I even know enough to ask the right questions and be sure I am getting the best advice for me.
You probably don't need a financial advisor long-term, on an ongoing basis, but I can tell you: I know someone who had to learn financial stuff quickly, after largely avoiding it for a lifetime, and having a fee-based financial person really helped her understand things and feel a lot more comfortable and confident with her own choices and actions.
You could check out the Garrett Planning Network (recommended by a lot of people who understand the benefits of fee-only financial advisors) and see who's in your area, then call them up and ask their hourly rate and maybe give them a quick description of your situation and ask them: if I paid for x hours of your time, what would you do for me?
Finally, I'm surprised no one has yet recommended bogleheads.org, a great resource and a favorite here on AskMe. They have an outstanding forum and an extensive wiki. The replies in the forums tend to be very helpful and supportive. I would actually suggest creating an account there and asking this same question over there. I think you'd get some thoughtful and helpful answers.
Good luck!
posted by kristi at 12:45 PM on March 31, 2019 [3 favorites]
You probably don't need a financial advisor long-term, on an ongoing basis, but I can tell you: I know someone who had to learn financial stuff quickly, after largely avoiding it for a lifetime, and having a fee-based financial person really helped her understand things and feel a lot more comfortable and confident with her own choices and actions.
You could check out the Garrett Planning Network (recommended by a lot of people who understand the benefits of fee-only financial advisors) and see who's in your area, then call them up and ask their hourly rate and maybe give them a quick description of your situation and ask them: if I paid for x hours of your time, what would you do for me?
Finally, I'm surprised no one has yet recommended bogleheads.org, a great resource and a favorite here on AskMe. They have an outstanding forum and an extensive wiki. The replies in the forums tend to be very helpful and supportive. I would actually suggest creating an account there and asking this same question over there. I think you'd get some thoughtful and helpful answers.
Good luck!
posted by kristi at 12:45 PM on March 31, 2019 [3 favorites]
We recently started working with a financial advisor and I think that it was a fantastic investment. It was ~$400 and helped us figure out better allocations within our retirement savings plans and better places to put our money than either investments or in a bank account. It might be worth doing to plot out your short and medium term goals.
posted by k8t at 12:49 PM on March 31, 2019
posted by k8t at 12:49 PM on March 31, 2019
Before you figure out what to do with the money, get most of it in one place.
1. Transfer the ira to vanguard ira.
2. Transfer the stocks to vanguard money market account
These companies are used to this. They'll tell you how to do it. It might be a question of opening new vanguard accounts in your name.
Remember to always ask if you will be receiving a tax document. Also you want to transfer entire stocks and bonds, not sell first then transfer. If you sell you will pay taxes.
Now all your money is viewable on one Vanguard page and will be sorted into retirement and brokerage (non retirement accounts).
Transfer and combine. Do the same for your checking and savings accounts. If you like your bank put it all there. Dont worry about apy right now, just choose good accounts that dont charge fees.
Contribute to your Roth ira for 2018 before April 15. Also make your 2019 Roth contribution. This will be another vanguard account. Just do it. Dont over think it.
Pay your credit card bill.
Pay your taxes.
You are done for 2019.
posted by perdhapley at 12:51 PM on March 31, 2019 [5 favorites]
1. Transfer the ira to vanguard ira.
2. Transfer the stocks to vanguard money market account
These companies are used to this. They'll tell you how to do it. It might be a question of opening new vanguard accounts in your name.
Remember to always ask if you will be receiving a tax document. Also you want to transfer entire stocks and bonds, not sell first then transfer. If you sell you will pay taxes.
Now all your money is viewable on one Vanguard page and will be sorted into retirement and brokerage (non retirement accounts).
Transfer and combine. Do the same for your checking and savings accounts. If you like your bank put it all there. Dont worry about apy right now, just choose good accounts that dont charge fees.
Contribute to your Roth ira for 2018 before April 15. Also make your 2019 Roth contribution. This will be another vanguard account. Just do it. Dont over think it.
Pay your credit card bill.
Pay your taxes.
You are done for 2019.
posted by perdhapley at 12:51 PM on March 31, 2019 [5 favorites]
3. Once your money is all vanguard, invest it in appropriate funds.
This was the biggest hole I saw in your original post. You can't expect any return in your accounts, like your IRA, if the money is not in a fund like the total-market fund or a target-date fund. If it's literally in a money market fund, it is not invested.
If you're comfortable adding details in order to get more specific advice, either do so here or at bogleheads.org. At bogles, in the US investment forum, you will find a post that tells you how to make a 'this is my situation, please advise' post. Going through the exercise of creating that post is super educational.
posted by Dashy at 2:42 PM on March 31, 2019 [2 favorites]
This was the biggest hole I saw in your original post. You can't expect any return in your accounts, like your IRA, if the money is not in a fund like the total-market fund or a target-date fund. If it's literally in a money market fund, it is not invested.
If you're comfortable adding details in order to get more specific advice, either do so here or at bogleheads.org. At bogles, in the US investment forum, you will find a post that tells you how to make a 'this is my situation, please advise' post. Going through the exercise of creating that post is super educational.
posted by Dashy at 2:42 PM on March 31, 2019 [2 favorites]
Also, Jessamyn et al. are right. Kill the debt, with prejudice.
posted by Dashy at 2:44 PM on March 31, 2019 [1 favorite]
posted by Dashy at 2:44 PM on March 31, 2019 [1 favorite]
I am also a big fan of Vanguard. You can transfer all of your accounts there - call them and they will tell you what to do. Keep a reasonable buffer (the most you are likely to need to come with on short notice) and put the rest of your cash/money market funds in a Vanguard money market fund for now. You can link your bank account and Vanguard account and transfer money between them on-line with the lag of just a day or two.
Go ahead and pay off your credit card debt. (Assuming the credit card bills are not a huge % of your inheritance.) Say you have $10k in credit card debt at 15%. If you invest the $10k and it earns 5% after taxes (which is not guaranteed by any means), you have only earned $500 towards paying off the bills and have to find the other $1000 somewhere else. If you "invest" the $10k in paying off your cards, you immediately free up a guaranteed $1500 so you can spend or save the funds that you have otherwise used for your cards. Plus you can always run up the cards again later if you need to.
One solid do-it-yourself option is to put all the money that you think of as your inheritance into the Vanguard Managed Payout Fund. This will be invested in a way that is designed to produce a relatively level payout to you over the years. Have the money that is being paid out go into your money market fund. Don't withdraw anything extra, except for the payouts. It's like an endowment fund - you keep the original balance there to make sure it will keep earning. It probably won't keep up with inflation but by that point your own earning should have risen enough to balance things out. If you accumulate extra money as you earn more, instead of adding to the Payout Fund, you can start to invest that part in some more long term growth options. So you get the benefit of relatively safe, diversified investment in an optimal mix of stocks and bonds and managed by smart people at a very low cost. And you aren't tying up the money - if you really need it, you can just withdraw it at any time.
posted by metahawk at 2:47 PM on March 31, 2019 [2 favorites]
Go ahead and pay off your credit card debt. (Assuming the credit card bills are not a huge % of your inheritance.) Say you have $10k in credit card debt at 15%. If you invest the $10k and it earns 5% after taxes (which is not guaranteed by any means), you have only earned $500 towards paying off the bills and have to find the other $1000 somewhere else. If you "invest" the $10k in paying off your cards, you immediately free up a guaranteed $1500 so you can spend or save the funds that you have otherwise used for your cards. Plus you can always run up the cards again later if you need to.
One solid do-it-yourself option is to put all the money that you think of as your inheritance into the Vanguard Managed Payout Fund. This will be invested in a way that is designed to produce a relatively level payout to you over the years. Have the money that is being paid out go into your money market fund. Don't withdraw anything extra, except for the payouts. It's like an endowment fund - you keep the original balance there to make sure it will keep earning. It probably won't keep up with inflation but by that point your own earning should have risen enough to balance things out. If you accumulate extra money as you earn more, instead of adding to the Payout Fund, you can start to invest that part in some more long term growth options. So you get the benefit of relatively safe, diversified investment in an optimal mix of stocks and bonds and managed by smart people at a very low cost. And you aren't tying up the money - if you really need it, you can just withdraw it at any time.
posted by metahawk at 2:47 PM on March 31, 2019 [2 favorites]
Also, do you know what the cost basis is for your stocks? If you bought them yourself, it is what you paid for them (including brokers fees). If you inherited them, it is their market value at the time you inherited them. In either case, if that number is MORE than the current value, you have a loss. If you sell them now, you can use the loss of offset income and reduce your taxes. Plus you would free up the cash to include with your other investments as you move forward.
posted by metahawk at 2:52 PM on March 31, 2019
posted by metahawk at 2:52 PM on March 31, 2019
Frankly, do the following:
1/ pay off the debt. Do that immediately because your debt is probably costing you money every single day
2/ put the recommended amount of X months living expenses into a savings account
=> everything else you can think of as money you can invest. What are your financial goals, e.g. retirement savings, a deposit etc. That will determine your investment needs and strategies.
3/ take a few weeks/months to learn about personal financial planning and investments. Whilst you do that, the money can stay where it is.
This stuff isn’t rocket science. But the debt will cost you money so take care of that. And as you’re worried about emergency cash take care of that as well. Everything else can wait until you’re more comfortable with the topic.
posted by koahiatamadl at 3:25 PM on March 31, 2019 [4 favorites]
1/ pay off the debt. Do that immediately because your debt is probably costing you money every single day
2/ put the recommended amount of X months living expenses into a savings account
=> everything else you can think of as money you can invest. What are your financial goals, e.g. retirement savings, a deposit etc. That will determine your investment needs and strategies.
3/ take a few weeks/months to learn about personal financial planning and investments. Whilst you do that, the money can stay where it is.
This stuff isn’t rocket science. But the debt will cost you money so take care of that. And as you’re worried about emergency cash take care of that as well. Everything else can wait until you’re more comfortable with the topic.
posted by koahiatamadl at 3:25 PM on March 31, 2019 [4 favorites]
I credit the app You Need a Budget for shifting my money mindset. I've used it now for a few years and it really forced me to be much more disciplined about my spending. This would be a great time to start on it.
Even if you chose not to use the app the philosophy behind it is worth a read.
posted by bowline at 3:49 PM on March 31, 2019 [1 favorite]
Even if you chose not to use the app the philosophy behind it is worth a read.
posted by bowline at 3:49 PM on March 31, 2019 [1 favorite]
Also, if you haven't been able to pay your bills as an adjunct one of the first things a financial counselor may ask is why are you continuing in this career. If you have been essentially losing money on this career for your whole life the money from this inheritance will disappear quickly. Since you are evaluating your financial situation it might be a good time to also re-evaluate your career options.
posted by benzenedream at 3:58 PM on March 31, 2019
posted by benzenedream at 3:58 PM on March 31, 2019
A person who has zero retirement savings can't afford to keep a year's expenses in the liquid form needed to constitute an emergency fund unless they have inherited enough cash to completely catch themselves up. That money won't be earning anything after inflation. That's one of the reasons I'm asking for a bit more detail.
Paying off the debt, as many have suggested, is almost certainly the right thing to do, though, unless it leaves you with basically nothing.
posted by praemunire at 5:53 PM on March 31, 2019
Paying off the debt, as many have suggested, is almost certainly the right thing to do, though, unless it leaves you with basically nothing.
posted by praemunire at 5:53 PM on March 31, 2019
Response by poster: For those asking for figures, the cc debt is in the very low 5 figures and the cash in the estate is in the low 6 figures. I can pay off the cc debt, and you're all absolutely right that I need to do that before anything else. Pep talk taken and accepted, that's my next step. I appreciate all of the links to sites, blogs, and books; that's my second step (as it does seem a financial advisor is superfluous at my level). Keep them coming if you have more!
benzenedream, I'm a graduate student *and* an adjunct; I am not an adjunct as a permanent career choice and am perfectly capable of realizing what is and is not gainful employment once I have completed my doctorate. This wasn't the question.
posted by AthenaPolias at 7:15 PM on March 31, 2019 [1 favorite]
benzenedream, I'm a graduate student *and* an adjunct; I am not an adjunct as a permanent career choice and am perfectly capable of realizing what is and is not gainful employment once I have completed my doctorate. This wasn't the question.
posted by AthenaPolias at 7:15 PM on March 31, 2019 [1 favorite]
At age 46, I recently started working with a financial coach, and I like it so far. It seems more geared toward people who don't have big financial portfolios, i.e. the typical clientele of financial planners. It's part practical (learning YNAB), part accountability, part dealing with the weird psychology of money. Maybe that might be a good match for you. (My coast is also self-employed like me, which helps.)
Here's some more about financial coaching:
The goal of a financial coach is to educate clients on the basics of personal finance and, as a team, create a spending plan that reflects the values and goals of the client. The coach then empowers clients to take responsibility for their decisions, supports their continual learning and growth, and serves as an accountability partner throughout the process.
posted by gottabefunky at 10:10 PM on March 31, 2019 [1 favorite]
Here's some more about financial coaching:
The goal of a financial coach is to educate clients on the basics of personal finance and, as a team, create a spending plan that reflects the values and goals of the client. The coach then empowers clients to take responsibility for their decisions, supports their continual learning and growth, and serves as an accountability partner throughout the process.
posted by gottabefunky at 10:10 PM on March 31, 2019 [1 favorite]
It sounds like some foundational financial literacy is something that you'd benefit from. I agree that financial advisors are probably not the way to go, especially as most of them charge 1% of your portfolio, plus are highly likely to recommend you to vehicles that they receive extra commission on. In this time of so many fintech and FIRE (financial independence, retire early) options, you can do better.
Here's 10 steps I'd recommend:
1. Payoff all bad debt
2. Build a 3 - 6 month emergency fund
3. Try financial checkup at Grove (https://hellogrove.com/checkup) You will get a PDF summary of recommendations.
4. Set up a monthly budget spreadsheet with a 50/30/20 Budget - Elizabeth Warren’s book highlights this. Set it up like this:
--- 50% Essentials - Housing, utilities, car payment, health ins, groceries
--- 30% Savings - for financial goals, rainy day fund
--- 20% Wants - shopping, dining out, hobbies, entertainment
If this seems daunting, set incremental goals monthly to get to this ratio:
--- Eg Month 1: 60% Essentials, 30% Wants, 10% Savings
--- Month 2: 60% Essentials, 25% Wants, 15% Savings
--- Month 3: 55% Essentials, 25% Wants, 20% Savings
5. Max out tax-sheltered and retirement savings
Take advice mentioned above to transfer your Traditional IRA to Vanguard, and then put the funds in your IRA in an index fund. If you can budget for it, contribute more money to your IRA for 2019 and 2020 tax years. Future you will thank you for it.
6. Vanguard money market account
Talk to a Vanguard rep about how to set investing goals and recommendations
It sounds like you would prefer to have your money work for you passively, without a lot of work to manage it. Index funds are great for this.
7. Sign up for CreditKarma
Check your credit scores. Take action to improve your score based on their recommendations.
8. Write down achievable goals along a time horizon that you can be disciplined on:
--- Eg - Be able to save at least 10% of your income
--- Eg - Achieve $100K net worth by mm/yy
--- Eg - Surpass 800 credit score by 2020
--- I put these goals in my 50/30/20 spreadsheet so I see them every time I open it up
9. Find an hour a week or month to educate yourself and work towards these goals. Life gets busy, but surely you can find an hour somewhere?
Mr Money Moustache
Mrs Frugalwoods
Her First 100K
10. Take care of your online accounts
With the rise in data breaches, it’s worth taking the time to make sure your passwords are secure, your credit report is in good shape, you set a credit freeze if you don’t plan to open new credit or loan accounts, etc. Use a highly secure, encrypted password manager for peace of mind.
posted by hampanda at 11:19 PM on March 31, 2019 [5 favorites]
Here's 10 steps I'd recommend:
1. Payoff all bad debt
2. Build a 3 - 6 month emergency fund
3. Try financial checkup at Grove (https://hellogrove.com/checkup) You will get a PDF summary of recommendations.
4. Set up a monthly budget spreadsheet with a 50/30/20 Budget - Elizabeth Warren’s book highlights this. Set it up like this:
--- 50% Essentials - Housing, utilities, car payment, health ins, groceries
--- 30% Savings - for financial goals, rainy day fund
--- 20% Wants - shopping, dining out, hobbies, entertainment
If this seems daunting, set incremental goals monthly to get to this ratio:
--- Eg Month 1: 60% Essentials, 30% Wants, 10% Savings
--- Month 2: 60% Essentials, 25% Wants, 15% Savings
--- Month 3: 55% Essentials, 25% Wants, 20% Savings
5. Max out tax-sheltered and retirement savings
Take advice mentioned above to transfer your Traditional IRA to Vanguard, and then put the funds in your IRA in an index fund. If you can budget for it, contribute more money to your IRA for 2019 and 2020 tax years. Future you will thank you for it.
6. Vanguard money market account
Talk to a Vanguard rep about how to set investing goals and recommendations
It sounds like you would prefer to have your money work for you passively, without a lot of work to manage it. Index funds are great for this.
7. Sign up for CreditKarma
Check your credit scores. Take action to improve your score based on their recommendations.
8. Write down achievable goals along a time horizon that you can be disciplined on:
--- Eg - Be able to save at least 10% of your income
--- Eg - Achieve $100K net worth by mm/yy
--- Eg - Surpass 800 credit score by 2020
--- I put these goals in my 50/30/20 spreadsheet so I see them every time I open it up
9. Find an hour a week or month to educate yourself and work towards these goals. Life gets busy, but surely you can find an hour somewhere?
Mr Money Moustache
Mrs Frugalwoods
Her First 100K
10. Take care of your online accounts
With the rise in data breaches, it’s worth taking the time to make sure your passwords are secure, your credit report is in good shape, you set a credit freeze if you don’t plan to open new credit or loan accounts, etc. Use a highly secure, encrypted password manager for peace of mind.
posted by hampanda at 11:19 PM on March 31, 2019 [5 favorites]
(1) Emergency fund in an online savings account with a good return (right now, that would be about 2.25%). Because your employment situation seems subject to change term by term, I'd say six months' expenses though I usually say three (just because having more in that liquid, low-return form costs you in the long term, which many people can ill afford).
(2) Pay off those ccs! That's the easy one. Hopefully having the emergency fund will give you the confidence to do that.
(3) I would liquidate all the market holdings, except the traditional IRA, and put them in a Vanguard target-date retirement fund, which is both cheap (this is so important; over the years those .5%s add up like you wouldn't believe) and diversified with an eye to your age (which affects your risk tolerance). Everything you've inherited except the traditional IRA should be at the "basis" it was on the day you inherited it--this is a slightly weird concept, but it means that you will only pay taxes on the gains since you inherited the stocks, which will presumably be fairly minimal. Take out 15% of those gains and set them aside to cover the capital gains taxes.
The traditional IRA situation is a bit more complicated, because that is money your father deferred paying taxes on and the IRS will have its due. As a non-spouse heir, if your father was under 70.5 at the time of his death, you have three choices: roll the IRA over and take yearly distributions based on your projected lifespan, roll the IRA over and take yearly distributions based on emptying the account in five years, or take a lump sum distribution. If he was over, you can do the first or the third. Basically, that money is coming out to you as taxable ordinary income one way or another whether you want it to or not. Any fund company can do the calculations for you concerning what the yearly mandatory distribution would be under options one or two; again, I would recommend rolling the IRA over to Vanguard, which will make distributions easy. I'm guessing from the way you describe your life situation that you'd like some money in the present day but you're probably not going to, say, be buying a house in the near term; however, you won't be a grad student forever. For that reason, I'd suggest options one or two (if applicable). It's always better to postpone paying taxes, and so taking yearly distributions rather than everything all at once is better. (The lump sum is much more likely to put you into a significantly higher bracket than taking even the yearly distributions, meaning you'll be paying more overall in taxes than you would if you took a yearly distribution, which may move you up a bracket but is unlikely to do more than that.) If you think you'll probably be getting a job and moving somewhere within five years, option two may have a little more appeal. Again, remember: these distributions are taxable; you can ask Vanguard to withhold the taxes for you. Pick the rate one above your current rate. If you're withholding either too much or too little this year, you should be able to fix it next year. (P.S. If you don't take a lump sum, YOU MUST TAKE A DISTRIBUTION THIS YEAR.)
You are able to buy and sell funds within the IRA without incurring taxes as long as you don't take more money out. This may be more complicated than you want to deal with right now and it's hard to know whether to advocate tidying up everything by moving that money into an appropriate Vanguard fund without knowing what your dad had them in. Maybe a project for a later year if it all seems too much at the moment.
(3a) Exception: if you are planning to move somewhere in five years or less and think you might want to be buying a house, put aside something for a down payment in a money market fund, keeping in mind whether you think you'll be able to contribute anything from your yearly distributions to that amount. With a time horizon that short, you don't want to be too exposed to market volatility for that portion of your savings; you would be willing to trade some potential gains for some constraints on loss.
(3b) Fully fund whatever retirement account may be available to you with some of the gains from liquidating his holdings. If nothing else is available, open your own IRA. Given your low income, a Roth IRA (where you pay the taxes up-front) is probably preferable. If at all possible, contribute to it every year. If you have to sell some of your target-date fund to do so, do it. Leaving out your emergency fund and any medium-term savings like an account for a down payment, you should be looking to gradually transfer as much as possible out of your ordinary account and into your tax-advantaged options.
(4) Get on with your life! Do not fixate on fluctuations in the market. The key is not doing dumb things like trying to time the market or chase fund managers who make big promises they are not required to keep; this will be easy since if you don't do anything at all, you won't do anything dumb. I'm inferring you're relatively young. Time is on your side. It doesn't matter if the market collapses tomorrow if you don't need to withdraw the money until your retirement decades later.
posted by praemunire at 11:27 PM on March 31, 2019 [3 favorites]
(2) Pay off those ccs! That's the easy one. Hopefully having the emergency fund will give you the confidence to do that.
(3) I would liquidate all the market holdings, except the traditional IRA, and put them in a Vanguard target-date retirement fund, which is both cheap (this is so important; over the years those .5%s add up like you wouldn't believe) and diversified with an eye to your age (which affects your risk tolerance). Everything you've inherited except the traditional IRA should be at the "basis" it was on the day you inherited it--this is a slightly weird concept, but it means that you will only pay taxes on the gains since you inherited the stocks, which will presumably be fairly minimal. Take out 15% of those gains and set them aside to cover the capital gains taxes.
The traditional IRA situation is a bit more complicated, because that is money your father deferred paying taxes on and the IRS will have its due. As a non-spouse heir, if your father was under 70.5 at the time of his death, you have three choices: roll the IRA over and take yearly distributions based on your projected lifespan, roll the IRA over and take yearly distributions based on emptying the account in five years, or take a lump sum distribution. If he was over, you can do the first or the third. Basically, that money is coming out to you as taxable ordinary income one way or another whether you want it to or not. Any fund company can do the calculations for you concerning what the yearly mandatory distribution would be under options one or two; again, I would recommend rolling the IRA over to Vanguard, which will make distributions easy. I'm guessing from the way you describe your life situation that you'd like some money in the present day but you're probably not going to, say, be buying a house in the near term; however, you won't be a grad student forever. For that reason, I'd suggest options one or two (if applicable). It's always better to postpone paying taxes, and so taking yearly distributions rather than everything all at once is better. (The lump sum is much more likely to put you into a significantly higher bracket than taking even the yearly distributions, meaning you'll be paying more overall in taxes than you would if you took a yearly distribution, which may move you up a bracket but is unlikely to do more than that.) If you think you'll probably be getting a job and moving somewhere within five years, option two may have a little more appeal. Again, remember: these distributions are taxable; you can ask Vanguard to withhold the taxes for you. Pick the rate one above your current rate. If you're withholding either too much or too little this year, you should be able to fix it next year. (P.S. If you don't take a lump sum, YOU MUST TAKE A DISTRIBUTION THIS YEAR.)
You are able to buy and sell funds within the IRA without incurring taxes as long as you don't take more money out. This may be more complicated than you want to deal with right now and it's hard to know whether to advocate tidying up everything by moving that money into an appropriate Vanguard fund without knowing what your dad had them in. Maybe a project for a later year if it all seems too much at the moment.
(3a) Exception: if you are planning to move somewhere in five years or less and think you might want to be buying a house, put aside something for a down payment in a money market fund, keeping in mind whether you think you'll be able to contribute anything from your yearly distributions to that amount. With a time horizon that short, you don't want to be too exposed to market volatility for that portion of your savings; you would be willing to trade some potential gains for some constraints on loss.
(3b) Fully fund whatever retirement account may be available to you with some of the gains from liquidating his holdings. If nothing else is available, open your own IRA. Given your low income, a Roth IRA (where you pay the taxes up-front) is probably preferable. If at all possible, contribute to it every year. If you have to sell some of your target-date fund to do so, do it. Leaving out your emergency fund and any medium-term savings like an account for a down payment, you should be looking to gradually transfer as much as possible out of your ordinary account and into your tax-advantaged options.
(4) Get on with your life! Do not fixate on fluctuations in the market. The key is not doing dumb things like trying to time the market or chase fund managers who make big promises they are not required to keep; this will be easy since if you don't do anything at all, you won't do anything dumb. I'm inferring you're relatively young. Time is on your side. It doesn't matter if the market collapses tomorrow if you don't need to withdraw the money until your retirement decades later.
posted by praemunire at 11:27 PM on March 31, 2019 [3 favorites]
I think there are two separate parts to your question. The first is what are the big picture things you ought to do given a substantial windfall, and the second is how should you carry them out given the specific accounts you have inherited and your current position.
On the first question, Metafilter's own jdroth has a blog about money which is very good called Get Rich Slowly. For the sort of money that you are talking about you could have a look through the archives about what to do with a windfall. It also covers basic long-term investing (for which Vanguard target retirement fund is an excellent suggestion for you).
On the practicalities, I don't know very much about IRAs or selling shares. However, I would assume that this inheritance most likely affects your eligibility for government assistance, and you need to plan taking that into account. Most of the time you need to spend down assets before you receive assistance. If you're currently dissertating it may well be a good and sensible use of a portion of the money for general living expenses so that you finish quicker and get on to the job market.
posted by plonkee at 5:16 AM on April 1, 2019 [1 favorite]
On the first question, Metafilter's own jdroth has a blog about money which is very good called Get Rich Slowly. For the sort of money that you are talking about you could have a look through the archives about what to do with a windfall. It also covers basic long-term investing (for which Vanguard target retirement fund is an excellent suggestion for you).
On the practicalities, I don't know very much about IRAs or selling shares. However, I would assume that this inheritance most likely affects your eligibility for government assistance, and you need to plan taking that into account. Most of the time you need to spend down assets before you receive assistance. If you're currently dissertating it may well be a good and sensible use of a portion of the money for general living expenses so that you finish quicker and get on to the job market.
posted by plonkee at 5:16 AM on April 1, 2019 [1 favorite]
One more thing, about how to think about this sum of money relative to where you are and what you need.
One rule of thumb is that when you retire at normal age (~65), you would expect to use your saved money at a "safe withdrawal rate" of 4%. If you retire "early", you'd lower that expected burn rate to 3% or less if you wanted that money to last your lifetime.
3% of $200k is $6k/year.
You should scale your expectations of use according to that. You say My main goal is to earn enough passive income to supplement my really horribly low adunct pay, and presumably this is only until your PhD starts earning you pay well above food stamps. This is a reasonable use expectation -- but you should understand the limits. Or that if you take $20k/year, it will be gone in ~10 years.
Paying off your cc debt will free up some cash flow on an ongoing basis. But: you may lose eligibility for some of your current aid programs, so you should look into how you'd get health care. As praemunire wrote, you may owe some taxes, and you should plan ahead so that's not its own emergency next year. You should definitely set up some kind of emergency-fund buffer, and you should also set a good chuck aside as a start of a retirement fund. As you said, this is not life-changing money, but it is a big safety buffer and a good start on what comes next. That's how I would look at it.
posted by Dashy at 11:30 AM on April 1, 2019
One rule of thumb is that when you retire at normal age (~65), you would expect to use your saved money at a "safe withdrawal rate" of 4%. If you retire "early", you'd lower that expected burn rate to 3% or less if you wanted that money to last your lifetime.
3% of $200k is $6k/year.
You should scale your expectations of use according to that. You say My main goal is to earn enough passive income to supplement my really horribly low adunct pay, and presumably this is only until your PhD starts earning you pay well above food stamps. This is a reasonable use expectation -- but you should understand the limits. Or that if you take $20k/year, it will be gone in ~10 years.
Paying off your cc debt will free up some cash flow on an ongoing basis. But: you may lose eligibility for some of your current aid programs, so you should look into how you'd get health care. As praemunire wrote, you may owe some taxes, and you should plan ahead so that's not its own emergency next year. You should definitely set up some kind of emergency-fund buffer, and you should also set a good chuck aside as a start of a retirement fund. As you said, this is not life-changing money, but it is a big safety buffer and a good start on what comes next. That's how I would look at it.
posted by Dashy at 11:30 AM on April 1, 2019
Oh, yes, you will almost certainly lose SNAP eligibility over this; however, while I can't be sure without seeing the actual numbers, even the slowest possible distribution from the IRA will probably compensate for it, given how pitifully low SNAP payments are. Medicaid, too, which is a bit harder, and you may have to put some of your money into premiums in your university's plan (doesn't your university require students to be on a health plan???). But I think it's fair to say that it wouldn't be equitable for someone sitting on (say) $100K in an IRA and another $100K in brokerage accounts to be getting Medicaid. I myself wouldn't feel right about it. (I might feel differently if the only option available to you was some $1K-a-month low-quality exchange plan, though.)
I agree that this is not really life-changing money and it won't magically produce "passive income" that will fix your situation, but it is a great chance to clean up old debts, catch up on retirement savings, and provide some modest comfort while you finish up your dissertation and find permanent employment. I stumbled out of a similarly broke grad student situation (wasn't on food stamps, but had nothing) into a well-paid job for a few years and that's pretty much what I did. It left me with a certain cushion against life's randomness that has meant a lot for my peace of mind even though I still have to get up every morning to go to work to sustain my middle-class lifestyle.
Oh, one more thing: go to a good dentist and fix your teeth. Pay cash.
posted by praemunire at 11:54 AM on April 1, 2019 [1 favorite]
I agree that this is not really life-changing money and it won't magically produce "passive income" that will fix your situation, but it is a great chance to clean up old debts, catch up on retirement savings, and provide some modest comfort while you finish up your dissertation and find permanent employment. I stumbled out of a similarly broke grad student situation (wasn't on food stamps, but had nothing) into a well-paid job for a few years and that's pretty much what I did. It left me with a certain cushion against life's randomness that has meant a lot for my peace of mind even though I still have to get up every morning to go to work to sustain my middle-class lifestyle.
Oh, one more thing: go to a good dentist and fix your teeth. Pay cash.
posted by praemunire at 11:54 AM on April 1, 2019 [1 favorite]
By the way, when I was a grad student earning less than $20K and living in Boston, I was a terrible budgeter. When I was a baby lawyer earning $160K and up and living in NYC, I never went over budget even while paying off vast student loans. Now that I'm back solidly in the middle-middle class, hey, it turns out I'm okay. I'm not saying people can't have bad or lazy spending habits--a lot of people spend in a truly thoughtless way that still boggles me--but I am saying that a lot of the blame you may be inflicting on yourself for not managing money better should actually be attributed to the situation of not having enough money to manage and the attendant stress and bad coping mechanisms with stress that brings in. It's been shown by enough studies that I believe it that debt actually functions as cognitive load and worsens your decision-making.
posted by praemunire at 12:31 PM on April 1, 2019 [1 favorite]
posted by praemunire at 12:31 PM on April 1, 2019 [1 favorite]
This thread is closed to new comments.
posted by Think_Long at 11:12 AM on March 31, 2019