What should I do with my $10K windfall, given these options?
I think you've got competition on that list for where to put the money - I'd work out which option is costing me the most currently or will cost me the most in the future and take care of it. I'd be willing to bet that Eric is right, though, that it will need to be the roof. Not fixing it could cost you more in the long run than any of the other items on the list (assuming your circumstances remain roughly the same).  General comments/other considerations: Any money that doesn't get spent on the roof (if any) - I would put in a rainy day fund. "I've been listening to Dave Ramsey a lot lately, and he encourages (encourage might be too light of a word for him) this priority list for budgeting: I would strongly advise you to tackle this list before you start to think about any sizable ""fun"" spending.  If you don't have #1, set that aside first. The options you mentioned: New roof: You should ask yourself ""what is the potential cost of not getting a new roof?"" If you can save up for it a little at a time, while putting most of the rest of your money to paying off debt, that's what I would do.  Unless, of course, there is damage or risk of damage to your house by not doing it now. Then, you need to do the same measurement (of doing the roof now) against the goal of saving three to six months of expenses.  Especially in your case, with your mortgage underwater, you want to be sure you are prepared should anything happen (for example, losing a job, and potentially being forced to move for a new job). Cars/student loan: (Refer to #3 above — in other words, yes)." As much as I'd like to tell you to save some for an emergency fund or use it to pay off some debt, if you really need a new roof you should get that taken care of first. If you need a new roof because your house is full of buckets that fill up every rain :) then that's most likely the item at the top of the list. If you need a new roof because you don't like the color, I'd do something else with it. If you are in the US and the 'education loan' has the same caveats attached as your average student loan, I would eye that one with intent if the roof can soldier on for a few years as is. The simple reason for this is that a student loan would be the one debt that you list that you can never get rid off unless you actually pay it off, no matter what happens (IOW student loans aren't bankruptable). Disregard this if the caveats in the first sentence don't apply... I recommend fixing the roof. You're going to pay for it eventually, either as an emergency repair or a concession at sale. Hard to give an answer without knowing more details (interest rates, remaining principle on loans, especially how soon the new roof is needed).  Maintaining the value in your home (unless you are planning to walk away from it or short-sell or something) is of paramount importance, and the cost of a leak should it happen can be substantial. If the roof is a few years out, and you have loans with interest rates about oh I'd say around 6%or more then I would pay off those loans and take the money you were paying there and start putting it into a fund to pay for the roof. I am also a huge fan of doing whatever you can to max out your 401K contributions.  Money put into a 401K early has a LOT more value than money put in later, and since you don't pay taxes on it, the cost out of your pocket is much lower (eg. at a 20% tax rate it costs you only $80 out of pocket to put $100 into your 401.. (look at that, you just made like 25% return on that $80) Paying off loans is pretty much equivalent to making a risk free return on the money equal to the interest rate on the loan.  But to REALLY make that work, what you need to do is in a virtual sense, keep making the loan payment just now pay it to yourself, putting that money into a savings account, or towards your 401K or whatever.  If you just torn around and start spending that money, then you are not really getting as much value to paying off the loan early. Have you looked at DIY roof repair?  Caulking with tar adhesive, and shingle replacement isn't that hard, if you're in good health.  Totally depends on how bad your roof is/what the demands on it are going to be.   If you can squeak another year out of it, with minimal investment, you'll have a year's worth of, say car-debt (at what percent interest?) to put into your roof fund.
"I'm not an expert by any means, but pretty much every source I've seen says that one year is far too short for any sort of real ""investment"".  Most guides suggest that anything less than 3-5 years should stay in no-risk accounts like savings or CDs.  If you need to be sure you get all of the money back after just one year, any sort of market-based investment (e.g., stocks or bonds) is too risky. One option is to buy I-bonds.  You can buy up to $10,000 worth in a calendar year, and 12 months is the minimum holding period.  The advantage of I bonds is that the interest rate is indexed to inflation, so that (roughly speaking) they cannot lose value in real dollars.  Right now they pay 1.94% per year, which is substantially better than you're likely to get with a savings account or 12-month CD.  This would come to $194 if you buy $10k of I Bonds. If you sell before holding them for five years (which you will under your plan) you forfeit the last 3 months' worth of interest.  Even so, your effective rate will likely be better than a savings account or CD.  (Also you could get 12 months' worth of interest if you're able to buy them slightly early and/or postpone your sabbatical slightly so that you hold them for 15 months.) Your other option is to find the best rate you can in a CD or savings account.  Nerdwallet for instance suggests you could get between 1% and 1.1% for a $10k deposit in a 1-year CD, which would be about $100. As you can see, either way your money is not going to grow that much.  You'll be gaining somewhere in the ballpark of a couple hundred dollars at most.  There just isn't a way to earn more than that in one year without some risk of losing principal. (I'm assuming based on your Texas flag pic that you live in the USA. :-)  To buy I Bonds you must be a US citizen, resident, or government employee.)" In the case you propose, a taxable windfall, your best hope is to marry someone who has his/her own loss of about the same amount. This advice would work if your gain is a 10 bagger, as you suggest, but not for a lottery. In the dot com bubble, I heard of more than one couple that got married under these conditions. As far as other gains, it would be tough to contrive a situation that would give you such a tax offset without taking on a huge risk, far greater that the $133K in tax you might save. "Assuming that the will that bequeathed the money to your son did not stipulate any restrictions or set up a trust to hold the money until your son turns 25, or something like that, I don't think you have much choice except to put the money in a UTMA account (which of course can be invested in whatever  the trustee (which could be you, or you and your wife jointly) decides.  Note: not a UGMA account since the money is not a gift. You also don't have any option except to turn the account over to your son when he turns eighteen. The point is, the investment can be in anything as long as the account is registered as a UTMA account.  But do remember also that your son is entitled to sue you for breach of fiduciary duty if you don't take good care of the money, so that blowing it all in risky investments is also not a good idea. If you are worried about taxes and your son's income being taxed at your rate, one way of deferring the issue is to buy US Savings Bonds. The interest can be deferred from taxation until the bonds are redeemed. Edit added in response to JoeTaxpayer's comments: But a better strategy is to declare the accrued interest each year as unearned income of the child on the kiddie tax form that is part of your tax return, and pay the tax, if any, that results To ease your mind or conscience, think of the tax that you pay on your child's behalf as a gift to your child! In any case, there will likely not be much tax due since the first $950 of unearned  income of a child is tax-free and the next $950 taxed at 10%. Then, when the bonds are cashed in, the interest that accrued (and was ""taxed"") in earlier years can be deducted  from the interest (cash in price minus purchase price) that you (or your son) will be told is the interest that the bonds earned. Of course, if kiddie tax is not a concern (and it shouldn't be, given the amount available for investment), an even better strategy is to set up the UTMA account(s) in long-term investments in low-cost index funds or ETFs (as JoeTaxpayer suggests) and pay the tax, if any, as it comes due." "I use a ""sinking"" fund.  If you want to buy a $1000 bicycle, you put $100 per month into a savings account.   10 months from now, you can buy your $1000 bicycle. If you get a $500 windfall, you can either put it in the sinking fund and buy the item earlier.  If you lose some income, you can put $50 per month in the fund." If you want to 'offset' current (2016) income, only deductible contribution to a traditional IRA does that. You can make nondeductible contributions to a trad IRA, and there are cases where that makes sense for the future and cases where it doesn't, but it doesn't give you a deduction now. Similarly a Roth IRA has possible advantages and disadvantages, but it does not have a deduction now. Currently he maximum is $5500 per person ($6500 if over age 50, but you aren't) which with two accounts (barely) covers your $10k.  To be eligible to make this deductible traditional contribution, you must  have earned income (employment or self-employment, but NOT the distribution from another IRA) at least the amount you want to contribute NOT have combined income (specifically MAGI, Modified Adjusted Gross Income) exceeding the phaseout limit (starts at $96,000 for married-joint) IF you were covered during the year (either you or your spouse) by an employer retirement plan (look at box 13 on your W-2's). With whom. Pretty much any bank, brokerage, or mutual fund family can handle IRAs. (To be technical, the bank's holding company will have an investment arm -- to you it will usually look like one operation with one name and logo, one office, one customer service department, one website etc, but the investment part must be legally separate from the insured banking part so you may notice a different name on your legal and tax forms.) If you are satisified with the custodian of the inherited IRA you already have, you might just stay with them -- they may not need as much paperwork, you don't need to meet and get comfortable with new people, you don't need to learn a new website. But if they sold you an annuity at your age -- as opposed to you inheriting an already annuitized IRA -- I'd want a lot of details before trusting they are acting in your best interests; most annuities sold to IRA holders are poor deals. In what. Since you want only moderate risk at least to start, and also since you are starting with a relatively small amount where minimum investments, expenses and fees can make more of an impact on your results, I would go with one or a few broad (= lower risk) index (= lower cost) fund(s). Every major fund familly also offers at least a few 'balanced' funds which give you a mixture of stocks and bonds, and sometimes some 'alternatives', in one fund.  Remember this is not committing you forever; any reasonable custodian will allow you to move or spread to more-adventurous (but not wild and crazy) investments, which may be better for you in future years when you have some more money in the account and some more time to ponder your goals and options and comfort level. "Donbey since you mention your expenses are very low, I'm going to assume that social security will cover your expenses once you qualify for it.  Since you have no savings currently the first and most important job for this money is to make sure that you can live comfortably until social security kicks in.  Social security could start for you as early as 62 so you need to set aside at least two years worth of money plus another chunk as a safety measure. Also, if you don't have health insurance please look to get a plan through your local ACA exchange as not having health insurance is by far the most common way someone your age ends up bankrupt.  Insurance will eat up a good chunk of the money, but will be much cheaper after the first year if you continue to have no income. Now, if your expenses are low enough, you can look to use this money to delay when you start taking social security as long as possible as the longer you delay social security the more money you get.  The AARP has a calculator where you can see how much more per year you will get from social security if you delay taking it as long as you can.  This is a great way to insure you live as comfortably as possible even if you live to 120.  Assuming you are reasonably healthy, this is a very secure and very meaningful way to ""invest"" this windfall. Once you have set aside the money for your expenses, emergencies, health care and delaying social security in a combination of checking and high-yielding savings accounts, yhen it can be in your interest to invest any remaining amount.  Common, solid, low-risk investments for a 10+ year time frame would be either: While Glen is correct that it is possible for even the best bond fund to lose money it is rather unlikely that you will end up losing money over a period of 10 years.  The nice thing about the bond fund is that most funds (find the right one) don't charge a fee if you need to need to take your money out early.  CDs guarantee that you won't lose your money, but if you have to take the money out in an emergency the fees will eat up way more money than a bond fund would normally lose.  Also, a good bond fund will generally yield a bit more than a CD. Investing in stock is generally much too risky for this sort of time frame without large savings to back it up." I like the way you framed this question.  There is no single right answer for what to do with your savings, but there are some choices that are wrong in the sense that they are dominated by other choices you could make.  Of the choices you listed, there are two that fall into that category.  The ones that seem like a bad idea to me are: Putting it into your Roth 401(k).  You can't do this directly anyhow, but you could do it indirectly by increasing your contributions and using the growth fund to cover the hole in your budget, but that's a lot of work for a relatively small gain.  You would essentially be exchanging one long-term investment for another long-term investment.  You would pay capital gains taxes on the investment when you sell it today, in order to not pay taxes on its earnings when you eventually withdraw it.  There is some benefit there, but it's a long way off, not that large, and probably not worth the effort.  Things that might change your mind:  If your 401(k) was a traditional 401(k) (paying tax at capital gains rate today to get a deduction at your normal income rate is likely to be a win).  You're not contributing enough to get the full company match (always try to get that match if you can). Putting it into your emergency fund.  Once again, you are likely to pay capital gains tax if you do this, and you will be putting it into an investment that is likely to get a lower return than your current one.  It isn't really necessary to incur these costs, since if you encounter an emergency that you can't cover with your existing emergency fund, you could always liquidate the growth fund then, when you know you need it.  Now, a growth fund is going to be more volatile than what you would normally want for an emergency fund, but the risk isn't that bad, if you think about it.  Say your emergency comes up and you find that the growth fund is down 20% (which would be a pretty horrible run).  That's $600 less that you have to deal with the situation.  Keep in mind that you already have $2000 (and building) in your current emergency fund.  Is that $600 going to make the difference between meeting the need and not?  It's not likely.  Better to leave the investment where it is and keep building your emergency fund week by week.  Things that might change your mind: Your level of risk aversion (if having that money in a more risky investment is keeping you up at night, move it).  You face significant job uncertainty (if you have reason to think your job is at risk, it might be a good idea to top off that emergency fund sooner rather than later.) Your other two choices both seem like solid options under the right circumstances.  If it were me, I'd leave the investment in place rather than use it to pay off the student loan.  The investment is likely (though of course not guaranteed) to earn more than the interest rate even on the highest-rate loan, especially when you consider that the interest on the student loan is probably tax deductible.  Moreover, the size of the investment isn't enough to fully repay the loan, so putting it toward the loan won't even improve your cash flow for some time to come.  However, there is always a chance that the investment will perform poorly and some people prefer the guaranteed return from paying off the loan.  It depends on your personal risk tolerance.  The one thing I would recommend is to think of putting the money toward the loan not as a debt repayment, but as a fixed-income investment with a yield equal to your loan's interest rate.  If you would still consider buying it then, then go ahead.  If not, then stick with what you've got.  In my experience people get way too emotional about debt; try to take that emotion out of your decision making if you can. Check out the /r/personalfinance wiki: https://www.reddit.com/r/personalfinance/wiki/commontopics  While it's not a life-changing amount, this page on windfalls might also be useful: https://www.reddit.com/r/personalfinance/wiki/windfall  Vanguard is often recommended as having low-fee index funds. You should make sure you understand the different investment vehicles though - taxable accounts vs IRA vs 401k, etc. Nobody can give you a safe 6% return with that portfolio under current conditions. It looks like the current 10 year treasury is yielding about 2.2%. With 60% in bonds, the stocks would have to yield about 12%, which just isn't happening safely now. The alternative isn't too bad. Invest in a regular account. The dividends and cap gains will see favorable tax treatment. In my opinion, much of the magic of the retirement account is with 401(k) matched deposits.  The benefit you'll miss is the long term opportunity to skim income off the top, at say, 25%, have it grow, and then withdraw it at a much lower average tax rate. If that benefit doesn't outweigh the fear of the 10%, stick with my first thought above. These products are real, but they aren't risk free: 1) The bank could go under in that time.  (Are the investments FDIC insured?) 2) Your money is locked up for 5 years, probably with either no way to get it back out or a stiff penalty for early withdrawal, so you risk having a better investment opportunity come along and not having the liquidity to take advantage of it. 3) If the market does go down and you get 100% of your principal back, the endless ratchet of inflation practically guarantees that $10K will be worth less 5 years from now than it is today, so you risk losing purchasing power even if you're not losing any nominal quantity of money. It's still a fairly low-risk investment option, particularly if it's tied to something that you have reason to believe will increase in value significantly faster than inflation in the next 5 years. "(Congrats on earning/saving $3K and not wanting to blow it all on immediate gratification!) I currently have it invested in sector mutual funds but with the rise and fall of the stock market, is this really the best way to prepare long-term? Long-term?  Yes! However... four years is not long term.  It is, in fact, borderline short term.  (When I was your age, that was incomprehensible too, but trust me: it's true.) The problem is that there's an inverse relationship between reward and risk: the higher the possible reward, the greater the risk that you'll lose a big chunk of it. I invest that middle-term money in a mix of junk high yield bond funds and ""high"" yield savings accounts at an online bank.  My preferences are HYG purchased at Fidelity (EDIT: because it's commission-free and I buy a few hundred dollars worth every month), and Ally Bank." "I would advise against ""wasting"" this rare opportunity on mundane things, like by paying off debts or buying toys - You can always pay those from your wages. Plus, you'll inevitably accumulate new debts over time, so debt repayment is an ongoing concern. This large pile of cash allows you to do things you can't ordinarily do, so use the opportunity to invest. Buy a house, then rent it out. Rent an apartment for yourself. The house rent will pay most (maybe all) of the mortgage, plus the mortgage interest is tax-deductible, so you get a lower tax bill. And houses appreciate over time, so that's an added bonus. When you get married, and start a family, you'll have a house ready for you, partially paid off with other people's money." First thing to know about investing is that you make money by taking risks. That means the possibility of losing money as well as making it.  There are low risk investments that pretty much always pay out but they don't earn much. Making $200 a month on $10,000 is about 26% per year.  That's vastly more than you are going to earn on low risk assets. If you want that kind of return, you can invest in a diversified portfolio of equities through an equity index fund.  Some years you may make 26% or more.  Other years you may make nothing or lose that much or more.  On average you may earn maybe 7%-10% hopefully. Overall, investing is a game of making money over long horizons.  It's very useful for putting away your $10k now and having hopefully more than that when it comes time to buy a house or retire or something some years into the future.  You have to accept that you might also end up with less than $10K in the end, but you are more likely to make money than to use it. What you describe doesn't seem like a possible situation.  In developed markets, you can't reliably expect anything close to the return you desire from assets that are unlikely to lose you money.  It might be time to re-evaluate your financial goals.  Do you want spending money now, or do you want to invest for use down the road? When considering whether to pay off the student loan, note that, because you work for a non-profit, some or all of that debt may be forgiven after 10 years under the Public Service Loan Forgiveness Program. I would also like to be slightly contrarian on the main question. I like having lots of savings and little debt as much as the next person. But, unless you have been planning your life with the expectation that you would receive this bequest, it is a windfall. If you weren't already doing an excellent job of saving for emergencies and retirement, or had a lot of consumer debt, I'd say you should use the money to stabilize your finances before doing anything else. But your finances do seem stable. So take some of the windfall and do something nice with it. Travel to the ancestral home of your late grandmother. Endow a small scholarship in her memory. Buy some small luxury that you could never manage on your own salary. I'm not suggesting you spend it all, but using 20% of it on something otherwise out of reach will give you good memories while still leaving you materially better off.  Saving for the future is important. Paying off debt is important. Enjoying life when you can is also important. Balance is everything.