What to do with a large Windfall

What to do if you receive a large windfall . . .

Picture from Forbes.com

Most people only dream of winning the lottery or receiving a large inheritance, but what happens when you actually do receive this money what should you do with it?

In our case, my grandparents were from the Great Depression era.  They always lived well below their means, and allowed their investments to grow.  When my grandfather passed away this year, I found I was to inherit a lump sum of $350,000.

Honestly, this was about the same amount of retirement savings that I have managed to save over the past 10 years, so this was like doubling my retirement savings.  What to do with all that money.

1. Pay off Debt.  In most cases this is what I would recommend others to do.  However in our case, our only debt is a low interest rate primary mortgage.  Since we are rebuilding our credit from a Chapter 13 bankruptcy, it is important to show the consistent payment on loan.  So instead, I set aside $88,000 which is the amount I owe on the house to allow me to pay off the loan at any time, and we will be adding extra to our principal each month in order to pay down the loan in the next couple years.

2. Build an emergency fund.  We already have 1 year worth of savings in an emergency fund; again this was not necessary for us.

3. Max out Retirement plans - since we are already maxing out our 457b, 401k, and Roth IRAs for this year, this is also not necessary.

4. Set up a taxable EARLY retirement fund.  This is what we are doing with a bulk of the money.  We are putting the money into a Vanguard account that will allow the money to grow through investments and dividends.  Since we don't need this money for another few years and even then we will only be pulling out a small portion of it, we have a considerable amount in stocks.  Plus by putting such a large amount in, we are able to take advantage of Vanguard's Admiral Funds, which significantly reduces our fees.

5. Have some fun.  We actually went to visit my grandparents home before it was sold, and got to take picture of Baby Breeze in the house where I have so many memories.  We also did a short trip to Disneyland and the Beach.  It was wonderful to create such great memories with our son, and spend time together as a family.

Did we do the right thing?  Did we put my money in the right investments?  I don't have a crystal ball, but I am confident that over time we will watch our money grow.  We have enough in savings to avoid pulling money out during a down turn in the market even if it does start to drop, as many have predicted.

We are now reviewing our finances and our "early retirement launch date".  Originally my goal was to retire by 40, but now that date might be even closer!