What to do with $100,000?

[worrier]

This sounds like a hypothetical question, but for me it is not.

I never thought having "extra" money could be so stressful. I don't want to make a mistake or waste this blessing.

My husband is getting a bonus from work that totals about $100,000 after taxes. We have debt in mortgages for our home and a rental property, and one car payment. We have no credit card debt or student loans. We both have 401ks started for retirement and I have a roth IRA with a small balance.

Our regular expenses are easily covered by salary and passive income. We have no children, and plan to wait at least a few years before we start a family. We are generally conservative with spending, buying only quality products that we need and will use for a long time.

How should we use this money? We are in our mid 20s and this can be a great step toward financial independence if we use it wisely. My husband wants to buy a grand piano with part of the money, pay down the higher interest rate loans, and invest in stocks. We work hard for our money, and want to enjoy a high quality of life without worrying too much. I say, we don't have to decide right away what to do, but this extra money is causing stress in our home. What is the responsible thing to do?

[Julie Rains]

I would want to invest the bulk of the money, especially now that the market is down though investing at your age, no matter what the market is doing, is a good idea. I wouldn't have an interest in having a grand piano but then I didn't work to get a $100K bonus after taxes -- if that could wait, then you invest and use the (hopeful) investment growth to buy the piano a couple of years from now. I'd like to have the car paid off and just have mortgages, but I don't know how high the interest rates are and what the balances are. You could consider refinancing and paying off part of the loan at the same time (rather than refinancing based on the equity in your home), so that your monthly payments are lower. I would also factor the stability of your jobs into your decision.

It sounds like you are being wise with your money. My experience has been that you will not make perfect decisions (no one does) but if you persist with good money management habits, then you will be on your way to financial independence.

[72Tiger]

I am debt averse, so I know right away what I would do in your situation, but that is just what is right for me. If you are worrying, and stressing as much as it seems, I guess the best advice I could give you is to take your time until the decision feels right for both of you. That, and communicate back and forth.

[Megan]

I would pay off the car first and foremost. I'm sure that debt will only make a small dent in the $100K and it's just one less bill you have to pay off. Otherwise, I would invest it in low risk investments, grow your money a bit until you want to use it again.

[khorrell]

I've always planned that windfalls would have 30% off the top: 10% giving, 10% spending (like the piano), and 10% savings. The remaining 70% would be deliberated, and in your case I would pay off the car, then with the rest either improve your emergency fund, pay off a mortgage or put into retirement accounts.

What a wonderful blessing you're getting. Good luck to you!

[lucille]

I would pay off the vehicles and put the rest into something stable, maybe even just a higher than average yield savings account for now. The piano sounds like a total waste of money unless one of you is a professional musician.

[amyschiff]

Originally Posted by lucille

The piano sounds like a total waste of money unless one of you is a professional musician.

Not that it's really related, but you can find used grand pianos at very reasonable prices. They're just as beautiful and often sound just as good.

[Xin Lu]

Yeah, I think paying off the high interest loans is a good idea. Are you mostly fighting about the piano? It sounds like the other ideas besides the piano seem pretty normal and responsible. Anyway, if the piano is only a small portion of the money and it's absolutely needed then it's not a bad idea. My hubby has an "entertainment budget" that is 2% of our income right now. Whatever he doesn't use rolls over to the next month so recently he just bought a PS3 because he basically saved up for it and I was completely fine with it. So I think using a small percentage of that bonus for entertainment is not that bad.

[DistilledRose]

I would agree with what everyone else is saying regarding paying off the cars. Since you say that you would like to have children in a few years, maybe ear mark some money for the extra expenses that will incur then and put it into a CD or a higher yield savings account.
Congratulations on your windfall!

[Jason830]

Congrats on the bonus...I would pay off debts with highest rates 1st. Paying off cars seem like a logical thing to do first.