About three years ago, I was in a car accident. It was 100 percent the other driver’s fault (he had been drinking), and it left me with multiple injuries. Basically, I had to learn how to walk again, and I will probably have screws in my leg for the rest of my life. I was in school for nursing at the time and I had to take medical leave. I couldn’t work or even shower on my own. I moved back in with my mom while I did physical therapy and recovered.
While my life will never be quite the same, I recently won a personal injury settlement from the accident that awarded me more than $300,000 after attorney’s fees. This is a ton of money, more than anyone in my family has ever seen. I’m overwhelmed by it and I don’t know where to start. I want to give some of it to my mom, because she took care of me and housed me while I got back on my feet (literally).
But I also want to be careful. I know that a lot of people mismanage large amounts like this, and I don’t want to be one of them. I’m now back in nursing school and set to graduate next year, but I’m still living with my mom. How much should I give to her? Should I use the rest to pay off my student loans? Should I invest it? Should I save it? Should I use it for a down payment on a home? My lawyer told me to hire a financial adviser, but I’m not even sure how to find one. What do I do?
First of all, I’m so sorry you went through this hellish experience. No amount of money can make up for a painful accident and difficult recovery, not to mention the life stuff that got sidelined because of it. But this settlement can provide you with some comfort and security going forward, especially if you manage it well. I hope that things only get better from here.
I agree that sitting down with a certified financial planner is a smart idea. No one — including me — can or should give you specific advice without reviewing the details of your life. I’ll give you some pointers on finding a professional you can trust, and then cover the topics that you can discuss with them.
But first, as you mentioned, there’s a lot of bad advice out there about how to handle a big windfall like this. A quick Google turned up a bunch of stuff about annuities — don’t fall for it! You might also have people coming out of the woodwork to ask you to invest in their business or tell you to buy a house or a car or a pony or cryptocurrency. Practice some version of this statement: “Thank you. I’d actually rather talk about something else. This has been a lot to deal with.” And then either give them a nice smile or a hard stare.
To find a certified financial planner, look for someone who will charge you by the hour. You do not want someone who charges a percentage of “assets under management,” also known as a cut of your investments. “Some planners will just try to sell you stuff,” says Megan McCoy, an accredited financial counselor and professor of personal financial planning at Kansas State University. “Instead, you want someone to help you create a holistic financial plan that you can understand and manage.”
Two places to look are the XY Planning Network and the Garrett Planning Network, which are databases of vetted, credentialed professionals. Set up calls with a couple of candidates to see how they communicate before you hire anybody. (For more advice on this process, see here.)
It’s okay if you aren’t sure where you want this money to go yet. You’re young, and your life plans took a big detour in the past few years. You haven’t even gotten your first job yet. No one should be pushing you to make major, long-term decisions like buying a home. Instead, you want to cover a few bases and allow for flexibility.
First, if you have any credit-card or medical debt, pay it off as soon as possible. (For the medical debt, ask if you can get a reduction in the total amount if you pay it all up front.) Next, create an emergency fund. This is a chunk of cash that you keep in your back pocket (well, actually, a high-yield savings account) for unexpected stuff — a car repair, a layoff, surgery. Ideally, you want to sock away enough to cover your bills for three to six months. Your CFP can help you determine this amount.
From there, consider what you want to give to your mom. It’s understandable (and admirable) that you want to help her out, but these matters can be fraught. One idea: “You could calculate a monthly rent, based on where you live, and pay that to your mom while you continue living with her,” suggests McCoy. “That could be a simple way to pick an amount that seems fair and is relatively objective.” If you want to contribute more, you could even back-pay your “rent” from the past few years.
Your mom might also benefit from a meeting with a financial adviser, if she never has before. However, be wary if she’s pressuring you to give her money. You don’t technically owe her anything, and you should only share this settlement if you genuinely want to and feel comfortable doing so. (For instance, if you’re worried that the money will enable her to continue bad habits, financial or otherwise, then you’re fully justified in holding onto it.)
As for your student loans: There’s a decent chance that paying these off right away is not the best use of your money. For instance, if you have federal student loans and get a job in health care, you may qualify for the public service loan forgiveness program (PSLF). This is another topic to discuss with your CFP.
Assuming that you don’t have a job while you’re finishing school, you won’t be able to put any of this money into a retirement account yet. However, as soon as you do start earning an income — even just part-time — you could open an IRA, which will allow you to invest money that will grow tax free. “I know it sounds odd to talk about retirement now, before your career has even started, but investing your money when you’re young and letting it grow in the market for decades is how you really build wealth,” says Stephanie Genkin, a certified financial planner who has worked with recipients of personal injury settlements.
Once you have a full-time job, you’ll want to continue to front-load your retirement savings as much as you can — again, the sooner you start building your retirement portfolio, the more your investments will compound over time. This is particularly salient for you, as your injuries might mean that you need (or want) to retire early or work fewer hours. Your CFP can help you set up your retirement accounts and invest them wisely.
Finally, a word on spending. This might seem like a lot of money — and it is — but it will disappear quickly if you aren’t careful. “People do tend to mismanage large sums like this, and the most typical mistake that we see is that they start buying stuff they can’t afford,” says Genkin. “Lifestyle inflation is real, and it’s hard to compute. This is not money that will make you rich now. But it can give you a running head start to become rich down the road if you invest and take care of it.”
The Cut’s financial advice columnist Charlotte Cowles answers readers’ personal questions about personal finance. Email your money conundrums to mytwocents@nymag.com.
