'I'm a mother in my 40s and I'm financially independent': I'm about to inherit $850,000. What should I do with my windfall?

By Quentin Fottrell

'I make about $100,000 annually, and I have $50,000 in savings and stocks'

Dear Quentin,

I'm inheriting about $850,000 unexpectedly, and I need advice on what to do with it. I am a mother in my 40s and I'm financially independent. I make about $100,000 annually, and I have $50,000 in savings and stocks. I'm not experienced with this amount of money.

Financially Independent

Related: My wife inherited $800K. She put $300K toward our mortgage and $500K in her own bank account - after 35 years of marriage

Dear Financially Independent,

There's one thing better than an inheritance - and that's an unexpected inheritance.

Take a deep breath: $850,000 can go far even in 2024, if you're smart, but it could also disappear faster than you think. Set up a 529 tax-advantaged savings account for your children's college education if you don't already have one. Maximize your contributions to your 401(k), if your employer provides one, or your IRA. If you don't own your own home, put a chunk aside for that, although you may wish to wait for mortgage rates to fall before committing. Set aside enough money in an emergency fund to cover at least six to 12 months' worth of expenses. And, yes, treat yourself to something: For some people, that might be a spa retreat or a philosophy course, while for others it's a new bathroom or insulation for their home.

Approach your windfall as stealth wealth. Be careful when talking about it to others - that includes neighbors, friends, relatives and financial advisers who work on commission. It's a hard lesson to learn, but if you share news of your good fortune, not everyone will be happy for you. Some people may have business ideas of their own and could see you as their golden ticket. What's more, the average U.S. household has $62,410 in savings - and the median household has just $8,000 - so as much as your real friends will wish you well, it may still be hard for them to see an Instagram (META) update about your brand-new kitchen or a TikTok video from your trip to Turks and Caicos.

"An unexpected inheritance or windfall such as this can be an emotional, confusing and life-changing event, all at the same time," says Martin Schamis, a certified financial planner with Janney Montgomery Scott in Philadelphia. "Depending on how this $850,000 inheritance is received, there may be taxes due or specific distribution rules that you will need to follow once you receive the assets. An inheritance can be a life-changing event, and seeing your personal net worth increase could have a major impact on your life goals, for both you and your children. This is the perfect opportunity to discuss your financial goals, both near- and long-term."

If some of your $850,000 is in stocks and bonds? This will provide you with a timely opportunity to revisit your overall investment strategy. You may wish to take on additional risk - or play the long game with less risk now that you have more capital to work with. "If you have an aggressive allocation suited for wealth accumulation, for example, you may want to dial it back to focus on capital preservation," according to Fidelity Wealth Management. On the other hand, "the additional assets may offer the opportunity for you to take some additional risk, especially if you intend to pass some or all the assets down to future generations."

And here's what may be the most satisfying and empowering part of inheriting a large sum of money: If you have any personal loans or credit-card debt, pay those off ASAP. The current average personal-loan interest rate is 12.2%, and the average percentage rate for credit cards is 20.7%, according to Bankrate.com. With inflation hovering around 3.5% year over year in March, you are hemorrhaging money at those rates. There's nothing like paying off debt to put a spring in your step before you meet with a financial adviser. (On that subject, be careful of bad actors - advisers who wine and dine you, and undermine you.)

Take inspiration from others. In September 2018, this woman wrote to the Moneyist to ask how she should invest her windfall of over $150,000. It was life-changing for her. She didn't have a college degree, worked full-time for $15 an hour, in addition to a part-time job at $10 an hour, and said she would never earn more than $30,000 a year. She paid off her car and bought a tiny home, which she owns free and clear, as she wrote in an update. She deposited $70,000 in a high-yield online savings account. She topped up her retirement portfolio and invested $10,000 between very safe dividend stocks and exchange-traded funds. She also spent $7,000 on dental work in Mexico.

If the Moneyist had a heroes' gallery, she would be in the No. 1 spot. You'll be able to do all she did and more, and still allocate some money for your favorite charities. "This planning foundation will support your decisions around whether to utilize the funds to payoff debt, invest the funds for long-term growth and retirement, or do something for yourself like home repairs or travel," says Michele Martin, president at Prosperity in Minneapolis, Minn. You should, like that inspirational woman who inherited a fraction of your amount, take your sweet time.

Enjoy every minute of it.

Previous columns by Quentin Fottrell:

'I have a modest Roth IRA that hasn't performed well': My wife and I are savers - and happy driving old cars. Where should we invest $15,000?

Are they cheap?' I'm taking a trip with two friends for Memorial Day. I'm spending $90 on gas, and neither offered to chip in. What should I do?

'He's planning to bleed me dry': My husband turned into a monster after we married. I own a $1.3 million home. How do I save my finances?

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-Quentin Fottrell

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06-02-24 0744ET

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