How should I spend the money from my mother’s life insurance policy?
In this weekly column, I’ll help you untangle financial gray areas, from prenups to inheritances and more. Submit your money case here.
I recently entered into a large lump sum of money from when my mother passed away suddenly. His life insurance policy gave me almost $195,000, more money than I ever thought I would have. Since receiving this money, I have traded my car in for something newer/more reliable and have fully refunded it. I’ve also paid off all my credit cards (yay to be debt free at 26!). I have about $175,000 left in my savings account.
Now I’m torn. Should I save the rest of the money for buying a house…or squander it on a one-time vacation to commemorate my mother? Any advice on what to do with what looks like Scrooge McDuck money?
I am terribly sorry for your loss, but the comforting thing is that you seem to have found a silver lining in the face of tragedy. Money from your mother’s life insurance policy is, in its own way, a poignant gift that basically set you up for a very bright future.
Buying the car and paying it off in full is a big accomplishment, as is getting out of credit card debt at an age when most people are up to their ears. $175,000 is a lot of money – and frankly, if someone handed me a suitcase containing that amount of money, I would probably feel the same way you do. But leave some wiggle room – $175,000 isn’t quite Scrooge McDuck money, but it’s life changing in so many ways. In short: if you manage this money wisely, you will never have to live in financial insecurity again. You’ll never have to worry about paying rent, fixing a flat tire, paying an unexpected medical bill, or dealing with any of life’s other disasters. You can aggressively allocate your paycheck to your retirement account, and you can sleep at night knowing your emergency fund is supporting you.
Become a personal finance expert
Subscribe to our bi-weekly personal finance newsletter to help you better manage your money.
Unless you urgently need to buy a property right now, stop on this notion. Signing up for a mortgage can be more of a burden at this point in your life, unless you have a family or are “settled” in the traditional sense. That leftover money is more than enough for a solid emergency fund, but you don’t have to spend it all now. Set aside $10,000—enough to feel extravagant without overdoing it—for an experience that will commemorate your mother’s life, and split the rest between an emergency fund and a taxable investment account that matches your future goals. . I can’t prescribe how much you should spend on each, so talk to a financial advisor to determine which allowance is right for you.
So take that big trip and honor your mother’s memory by also protecting your financial future. Allow yourself this kindness, knowing that even if you do something that feels expensive, it will be fine.