Self Employed...what should we do with windfall?

My husband is self employed, and is considering getting out of his current business, and changing career paths...kind of scary! When we sell the building that he operates out of, according to an appraisal, we will likely end up with between $150K and $190K AFTER all credit card debts, business loans, etc., are paid off. What should we do with the money...how much will we lose off the top? We have about $100K equity in our home, with a $160 remaining mortgage...at about 5.5% I believe. No retirement, savings, college savings for 3 children, etc. Please advise.l

Definately pay off credit cards and any other high-interest debt first. If your husband already has a new job lined up that will make this time much easier. If his new salary is enough to cover your current living expenses then all the better. First of all, since you mention you have no savings or retirement that is something that should be addressed first. Most financial planners reccomend putting aside 3-6 months of living expenses for an emergency....I would reccomend the higher side of this since your husband is changing careers and job security could be an issue.

Also, if your husband's new job offers a 401(k) program with matching, he should take full advantage of that and you can use some of that money to cover any budget deficits that come from setting aside that money. It is taken out of your paycheck before taxes are taken out and since most employers match either 50 cents or dollar for dollar your money instantly grows before it even starts earning interest.

After that you can do one of two things with the remainder: invest it or pay off the mortgage. If you believe that you can earn more than 5.5% (or whatever you pay of the mortgage) then the money should be invested since you will earn a higher return on this money that you will pay in interest on the mortgage. Actually you need to do a little better than 5.5% to make up for the fact that you can deduct interest payments on your mortgage from your taxes. Realistically, investing in an index fund or a diversified mix of mutual funds, you should be able to do significantly better than 5.5%, so the money should be invested. Also, since equity in your house is much less liquid that money invested in mutual funds, this money wouldn't be as readily available in case of an emergency.

A financial planner can definately help you with more details for everything, but this plan should get you on the right track. Hope that helps

Think of your retirement first.

While you don't have a college savings for three children, children can apply for loans, grants and other educational assistance funds. Which is not the case with retirement - as you cannot get a loan to fund your retirement. Especially for someone with no savings.

Invest the money you will receive into a retirement fund, and hope that it will grow into a bigger amount that will help make you and your husband's retirement comfortable. Depending on how many years before the children will go to college, you can invest a portion into a 529 account.

Better yet, seek the advice of a financial investment professional to help you calculate the amount you will need and guide you to better investing decisions

invest your money in an asset that earns more than 5.5% after taxes so that you automatically get a buffer to pay off your mortgage. DO NOT SPEND OFF i repeat DO NOT SPEND OFF the money. You can diversify your investments eg. real estate (though amount would be too small), emerging market funds (say 20%), Equities of Blue Chip Companies. Consult a financial adviser.