Receiving an inheritance can change how you view money. A 40-year-old disabled veteran recently received a $25,000 inheritance from his grandfather, a former World War 2 veteran. He has a wife and two kids who are both under 10-years-old, and he has always struggled with financial security.

The 40-year-old husband currently does not have any retirement money, so the $25,000 offers a fresh start. He’s committed to making things different and wants to get out of the paycheck-to-paycheck cycle.

He also wants to teach his children financial security so they don’t have the same setup in the future. After sharing his thoughts with Reddit, the 40-year-old asked Reddit for advice on what to do with the money. Redditors offered their thoughts in the comments.

Pay Off Debt

The husband and disabled veteran mentioned that he had credit card debt and owed money on a card. Most of the commenters suggested that he focuses on paying off those obligations first.

Credit card debt is notorious for high interest rates that range from 19%-29% APR in most cases. Stocks usually don’t generate those types of returns in a given year, and it’s much less risky to pay off debt than it is to rush to the stock market.

“Pay off all outstanding debt asap. Once you have ended your debt your options will open up immediately to save and invest more aggressively for other endeavors. A mortgage is the only debt you should ever have to carry. Every other consumer debt is dead weight. This will free up more cash for your monthly budget,” one commenter suggested.

Investing in stocks is a great way to build long-term wealth, but it’s important to prioritize debt first, especially high-interest debt.

Review Your Expenses

The danger with receiving an inheritance is that it can cause you to overlook your financial problems. Financial windfalls offer an immediate solution that does not require you to change any of your behavior. This is why many people who win the lottery end up going broke.

One commenter mentioned that $25,000 is not a lot of money and should be used to pay off debt. However, the commenter also shared how the 40-year-old husband can approach long-term financial security.

“Look at your history of expenses in last year or two or three. How many instances of emergency expenses? How much you needed? Did you had to resort to credit to fund those emergencies?”

Build An Emergency Fund Before You Invest

Investing allows you to provide your children with an inheritance and create a legacy. However, you first have to get your finances in order. While most people focused on paying off debt, the same commenter who suggested reviewing expenses proposed establishing an emergency fund before investing.

“Make [your] emergency fund big enough to cover such expenses in near future. Make it 150% of what you think you will need. What is left you can actively invest. Dont worry if it is small sum. The emergency fund IS WORKING FOR YOU. Protecting you from bad decisions, from desperate, high cost credits etc.”

An emergency fund can put an end to high-interest debt. Furthermore, some savings accounts have yields above 4% APY, so you can earn respectable money while storing your cash. Once you have a sufficient emergency fund, you can use the same habits to build your portfolio.

Building an emergency fund can help the 40-year-old provide financial security for the kids. More importantly, the children may value saving and investing if they see you do it consistently.

 

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