What to do with unexpected money ...

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Waaib

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I recently found out I'll be getting some unexpected cash from an inheritance. I knew I was included in the will but didn't expect the amount to be as big as it is. Now I'm weighing up options on what to do with it. My only debt is my bond and car.

I can pay off about 80% of my bond.
OR
I have a 2 year old car that I can pay off and then still pay off about 60% of the bond.

It is better to have car paid off totally or bond paid off? Car is at 6,2% with 3 years to go, Bond is 9% with 16 years to go.

What are things you'd think about / consider with this scenario?

My thinking is to use the cash to pay off debt and then use the cash that was servicing the debt for some kind of cash generation purpose but this is very much a secondary thing. First is paying off house and car.
 
Inheritance from a deceased uncle from a coup in Sierra Leone?

Never pump money into a depreciating asset, such as a car. Never, no matter what. You can pay extra every month on your installments rather.

Money into your bond is good. See if you can figure out what the interest amount is over 16 years and cover that if you are financially able. Over and above that is a bonus.
 
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Definitely the bond - property is an asset that should increase in value (unless you're really unlucky), and a car is not.

The finance charges on a property over 20 years also add up to a lot more than a car would over 5/6 years
 
lcbxx said:
Inheritance from a deceased uncle from a coup in Sierra Leone?

Never pump money into a depreciating asset, such as a car. Never, no matter what. You can pay extra every month on your installments rather.
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If the car is the highest interest debt that he has, and higher than expected return on investments, wouldn't it make sense to get rid of that first so that on relative terms he can redirect his money elsewhere for better ROI? I'm just asking, and aware of course that vehicle debt is a badly depreciating asset - but if he'll end up paying double the amount over the next 3 years it could be a significant discount.
 
OrbitalDawn said:
Do the sums first, but if it's a sizeable amount and you invest it aggressively you should be able to outpace the savings on interest you'd get by paying off the debt.
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More good advice! Personally I'd go for this option and reap the rewards later on in life, especially for people 45 years or younger.
 
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Definitely pay off the bond completely (or 80% as you've mentioned). The thinking is to strive not to spend money on liabilities. In this case, the other reason is that your bond interest is more than your car's interest.
 
cerebus said:
If the car is the highest interest debt that he has, and higher than expected return on investments, wouldn't it make sense to get rid of that first so that on relative terms he can redirect his money elsewhere for better ROI? I'm just asking, and aware of course that vehicle debt is a badly depreciating asset - but if he'll end up paying double the amount over the next 3 years it could be a significant discount.
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Odds are that the classic itching off the arse will start (urge to buy a new car).
 
The nature of the asset shouldn't matter - put the money into the highest-yielding account. In this case, it's the bond anyway. If the car interest was higher than the bond interest, then pay off the car. Unless you can find an investment that gives you a guaranteed return (after tax and fees, remember) which is higher than the interest rate on the debt.
 
OrbitalDawn said:
Do the sums first, but if it's a sizeable amount and you invest it aggressively you should be able to outpace the savings on interest you'd get by paying off the debt.
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This. You can already afford to pay off your debt through time. Rather use this money to make a good investment. To help tide you over you can think of it as "not really your money".
 
Sinbad said:
The nature of the asset shouldn't matter - put the money into the highest-yielding account. In this case, it's the bond anyway. If the car interest was higher than the bond interest, then pay off the car. Unless you can find an investment that gives you a guaranteed return (after tax and fees, remember) which is higher than the interest rate on the debt.
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Or buy another property and rent it out. Carries tax benefits too...
 
lcbxx said:
Or buy another property and rent it out. Carries tax benefits too...
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Tax benefits? Only if it costs you more to maintain/finance the property than you make on rent ;)

Would rather pay off current property, then buy another property with the bond, then you can claim that interest back from the taxman.
 
Actually, find out if it's possible to defer the inheritance to a trust you can establish - rather than pump it under your own name. That's probably what I would do.
 
cerebus said:
Question intended for response, not finding one.
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The expense is already there and OP is used to paying it. I'd leave it at that - it a living cost. Since this is and unexpected cash inflow, get it to work for you ASAP. Buy another property as an income opportunity, invest it aggressively or put it into your existing property.
 
Garson007 said:
Actually, find out if it's possible to defer the inheritance to a trust you can establish - rather than pump it under your own name. That's probably what I would do.
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The fees associated with a trust can be prohibitive, depending on the monies involved.
 
lcbxx said:
The expense is already there and OP is used to paying it. I'd leave it at that - it a living cost. Since this is and unexpected cash inflow, get it to work for you ASAP. Buy another property as an income opportunity, invest it aggressively or put it into your existing property.
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A R200k car loan isn't a 'living cost', it's as you pointed out, an unnecessary luxury and a depreciating asset. Paying it down and plowing that payment into other forms of investment would bring better returns and in terms of how it feels, would be no different to paying the car off.
 
cerebus said:
A R200k car loan isn't a 'living cost', it's as you pointed out, an unnecessary luxury and a depreciating asset. Paying it down and plowing that payment into other forms of investment would bring better returns and in terms of how it feels, would be no different to paying the car off.
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Car is only 6.2%. That's a ridiculously low interest rate. It makes no sense to try and get rid of that debt.
 
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