Question: I own shares in a family business and my shares are being purchased. I will be paid approximately $150,000 over the next ten years in annual installments with interest. I am unsure what to do with the money and if I should be more strategic with the earlier installments so they work harder. I in my early 30s just bought a home and have a $120k mortgage. I used the majority of my savings and know I want some of this year's payment to replenish that. I need advice on how much to keep on hand, whether I should payoff no-interest financed purchases, pay against the house principle, etc. In addition to the house, I have about $5000 in no-interest credit and a car loan with 3% interest. Thank you very much for your help--if this is too detailed please feel free to make it more generic. Jennifer, Germantown, TN
Answer: Don't let the money burn a hole in your pocket. I'd recommend being cautious with it until you have a better sense of what to do with the money--even if that takes several years.
In the meantime, you could get rid of the credit card debt and the auto loan. Yes, the debts have low to no-interest charges. Still, you have an opportunity to be debt free (except your mortgage) and I would seize it.
A good rule of thumb--especially in these troubled times-- is you want to set aside somewhere between 6 months and a year in living expenses. Of course, for most people that's a goal rather than a reality. It's practical for you to build up such a healthy savings cushion in federally insured accounts at the bank or credit union. You won't make much interest off the money. But the money will act as your emergency fund.
Eventually, it could turn into your opportunity fund when you decide what more to do with it, from placing a significant sum into the stock market to paying for additional education to simply giving you the financial freedom to shift jobs and careers as your interests change.
Put it this way: Figure out what it is you really want to do. The money will then support your dreams and ambitions. Have fun figuring it out.