4/10/2006

Advice from Nashville's leading Financial Aid Advisor Dave Ramsey

 
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover

"What to do with $500k settlement?"

Dear Dave,

I used to work in a steel mill, and a few months ago I had an accident and lost two of my fingers. I was a awarded a one-time settlement of $500,000, and I’ve since moved on and gotten another good job. We’ve got our eye on a house that appraised for $50,000, but 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 thing to do with the settlement money?

Kevin

Dear Kevin,

I’m really sorry you had to suffer an injury like that. It sounds like you’ve got a good head on your shoulders, though, so here’s the plan – ready?

First, cut a check for $12,000 today and pay off those debts. Then, if you guys are sure it’s the house you want, go ahead and buy it with cash. Do you see what just happened here? With $50,000 you became debt-free and you own your own home. How cool is that?

Next, you need to think about retirement. 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 (ESA) for each of your kids. This will take about $25,000 over the next two years. Don’t forget about an emergency fund, either! Life happens and you need to be prepared. Take $15,000 and set it aside in a money market account, and DO NOT touch this money except in the event of a true emergency.

Here’s the fun part, Kevin. You’ve been through a lot, my man, so take $10,000 of the money and just blow it. Spoil yourself and your family and have some fun. You all deserve this after what’s happened to you.

At this point you’re left with $400,000. Find a good mutual fund broker, one with the heart of a teacher, and invest this 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 to 70 you’ll have about $47 million dollars on your hands! You’ll have changed your family tree for generations to come, and you’ll be able to give like you’ve never given before.

This horrible accident can be turned into a blessing – one that can make a huge positive impact on your community AND turn you and your wife into Old Man and Old Lady Moneybags!

- Dave


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