Help a trust fund baby: “What should I do with my inheritance?”

August 27 44 Comments latest by ekrabs

Just got this email from Christine, a self-described “trust fund baby” who asked for advice. What would you recommend?

I am a 22 year old female in my last year of college. I never learned how to manage my money. If I got money, I spend it. So, freshman year of college, a credit card seemed like a fantastic idea. My parents have even bailed me out a few hundred dollars. I’ve kind of come to terms with the fact that this is a stupid move on a lot of students parts, and I’m working through it.

Recently, I learned of a pretty good deal of money - $140,000 give or take - that my well-off, childless aunt and uncle have put into a trust fund for me.They have brought it up to this amount by contributing $30-40k at various times over the past 10-15 years. Anyway, my question is: what should I do with this money?

What do you think?

(4 votes, average: 2.5 out of 5)

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44 Comments latest by ekrabs

Former WSJ columnist gives advice to iwillteachyoutoberich readers

August 20 37 Comments latest by Keith

While I was in New York a few weeks ago, I stopped by to meet Jonathan Clements, the former columnist for the Wall Street Journal — which I thought was the best personal-finance column in the country. (Here’s one of his columns: Twenty Tips for No-nonsense Investing.)

Jonathan is now the director of financial guidance at MyFi. While I was there, we chatted for almost two hours (he’s hilarious) and I asked if he’d be willing to write up his thoughts on the most important step for iwillteachyoutoberich readers. Here’s what he had to say.

There’s no debate over the top priority. If you’re new to the work force, you ought to be funding your employer’s 401(k) plan, because it will give you a trio of benefits: an upfront tax deduction, tax-deferred growth and maybe a matching employer contribution.

But that brings us to the more interesting question. What should your no. 2 priority be? Forget building the six-month emergency reserve or saving for a house down payment. Instead, I would vote for funding a Roth IRA.

With a Roth, all your withdrawals once retired should be tax-free. True, unlike a regular IRA, a Roth won’t give you an initial tax deduction. But if you’ve just entered the work force and you are on a relatively low salary, that tax deduction probably isn’t worth all that much.

Meanwhile, here’s the sweetener: At any time, you can withdraw your original Roth contributions without triggering taxes and penalties. Let’s say you stash $5,000 in a Roth every year for four years. You could pull out your $20,000 in contributions and, provided you didn’t touch the account’s investment earnings, there shouldn’t be any taxes owed.

That means your Roth could double as your emergency reserve, your house down payment money, your car purchase fund or be used for any other purpose. (There is another provision that allows first-time homebuyers to make tax-free Roth withdrawals. To take advantage of this, the Roth has to be open five years and the amount is limited to $10,000.)

Ideally, you would leave your Roth to grow untouched until retirement. That way, you’ll get the most out of the tax-free growth. But if you
need it, the Roth offers wonderful financial flexibility. To learn more, head to www.fairmark.com.

I’ve written about Roth IRAs and 401(k)s in The World’s Easiest Guide to Retirement Accounts.

(9 votes, average: 4.11 out of 5)

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37 Comments latest by Keith

This is why you should ignore daily news on money

July 24 15 Comments latest by MonoMoney Sunday Round-Up

July 23, 2008:

Financial Stocks Rise Wondrously on Woeful Results

“…triggered a rally in financial stocks. A Standard & Poor’s index of 29 companies — including lenders, Wall Street firms and money managers — has jumped 31 percent since July 15…

Some words used in this article: “triggered a rally, jumped, climbed, bounced back, progress, profitable, whopping number, could be that the worst is over”

July 25, 2008 (2 DAYS LATER):

Stocks Drop Sharply; Banks Lead Decline

“Widespread fear about the financial sector brought a dramatic end to the recent stock rally, as investors scrambled to take profits from bank shares and sent the Dow Jones industrials down more than 280 points, its worst loss in a month.”

Some words used in this article: “plunged, worried, struggled, cascading effects, paralysis, sell-off, brought down, strong run, lost, painful, sour note, weak job market, scarcity, discouraging, harder, beleaguered, woes, decline, dampening”

Related articles on stupid media articles:
1. The media is atrociously bad at prediction and I’m sick of it

2. The worst financial advice from around the web! (Today only)

(11 votes, average: 4.45 out of 5)

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15 Comments latest by MonoMoney Sunday Round-Up

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