What to do with sudden wealth?

Question

I am about to receive a considerable(for me, anyway) amount of money- about $100k- and really have no idea what to do with it to make it grow even larger.

Of course I want to pay off credit card debt($6k), and student loans($40k). I would also like to set aside an 'Emergency Fund,' donate to one or two causes I support, and travel(not extravagently, just see everything this world has to offer).

What do I do with the rest, say about $40k? I'm a freelancer, so some sort of financial security is important to me. Also, I'm VERY interested in safe(is there such a thing?) ways to make this small wealth grow into larger sums.

ETA: I am young, just graduated college. I have no desires to ever own a home, or any other large, time and money consuming item. And it's not that I want to necessarily do anything with the money. I just want it to grow so that I can stabilize and brighten my future, I just don't know how to do that.

MrChrister · Answer

I won't make any assumptions about the source of the money.  Typically however, this can be an emotional time and the most important thing to do is not act rashly.

If this is an amount of money you have never seen before, getting advice from a fee only financial adviser would be my second step.  The first step is to breathe and promise yourself you will NOT make any decisions about this money in the short term.  Better to have $100K in the bank earning nearly zero interest than to spend it in the wrong way.

If you have to receive the money before you can meet with an adviser, then just open a new savings account at your bank (or credit union) and put the money in there.  It will be safe and sound.

Visit http://www.napfa.org/ and interview at least three advisers.

Understand what they want to charge you for their advice
Get to know them and feel comfortable with who you pick
Take your time, as this step in important.

With their guidance, think about what your goals are.  Do you want to invest and grow the money?  Pay off debt?  Own a home or new large purchase?  These are personal decisions, but the adviser might help you think of goals you didn't imagine
Create a plan and execute it.

JTP - Apologise to Monica · Answer

Is this an inheritance (tax-free) or is it taxable income from a large project?

I won't argue with knocking out the student loan, it's a monthly payment that's nice to get rid of.

You make no mention of your age or your current retirement assets. Call me boring, but if I were handed $100K it would simply be added to the mix. A conservative withdrawal rate of 4%/yr, means that $100K to me is really a $4K annual income. That makes it seem like far less of a windfall, I know.

The problem I see in your question is that there's an inclination to 'do something' with it all. You've already trimmed it down to $40,000. As a freelancer with income that's probably not steady why not just start to put it aside for the long term. In good income years, a pretax account, in low income years, use a Roth IRA. As littleadv asks - what are your plans if any to buy a house? $40K may not even be a full downpayment.

What to do with sudden wealth?

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