Recently, I had an accident at work and lost a couple of fingers. I was given a one-time settlement of $500,000. I’ve gotten another job since then, my wife and I are both in our thirties and we’ve got our eye on a house that appraised for $50,000.
The seller is willing to take $38,000. We’ve also got three kids and about $12,000 in credit card debt.
What’s the smartest way to handle this money?
I’m glad you’re determined to manage this money well. I’m sorry, too, that you had to suffer an injury like that. It had to be painful.
Here’s the plan. Are you ready? First, take $15,000 and set up an emergency fund in a good money market account. Life happens, and you need to be prepared. Do not touch this money except in the event of a real emergency!
Next, write a check for $12,000 and get those credit sharks out of your life forever. Then, if you guys are sure that house is the one you want, I say go for it and pay cash. Did you see what happened? With just $65,000 of that money you became debt-free, you own your home AND you have a fat emergency fund in place. How cool is that?
Retirement comes next. You don’t want to work forever, so fully fund a couple of Roth IRAs for you and your wife for the rest of your lives. Also, max out three Educational Savings Accounts — one for each of your kids. This will take about $25,000 over the next two years.
Now, it’s time to have some real fun. You’ve been through a lot, so take $10,000 and just blow it. Spoil yourself and your family a little bit. You deserve it after everything that’s happened to you.
And last, find a mutual fund broker with the heart of a teacher and invest the remaining money across four types of mutual funds — growth, growth and income, aggressive growth and international.
If you do this, Kevin, you’ll retire a very wealthy man. By the time you’re 65, you’ll have millions of dollars on your hands! You’ll be able to live like no one else AND give like no one else.
This horrible accident can be turned into a blessing — one that will impact your family and your community in great ways for years to come.
Right now, I’ve got $2,500 in credit card debt. I’m thinking about transferring the balance from my current card to another one that has a much lower interest rate. Is this a good idea?
A lower interest rate will help you save a little money. But the problem is that it can also make you feel like you’ve addressed your problem with debt when you really haven’t.
Keep in mind, too, that most of those low-interest or no-interest credit card offers are good for only a short period of time. There’s always a catch!
Emotion is a key element to getting out of debt and staying out of debt. You’ve got to get steaming mad at debt and attack it with a vengeance. Really let it sink in and think about how many times this debt has negatively impacted your life. Think about all the important stuff, all the great stuff — all the FUN stuff you could have done with that money instead of sending it to those bozos at the credit card company.
And here’s some great news, Trevor. You can sell some stuff or take on an extra job for a little while and completely wipe out that debt in less than a year by making $250 payments every month!
Lots of people make the switch to low-interest-rate credit cards. But you’ve got to change the behavior and the mindset that put you in that situation in the first place.
If you don’t get mad at debt and make a stand where you’re determined never to borrow money again, you’re liable to find yourself back in the same bad situation.
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