by Ashley
I have a confession: I may have missed my calling in life. I think I could have really thrived as a business manager (or even an accountant or financial planner). I love numbers and budgets and spreadsheets and algorithms. I love thinking about and planning for the future – goal-setting, forecasting, etc. And I think I’m pretty good at it too (with much thanks to the readers here for helping me learn along the way).
And as much as I love thinking about money, I love talking about money too. It is my favorite. I had a little office water-cooler convo a few weeks ago talking about how I started a side-business and I employ my kids to do personal assistant tasks for me and what started as a 1-on-1 convo grew, when folks in neighboring offices heard and wanted to join the conversation. It ended with me talking to about 5 people about how I have an HSA that I plan to use as a stream of income in retirement. I’m maxing it out now, but I track and manage all health-related expenses on a spreadsheet, and invest the HSA funds so they continue to grow. Then when I retire, I can reimburse myself from these past medical expenses and get that money as income, 100% tax-free!
I ended with (jokingly) thanking everyone for coming to my TED talk. Many seemed interested – some more intrigued and others maybe more scared or stressed – but everyone wanted to know more!
Is it too late to switch careers and somehow build a career around doing speaking engagements or workshops where I help others get their finances in order? I can speak with a lot of authority, having come from 6-figures of debt and climbed my way out.
But I digress….
One of the people in this conversation is someone I’d consider a true friend (not “just” a colleague). She recently inherited a lot of money after her wealthy mother-in-law passed away and she’s struggling with what to do now. Not necessarily with the money…but with herself.
I had shared with her previously that we had inherited some money so she knew I had a similar experience. And she asked me, “how do you not spend it all on fun stuff?!” To her, I think “fun stuff” is clothes, shoes, and bags.
In fact, she actually bought a million dollar home (planning to upgrade from their current middle-class home), and once they closed she felt extreme buyer’s remorse. They ended up doing some updates (painting, stucco work, new shutters), and re-listed the house. They never moved in. They were able to get above asking price, which is fantastic, but my guess (I never asked) is that the venture cost them money given realtor’s commissions, taxes and fees, and the amount they put into updates. She jokes it was her “million dollar house flip” but I think she learned some valuable lessons. Buying a new house won’t make you happier. If you’re using money to chase happiness, you’ll never achieve it.
But back to her question about how do I not spend our inheritance on fun stuff. And the truth is, I have a hard time answering it because I’m just not built that way. I never even considered splurging on a brand new car or a fancy designer handbag. I love to travel, but we pay for our trips out of our regular income (not inheritance money). We live below our means. That’s how I was raised and it just comes naturally to me.
But I know I am NOT the norm. I am the weird one. MOST Americans live above their means. MOST Americans are living paycheck-to-paycheck and are saddled with debt. It’s hard to give advice, though, when I don’t have that same perspective.
This is what I think about what to do with an inheritance:
- Pay off debt – that’s literally my #1 thing. Any and all consumer debt – get rid of it.
- Buy something “fun” that’s a small proportion of the inheritance. The exact percentage would likely vary based on the amount of inheritance. If you inherit $10k, then maybe no more than $1k (10%). But if you inherit $100k, maybe no more than $5k (only 5%). I’m not as hung up on the exact percentage as I am on the fact that the “fun” spending should be a small proportion of the inheritance.
- Save and invest the rest.
I struggled with Step 3, because I also thought about charitable donations and giving. But like our planned travel, we have charitable giving built into our monthly budget. When we inherited money, I didn’t go out and drop an extra check to charity at that moment in time because we do that anyway. But having an extra influx of cash can certainly help if you’re wanting to be charitable at a higher level.
What do you think?
When we inherited money, we were already consumer debt-free. I still had my student loans, but I didn’t pay them off since I knew they’d soon be forgiven through PSLF. And although we did spend a bit of money, I think it’s debatable as to whether you’d consider it a “fun” splurge or a necessary one. We enclosed our formal living room at the front of our house to make it into a dedicated office.
For the six years we’ve been in our home, I’ve worked mostly at home and have always been shoved in a tiny corner of our guest bedroom. That means I’m displaced anytime we have guests. It also wasn’t the prettiest view (the guest bedroom looks out over our trash cans and our neighbor’s house).
Having a dedicated office is truly the best! I now look out over the front yard (my view is of pretty trees, birds, dog-walkers, children playing, etc.) and I never have to be displaced when people come to visit! It cost us a few thousand dollars to put up walls and add electrical, but we otherwise didn’t need to change anything structurally and it works perfectly for us. I think what it’s done is allow us to stay in our home for longer than we might have otherwise because now it better meets our needs.
That was our inheritance “splurge.” A home office. Best money ever spent.
The rest of the inheritance is all invested. I have to deal with required minimum distributions from IRAs, but I pull the money out and re-invest immediately. I do not view it as additional income in our monthly budget. I don’t even think about it. It’s more fuel for my FIRE dreams of retiring at 50.
So what would you say to a friend who has asked a similar question after an inheritance (i.e., “How do you not spend it all on fun stuff?”)? I just don’t value those things so it’s never been an issue for me. But I’d love to know what you all think!
If you were to inherit a good sum of money, what would you do with it? How much do you think is “fair” to be spent on something fun and splurgy versus how much would you want to save and invest?
Speaking of talking about money, I would like to do a series where I interview people who have paid off a lot of debt and talk about the strategies, sacrifices, etc along the way. If you are interested in being interviewed and featured on the blog, please post a comment so I can reach out to you directly.
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Early 40s, married mother of twins, and working in academia. Currently working toward financial independence with the goal of (hopefully!) retiring early at 50.
