31 YO - Need Advice - Settlement
Hello,
Throwaway account here. Recently came into a $100,000 accident settlement. No tax obligations and already done w/ injury costs.
I've read the windfall section and all of the investment sections, attempting to use this 100k the best way possible. Wanted to run it by people here and get there takes on if I'm making the right moves or should modify them.
$100k settlement, so far I've:
- Paid off the last $11,000 of a high interest student loan
- Maxed out Roth IRA contributions for 2019 and 2020 ($12,000). Put into a Fidelity target fund for 2050
- Invested $14,000 into a Fidelity Brokerage account using the 3 fund model. FSKAX = $6,500, FSGGX = $3,500, and FXNAX = $,3,500. I have $500 sitting in my Fidelity money market account as well. I have no plans for this money any time soon, should I invest more?
I also have a 401k through the company at 25k, fully vested and getting full employer match.
What changes would you make? No other debt /obligations outside of Fed Student Loans and a lease that about to run out (not debt I know).
I now have around $62,500 left. I have $18,000 left on Federal student loans. That is made up of 4 loans, 2 with 6 and 6.5% interest and 2 with 5%. Do I pay them all off or just the 6% or none?
What about the balance? I plan on buying a house in the next year or 2 and would like to set $20,000-$30,000 aside for that. Best method? Also looking at a used 2019 jeep that would put $4-5k down. Live in a Low cost of living area and make $60k a year.
Would like input on how to best utilize the remaining $62,000 between house, student loans, and stocking an emergency fund of $10,000-12,000. I'd also like to set a tiny bit a side for myself to enjoy with a trip in the short term.
Posted Feb 6, 2020, 9:29 PM UTC · edited
Pay off all of the loans. Forget that you have the money as far as cars go: that's pure spending that you'll never get back.
I would invest the rest (boost 401k and swap out these funds maybe or keep rolling it into Roths every year). Forget it exists. Then live on what you actually make.
It's overwhelmingly tempting to spend it (on houses, cars, or whatever), but those things all cost you money, whereas investing makes you money.
Finally, on the car: buy something older and cheaper, especially on that income. You said 4-5k down but didn't give the total cost. 5k is 8% of your gross annual pay, and probably more like 12-13% of what you take home. I'm guessing the car is more like 4x that total, so nearer half of your take home pay. Would you ever decide to blow half your pay on a car? (And it'll cost you a lot more than that, even, if you're doing a loan and paying it out.). Just not a good way to go. Cars are very expensive. Ignore the payment and look at your total cost: would you ever be OK paying the total cost of the car, the cost of the expensive insurance you would have to carry during the loan term, the cost of all the loan interest, lending costs, and so on? People forget to look at the total costs, which is why people waste so much wealth on cars.