Ask Money

Thoughts on settlement money

Chris Farrell Jul 29, 2011

Question: We were in a traffic accident a while back and our vehicle was totaled. Fortunately we are all ok (barring some persistent muscular pain from whiplash) and have replaced our vehicle for less than the amount of the settlement.

My question then is what would you recommend for investing the remaining money? At this time we are barely making our budget work. We do not have an emergency fund, and minimal savings in general so we don’t want to tie the money up in an investment that we cannot back out of in an emergency. I would like to see the money in a growth investment, but since it’s the only significant investment we’ll have I’m also quite risk averse. What would you suggest and where would be the best place for further research? Grady, Thomasville, GA

Answer: I’m glad no one was too badly hurt. I think you’ve already answered part of your question: You should put the money away in a safe savings account (such as federally insured online savings account). It will act as your emergency fund and your opportunity fund. That’s the first thing I would so with the money.

While the value of the money is safe I would then take your time thinking about your goals and values. Ask yourself how the money you have can help you achieve them. You could research what investment strategies will complement your the lifestyle you want.

The process might take 6 months to three years to figure out. There’s no rush. The money is stashed in a safe place.

On the practical money management side of the equation I would start out with a book like The Random Walk Guide To Investing by Burton Malkiel. It covers the basics of investing well. I also like Jane Bryant Quinn’s Smart and Simple Financial Strategies for Busy People. Her title says it all. You could also look at my book, The New Frugality: How to Consume Less, Save More, and Live Better. It’s geared toward helping people manage their money simply and well over a lifetime.

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