I rent a studio and make $70K – how do I turn a $1 million inheritance into financial independence?

One of the biggest things anyone looking at a sizable inheritance has to navigate is what to do with the money. Even the most sudden windfalls can change someone’s life, but then it leads immediately to the question of how to use the money so that it grows rather than just being spent. 

In the case of a Redditor posting in r/fatFIRE, they are looking at the potential of inheriting both a home and cash and want to know what to do next. The good news is they want to talk to a financial advisor and hear Redditors’ thoughts, especially from those individuals who have navigated similar situations. 

The Situation 

From the original poster, we learn that they will likely receive a windfall as a 20-something Redditor living in a studio apartment with their girlfriend in the high-cost-of-living city of Toronto. Currently making around $70,000 annually with a $200,000 portfolio between ETFs, stocks, and crypto, they hope things are moving in the right direction. 

Adding to this hope is that they expect to receive a windfall inheritance in the future in the form of a $800,000 house and a cash value of approximately $1 million. This is what they believe is going to be handed down after splitting cash with their father and with this sudden influx of money, they are trying to make sure they do not “screw this up.” 

On the bright side, they are already showing signs of financial discipline by talking about meeting with a financial advisor to discuss potential investment options. Of course, this is why they are coming to Reddit to feel more informed ahead of this meeting, so they know exactly what questions to ask. 

What To Do Next

In fairness, the Redditor knows that they can put the $1 million away and, at a 5% withdrawal rate, live off the $50,000 for a while, but they are not sure that’s the best use of money. Perhaps more importantly, this Redditor is selling themselves short as they are not talking about what happens if they want a different home, have children, need to pay for a wedding, etc. 

The reality is that $1 million, especially in the fatFIRE world, isn’t forever money, especially for someone in their 20s. As a result, almost all comments discuss the best-case scenario in that this Redditor should invest the money, keep working, and not touch it for the next few decades. 

Whether you stick it in an index fund or ETF and forget about it, or diversify it across all of the above, as well as bonds, this will be one of the best courses of action. Reddit is also universally agreed upon in this post, and it’s rare to see a Reddit comment section agree that this isn’t the right amount of money to even consider retirement anytime soon. 

One Redditor even suggests that if the original poster invests the money now and works closely with a financial advisor, they might see the money double every 10 years. This would mean around $8 million by the time they turn 60, though it doesn’t sound like the original poster wants to wait that long to start enjoying the money. 

They hope to invest the money in the next 10 years and then explore their lifestyle in their 30s to see what’s possible. Perhaps more importantly, they should live in the $800,000 house, especially if they receive it without a mortgage. As a townhouse, they don’t have to worry about lawn care and other maintenance needs, so this might be a great way to bank some extra cash. 

No Life-changing Plans

Perhaps most importantly, this Redditor shouldn’t make any life-changing plans until the money is in their account and the house is in their name. Among the biggest pitfalls people suffer from with inheritances is that they spend the money before they have the money in a bank account, and when they don’t get it, they find themselves in debt or worse. 

If Reddit cautions this individual on anything, there are far too many instances in which the person providing an inheritance could lose or spend the money before it goes to this Redditor and his father. It’s a cautionary tale, but this Redditor should take note of and plan for themselves, as there are two paths: one that accounts for the inheritance and one that doesn’t, and they need to prepare for both. 

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