my two cents

‘I Inherited Money, But I’m Already Blowing Through It’

Photo-Illustration: by The Cut; Photos: Getty Images

I inherited $500,000 in the fall of 2020 when my father passed away. I used part of it to buy a studio apartment in Brooklyn and, with the help of a financial adviser, invested the rest with eyes toward retirement. We budgeted it out so that the interest from the leftover principal could help pay my mortgage. I’m 32, so this is more long-term planning. After buying the apartment, making a few updates, and the economy being what it is, there is currently $250,000 left in the investment account. I’m pretty sure I’m not supposed to touch it.

I’ve always been a bit of a financial mess, racking up credit-card debt in my 20s that I eventually cashed out a 401(k) to pay off. I had $10,000 in savings, which I blew through while updating my apartment, and recently amassed an additional $15,000 in credit-card debt, so I’m technically $25,000 under where I would like to be. 

I’m wondering how I should approach this. I currently make $73,000 in my job, which allows me to save very little. My mortgage and maintenance fees add up to $2,500 a month, and I get $1,100 from the investment account each month to help cover those costs. 

I feel like a fool paying interest on debt when I have so much sitting in an investment account. But I’m afraid to ask my financial adviser for help, and can’t find any advice on how to navigate that relationship. On the one hand, he works for me and I should be able to just ask for the money, right? But on the other hand, I’m afraid of needing to give a reason, getting lectured, or him saying no flat out and the magnitude of this debt really hitting me. 

I also want to get my spending under control more generally, especially since I have no safety net beyond myself at this point. But I’m a complete disaster when it comes to budgeting — I’ve never been able to do it. Help!

First of all, I’m sorry to hear about your dad. No matter what kind of relationship you had with him, I know that inherited money carries a certain weight from the person who left it behind, adding pressure to what is already a pretty fraught topic. It might be “nice” to have this money, but I’m sure it came with baggage.

Researchers have found that how you feel about your inheritance can also affect how you spend it. In a 2008 study of people who received sudden windfalls, researchers found that when a chunk of money was associated with sadness, grief, or other difficult emotions (say, because it came from a parent who died), people preferred to put it toward more responsible or “virtuous” expenses (like an apartment) in an effort to reduce or “launder” their negative feelings about it. The same researchers also discovered that some people did the opposite — they engaged in “hedonic avoidance” (i.e., spent the money more recklessly) to distract themselves in an effort to feel better. It sounds like you’re maybe doing a little bit of both.

Either way, you need to work on two things: (1) communicating with your financial adviser, and (2) spending your money in a more sustainable way. Both of these goals are very achievable, but they require you to acknowledge that you are the person in control here. No one else is going to swoop in and rescue you if you keep living beyond your means. The responsibility is yours.

On another positive note, you and your financial adviser have made some smart decisions with this money so far. Putting half of it toward your retirement savings is a great idea, especially since you had to liquidate your 401(k) in your 20s. And using the other half to buy an apartment helps offset some of your current living expenses, so that you get to enjoy some comfort from this inheritance now.

Most financial advisers would agree that it’s ideal to leave the rest of the principal alone so that it can grow over time. But you’re also correct that it’s dumb to sit on credit-card debt if you can afford to pay it off. To figure out your next steps, I spoke to Pari Hashemi Magura, a financial adviser and senior vice-president at Wells Fargo. “It makes more sense to pay off your credit-card debt than to continue to pay interest on it,” she says. This leads us to your next problem: your fear of asking your financial adviser for help.

“You need to make sure that your relationship with your adviser is one that you feel comfortable with,” says Magura. “I’ve seen a lot of people with inherited wealth who just stick with the same adviser that their parents used, even if it doesn’t really work for them. You need to work with someone you can talk to.”

That’s not to say you should fire your current financial adviser. They are presumably trying to do their job and look out for your best financial interests. They can’t say no if you ask for cash (unless it’s in some kind of trust, which it sounds like it isn’t). But they might ask you more about your spending habits and advise you to change them (the “lecture” you’re fearing).

Here’s the thing: They are right to do this. If you don’t take responsibility for your spending, then you’ll just repeat this pattern of needing a bailout, and that will harm you in several ways. First and most obviously, you’ll fritter away all your money and have nothing saved for emergencies or retirement. And secondly, you’ll shortchange your money’s ability to grow through proper investing.

I don’t say this to scold you. Money can be extremely hard to manage for all kinds of painful reasons. I don’t think you’re frivolous or stupid or any of the things you’ve probably told yourself when you’ve looked at your bank balance over the years. I think you probably just need some help. And that’s what your financial adviser is for, if you can get past your shame and talk to them about it.

Your financial adviser also needs to know if you’re going to keep coming back for cash every year, because that will affect their investment strategy. If you need more money soon, they’ll shift your investments into lower-risk assets like certain bonds, which are more stable (and therefore better for short-term use), but also tend to grow less over time than the higher-risk stocks (which are better for a long-term timeline). My point is this: Your money will go further if you’re clear about what you need, and then stick to the plan you choose.

A good financial adviser will also listen to you and help you come up with a spending plan, also known as a budget. This will ultimately look like a math equation — “here’s how much money you can spend every month” — which might feel constraining. Here’s a trick: Instead of trying to cut back across the board, look at where your money is already going. That way, you can decide which expenses you want to prioritize, and where you want to cut back. (You can learn more about this strategy here.)

In the meantime, I also recommend that you stop using your credit cards. Put them somewhere that’s very difficult to access and delete them from autofill functions online. You can leave the accounts open with a few small subscriptions linked to them and set up autopay so that they help your credit score, but otherwise, they’re not serving you. Use a debit card for your expenses until you feel more confident in your budgeting skills.

Getting a handle on your spending will be a process, but the most important thing is that you stay honest with yourself (and your adviser). If it turns out that your adviser makes you feel worse about your situation, then it’s time to think about switching to someone new. But give them a chance first. And give yourself a chance to be helped, too. Telling yourself that you’re “a mess” and “a disaster” with money reinforces your own helplessness. The only person who can really change that is you.

‘I Inherited Money, But I’m Already Blowing Through It’