How to Spend "Special" Money

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By Dayana Yochim (TMF School)
January 7, 2005

I'm going to depart for a moment from the world of common sense and sound financial advice to propose a money-related mind game. It is simply this: Treat inherited money differently from all of your other dollars.

Why? Doesn't a buck spend like 100 pennies whether it comes from your couch cushions or your paycheck? Of course. But while a birthday check or a bonus from work could count as "special," too, those aren't quite as deserving of the sentimental hoo-hah that I attach to willed money.

Call me sappy, but I think that money bequeathed from one individual to another comes from a different place than all other currency -- and not just literally. Writing a will and planning one's legacy takes careful thought. Unlike monetary gifts given in life, money left behind for loved ones represents the final -- and probably most bountiful -- gesture of good wishes. Whether that money is earmarked for a cause or for a close or distant loved one, the giver's sentiment is clear: "I hope this helps bolster that part of you (or your work) that I most admire."

What a shame to the gift-giver's memory to treat that money without the respect it is due.

So how does this sentimental proposal play out in real life? A listener called the Motley Fool Radio Show recently with a common conundrum: He had inherited a tidy $35,000 from his grandmother and wanted to know whether he should use it to pay off $12,000 in low-interest credit card debt or for a down payment on a first home.

One of the most vivid memories he held of his grandmother was her pride in owning her home free-and-clear. His grandparents had lived in this home -- their first home -- until their deaths. The answer to the caller's question, to me, was obvious.

Mathematically, it probably made sense for him to pay off his debt and keep the remainder in a down-payment fund. But as he kept talking, it became clear that even without the inheritance, he had the means to pay off his debt in a reasonable period of time. He just needed a little push.

My advice, though perhaps unconventional, was to pay down his debt with his own earned money. The best way to kick the credit card habit for good is to have a clear memory of the work it takes to pay it off. Debt that's erased overnight with little effort does not reinforce that lesson -- and in this case, I felt that it wasn't true to his grandmother's memory. Call me sappy.

Don't get me wrong: Money should never be used to manipulate family or friends -- in life or death. A gift of money must be given and then forgotten. But the giver is within reason to hope that the gift is treated as a legacy and spent or saved accordingly. After all, the process of planning how one's lifelong possessions will be doled out dredges up emotional and personal hopes for the future in all but the most literal-minded souls.

Inherited money is a gift, and should be treated as such -- the gift of college tuition, a chance for a financially carefree retirement, or a head start toward the dream of home ownership. Chances are that in your lifetime, you're gonna spend a sentimental dollar or two, too.

For more on leaving a lasting legacy...