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Smarties: Inheritance — to save or spend?


Posted: July 8, 2010 9:18 p.m.
Updated: July 9, 2010 4:55 a.m.

DEAR SMARTIES: My husband and I both came from very poor families. Our childhoods were miserable. We both worked hard all our lives, and now are retired and fairly secure.

We recently received a large inheritance. My husband wants to spend it, as he always does.

I am scared to death, for fear we will need it someday.
 — Fearful in Frazier Park

Sam: As we say in our book “The Smartest Way to Save,” do not ever spend windfalls. Invest them, and you can spend the earnings (such as interest and dividends) for the rest of your life, as well as have the satisfaction of being able to pass the windfall onto your heirs.

Windfalls are big boosts on your way to financial independence. E-mail us for the principles of financial independence from our book.

:  Be patient with each other, and do lots of calm, careful talking. Realize a deprived childhood can cause overcompensation in different ways. For example, it could make you very frugal and overly fearful, or it can make you too eager to spend and throw caution to the winds. This windfall gives you an opportunity to learn more about yourselves and each other. You can work together to compromise with some spending and some saving that will make each of you feel satisfied and reassured.

Dear Smarties: Kids these days do not know how to handle money. My son’s friends just use their debit card for everything. They do not even know when they are overdrawn. However, they’re never worried, because their parents keep funding the account.
— Unimpressed in Ukiah

Sam: What we learn from our parents as children is our model for our choices as adults. Most schools do not teach personal financial management. Parents need to teach these skills. But parents are often unable to handle their own finances well, and therefore don’t give good financial advice to their children.

Heidi: Students will be handling their own money and possibly large financial decisions very soon. They need to be prepared for the real world. E-mail us, and we will send you the principles of financial independence from our book for you to share with the young people in your life.

One of the greatest gifts you can give children is wisdom about money.

Dear Smarties: Is this a good time to buy a house?
— Ready in Redwood City
Heidi: Foreclosures are increasing, driving the price down in many areas of the country. Therefore, home ownership is becoming more affordable for more people. There is a geometric progression: affordability goes up as prices go down. For example, as the price declines, the number of people who can afford a house increases.

That’s because there are more people in lower income levels than higher income levels, therefore, more available buyers. If the price of a home is cut in half, twice as many people can afford it as before. The trend started about six months ago, when the number of first-time homebuyers started to increase.

Sam: Are you really ready? Our advice to first-time home buyers is to be sure you can afford the monthly mortgage payment. Home ownership also has many hidden expenses you aren’t used to as renters. Therefore, have a good savings buffer before you decide you’re ready to become a homeowner. First-time home buyers should consult with their financial advisors regarding tax subsidies and incentives. Sellers are now more flexible and are carrying financing for buyers on advantageous terms. If you are ready, now is a good time. Those who wait for “the bottom” usually miss it.

Heidi Clingen is a long-time resident of Stevenson Ranch. She and Samuel K. Freshman are authors of “The Smartest Way to Save: Why You Can’t Hang on to Money and What to Do About It.” They offer only their opinion, which does not constitute professional, financial, or legal advice. To receive a copy of the principles of financial independence or submit questions, e-mail


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