Q: My question concerns where to place our emergency fund. Is a 4 to 5 percent money market fund the best or would it be better to place the funds in a bond fund and get 7 percent? Will the bond fund offer the same amount of stability and liquidity?

A: I’d keep your cash where it is really safe and liquid. If you have other immediate cash with which to pay true emergencies, or if you can carry the costs on your credit card until the end of the month, then you could put your cash into a 2 or 4-week CD. Otherwise, put it in a money market, where you earn a reliable rate of return and can access the cash without penalty at any time.

Q: I am 30 years old and do not have any financial sense. I make $44,000 a year and have 10,000 in a 401K program. I had an enormous amount of debt ($16,000) that I was lucky enough to have a relative help me to pay off so that I can pay off the money interest free. I am looking for some guidance into my financial planning. All of the financial planners that I am able to find on-line only handle investing. I would like to do that but am starting out with only a couple of hundred in savings so I do not think they would be interested in speaking with me. Do you have any suggestions of a company or a seminar that can help me to budget my finances in order to put some money in the markets and to purchase a home in the next few years?

A: Contact your local office of the Consumer Credit Counseling Service of Greater Atlanta. They will help you budget for free or for very little money. They have a debt management program, but you don’t need that.

Q: I have a neighbor who thinks that she can support herself by trading commodities. She took a course to learn how to do this. I don’t want to be discouraging and I really don’t know anything about this and it’s none of my business, but this doesn’t sound like a good plan to me. If this is not good and I had an opportunity to say something, what would it be?

A: All you can say is this: 95 percent of the people who trade commodities lose money. Only people like Hillary Rodham Clinton win. Good luck, and I hope you have a backup plan.

Q: I have a question regarding investments. At this time with everything going on with our market, what would you suggest that someone do with an inheritance. I would like to have this money work for me for my retirement. Some people say C.D.’s are safe….I would also, if possible like to keep my name confidential. This is a significant amount of money, and I am 37 years old. I already have a Roth IRA and mutual funds, which are automatically deducted from my checking account, which I never check the status of (my Dad said to just keep doing it, and don’t check it!) Please help me as I am lost without my main financial advisor, my Dad.

A: First, please accept my condolences on the loss of your father. But it sounds like you’ve internalized his best advice over the years, and so I know that you will be able to carry on and make the best financial decisions because of all the help and advice he gave you throughout the years.

He left you with a substantial sum because he was sure that you would use it wisely. Here are some suggestions.

First, unless you need the money to live off of today (and it doesn’t sound like you do), please consider investing at least some of it for the long-term. You could take half and invest it in an inexpensive S&P 500 index fund and another part in a short-term bond fund. You could invest the final quarter in a growth-oriented mutual fund, if you like, or a Wilshire 5000 yype whole-market index fund. You can also keep part of it invested in short-term CDs. I wouldn’t do anything long-term right now because interest rates are so low. When interest rates rise, you can invest it for the longer-term, if you want.

These are conservative investments, but I’m sure your father would approve. Vanguard has the least expensive index funds. Go to www.Vanguard.com to investigate.

Q: I am about to inherit from the sale of my deceased mother’s home approximately $140,000.00.

The balance on our home is only about $49,000. (Interest rate of about 7 percent) We have a credit card balance of about $6,000 which we intend to pay off immediately. We have a home equity line of credit for $25,000 with a balance of about $21,000.

One car loan with $12,000 balance. One motorcycle loan with $8,000 balance.

We are thinking about paying off the house and credit card balance and raising the limit on the equity line of credit and rolling the two vehicle loans into it so that we will have interest deductions on our taxes.

I am almost 50 and my husband is 53. We will have no dependents to claim starting this year.

We also plan on possibly putting some of the money from the house into a CD for my 21 year old son and another one for our 23 year old daughter and maybe some for us.

We both contribute to a 401k plan, but my husband is taking an early retirement from Delta (leaving at the end of March) and will no longer be able to contribute to his 401k. I plan on maxing out on my 401k.

Does any of this sound reasonable to you? If not, could you please offer some alternatives?

A: First, pay off your non-deductible debt, including your credit cards, car and motorcycle loans.

Next, refinance your first mortgage and home equity loan into one mortgage, with a much lower interest rate. As I write this, a 30-year mortgage was available for 5.5 percent and less for a 15-year mortgage.

I don’t know how much time is left on your mortgage, but consider getting a 15-year mortgage, so that when you turn 65, your home will be entirely paid off. Next, take the cash you would have continued paying on your mortgage, and use it to prepay your home loan. Every dollar you use to prepay your mortgage earns you that rate of interest.

I don’t know about you but my savings account is paying about 1 percent. If your mortgage interest rate is 5.5 percent and you prepay your home loan, you’re doing a whole lot better if you pay down your mortgage than if you leave cash in a savings account.

Or, as you suggest, you could entirely pay off your mortgage, which will substantially free up your monthly cash flow.

After you’ve done all this, here’s where you’ll be financially: Your credit card debt and car loans will be paid off. Instead of two loans, you’ll have one mortgage with an extremely low interest rate. You’ll be maxing out your 401(k), and hopefully taking advantage of Roth IRAs (you and your spouse may qualify to put away $3,500 each if your family earns less than $160,000 per year. And, you’ll still have more than $110,000 in the bank, or about half that if you decide to pay off your home loan.

At this point, I’d spend a few hundred dollars to buy a few hours of a fee-only financial planner’s time. Then, you can map out how to conservatively invest your remaining cash. You can find a fee-only financial planner by calling 888-FEE-ONLY.

Q: I am getting married in May of 2003. My fiance and I are paying for the wedding ourselves. We both work and have decided on an amount of money that each of us can save per paycheck. I have a lot of bills from school loans and car payments that eat up the majority of my check.

Can you tell me if there is any short term investment that would be good for us instead of just putting the savings in a regular savings account earning minimal interest. We are obviously looking for something not very risky and something that we would not be penalized for.

A: Thanks for your nice note. You and your fiance have a specific short-term goal in mind — your wedding. You don’t want to risk your hard-earned savings on a hope that the stock market will cooperate. That’s gambling, not investing.

I suggest two options: First, open a 1-year or 6-month CD. Put in your cash and then you can renew/add to it when it comes due. Time it so that you can tap your cash when you need it.

The other option is to open up a brokerage account with a Fidelity, or Merrill Lynch. Keep the funds in cash reserves. That should earn more than a money market, but keep the cash liquid.

Q: My wife and I just bought a new home using your book as our Bible. Thank you! I noticed that you had also written several books on personal finance. I need your advice…

I graduated college in 2000 and have a school loan for $28,000 at 11% interest, for 10 years. I have been paying that one off for a year now–usually adding some extra money for principle each month.

With my new home, I have a $130,000 at 6.75% interest, for 30 years. I have been paying that one off for a couple of months–again adding some extra money for principle each month.

My first question is…How should I allocate how much extra money I pay each month? Which way will I save myself more money in the long run? Should I put all of my extra money into the school loan because it has a higher interest rate? Or should I put all of my money in the mortgage because the term is longer? Or is it somewhere in between? Let’s say I have $1000 extra a month to pay off whatever I like…Where should I put it?

My other question lies around my $25,000 savings account. I feel that is two much money to be sitting in a savings account in a credit union! I am not sure what to do with. I am looking at stocks, but am wondering about the fact that stocks are a good long term investment (say 10 years). Since that is the case, wouldn’t it be much safer to put that extra money towards my school loan–that would pay off at 11% over 10 years–pretty good right? Any suggestions on this one?

Thanks for all advice you can offer, and for a great book to use during my first home buying experience.

A: Thanks for your nice words about my book. I’m glad it helped you.

First, see if you can get your school loan lowered. If you took out a government-sponsored loan, many of those loans had their rate reduced. If it is reduced, then you can decide what to do from there.

If it cannot be reduced, take 11,000 out of your savings account — where it is earning virtually nothing, and pay off a chunk of your school loan. Keep $10,000 in cash for an emergency account. That can stay in your money market account, or in a short-term CD. You won’t get much more interest, but it’s something.

Do you have a Roth IRA? Are you eligible for one? If so, use the remaining $4,000 to open up a Roth for yourself and your spouse. Once you open it up, I’d put the cash into an S&P 500 fund. Vanguard typically has the least expensive index funds, so start there. You can check out www.morningstar.com for more mutual fund ideas.

As for your savings, you should open up a brokerage account (preferably where you open up your Roth IRA) and start plowing $500 per month of that cash into your financial future. You can do another S&P 500 account, or try something else. The idea is that regularly you add to that cash and over time, it will grow. Use the remaining $500 per month to prepay your school loan. You’ll have it paid off in 2 years, and will have been able to to put aside a huge chunk of extra cash.

I recommend you pick up my book 100 Questions You Should Ask About Your Personal Finances, which will give you much more detail about investing and other places where you can save money in your life.

But congratulations on getting started. Be sure to watch the interest rates, so you can refinance and save even more.

As for paying off your home loan early, consider this: Simply refinance your loan into a 15-year mortgage. You’ll pay less in interest and will be able to save tens of thousands of dollars by paying off your loan in half the time.

Q: I am about to retire in a few months, and have thought all along that I should take a lump sum for the payout of my pension. I am working with two different Financial Consultants, from two different companies, and they both feel that my lump sum is very generous compared with lump sums provided by some other large companies. I also realize that this is in their best interests for me to take the pension in a lump sum as well, since I will be using one or both of them for investment advice.

The lump sum is equivalent to about 14 times the annual payout for my wife and me.

I would be interested in your recommendation.

A: If you knew how long you were going to live, you could make the best decision. Since you don’t know, you’ll have to guess.

I’m with your advisors. Typically, you’ll do better over the long run with a lump sum, plus you don’t have to worry about the company changing its pension payout rules after you’ve retired.

Take the money and then decide whether you want to work with either of these advisors, or find someone else, or do it yourself.

Q: In your article “Is now the right time to refinance?,” you refer to the US economy beginning to slow down and may actually head into recession later this year. That said, would it be wise to invest in a Vanguard fund (for example) or find another type of short term investment until the future is a little more clear? Also, in a recession will the mortgage rate down more, or if the feds lower another quarter or half will they go down more?

A: The federal funds rate (short-term) has little to do with the long-term bond rate (Mortgage rates). mortgage interest rates are tied to the 10-year bond, so they operate in a different arena. 1-year ARMs are more likely to be affected (rate will go down) if the fed lowers the fed funds rate.

I wrote that story a few months ago, but the economy is still slowing – near a stall really. As far as your investments go, you should really pick a mutual fund or an index fund with an excellent long-term track record (15 years + is good) and stick with it. Find one at www.Morningstar.com.

Q: I know that the market is low right now. Is that a good time to buy into it? Also, how much money do you need to start investing?

A: Those are good questions.

First, you should invest no matter whether the market is “high” or “low.” That’s because no one can time the market and you should just plan on getting in above the low and below the high. If you invest regularly, it’s called “dollar cost averaging,” which means you’ll buy more when the market dips and less when it rises, but that over time, you’ll end up with more money in your investment than you otherwise would.

My book, 100 Questions You Should Ask About Your Personal Finances, explains how to invest and where to get started in detail. You should try to open up an S&P 500 index fund, and Vanguard (www.Vanguard.com) typically has the cheapest funds. Open a fund and invest regularly. That’s how to really increase your net worth.

Q: Is now a good time to invest in independent energy providers like Calpine Corp., (CPN) given energy needs, but also with consideration to Congress agenda restructuring?

A: I never recommend individual stocks or bond issues because something isn’t necessarily right for everyone. But I do believe a well-diversified portfolio will serve you well in the long run. Energy would be a part of that. As for these companies, I have no idea.

Q: I am currently investing about $50,000 in Franklin Templeton. My investment is distributed between Global Funds, Mutual Discovery, Class C; Growth Funds, Class C and Small Cap Growth Fund, Class C. My portfolio has dropped considerably this year but the capital gains on these funds was pretty high this year, therefore, increasing our income tax. My financial adviser has asked me to consider moving some of this money into variable annuities. Can you help me understand if that will be a good move, or should I be looking elsewhere? I am also invested in my 401K at work, primarily in equity growth and index funds. Needless to say, I have lost a lot of money this year.

A: Generally speaking, I think variable annuities make a lousy, expensive investment. They’re really for people of enormous wealth.

Everyone lost money last year. That’s what happens when the bottom drops out of a market. That’s why you need to invest in quality mutual funds with 15-year track records, so you have the good with the bad.

I’d go to www.morningstar.com and start looking at 4 and 5-star funds with 15-year track records and then build a diversified portfolio.

Q: What is the difference between cooperative ownership and condo ownership? Which is the better investment?

A: The difference is in the form of ownership. With a co-op, you own shares in the corporation that owns the property. Your shares equal your unit. You pay “rent” each month (your monthly association fees) which include your share of real estate taxes. With a condo, you own everything in the unit (except the walls, floor and ceiling) plus a prorata share of the common areas; and, you pay your taxes separately.

As for the question of investment? That’s strictly local. In New York, both condos and co-ops appreciate equally. In Chicago, areas where there are plenty of coops and condos, both appreciate at about the same rate. But generally, outside of New York, co-ops are a less understood form of ownership and are considered more difficult to sell.

Q: I have read much about laddering Treasury securities as a way to produce regular income and reduce interest rate risk. More often than not it is recommended to either have securities maturing in 1,3,5,7,and 9 years, or 1,2,3,4,and 5 years, replacing each as it matures. The recommender (such a word?) then says to purchase the securities through the Treasury Direct program. Of course, the fallacy here is that program offers only 1,2,5,10, and 30 year Treasuries. Nobody has ever said where to buy Bills and Notes maturing in 1,2,3,4, and 5 years. Can the yield on these instruments stand a brokerage commission? And, if one buys them through a broker do you continue the ladder with a broker or work them into the Treasury Direct program. Or maybe you buy 1, 2, and 5 year notes from the Gov. and fill in the 3 and 4 year notes from the broker? This seems like a wonderful way to invest, but I obviously am missing part of the picture’s mechanics. Can you shed some light on this for me? I would be very grateful.

A: You certainly brought a smile to my face today. Your question is a good one, except that the US Government is about to get rid of its Treasuries altogether. You’ve probably heard a lot about paying down and off the national debt. Well, those 1, 2-year and 30-year treasury bills are going by the wayside. In fact, my husband, Sam, and I were discussing this morning what lenders are going to tie the 30-year mortgage interest rate to since the 30-year T-bill is about to be discontinued.

Okay, now to the general question: I think laddering isn’t such a bad idea, but it depends on how old you are. For example, if you’re 30-years or more away from retirement, you shouldn’t be buying bonds at all. You should take your money and invest for the long-term in equities. Then, as you need cash, you can sell off your equities bit by bit, enjoying the higher rate of return and continued growth.

If your heart is set on bonds, the next question is, what is your tax bracket. The higher your tax bracket, the more you benefit by purchasing municipal bonds, which are federal and in some cases state tax free. These you could ladder as well.

I hope this helps. I talk a bit more about bonds and investing in my book, 100 Questions You Should Ask About Your Personal Finances, which you can buy through my website, or at www.amazon.com or at your local bookstore.

Q: I enjoy listening to you on the Clark Howard show and thought I’d write with two questions. I currently have 7% equity in my house (based on the purchase price). I have some money saved up that i could either: put towards the mortgage principal, put in the stock market or do something else with it. I could put enough towards the principal to reach 20% equity (my PMI payment is approximately $80/month). Is this a wise idea considering the current activity of the stock market. I bought the house in Feb. 99, so it will be two years this coming February.

Separate question: This year my wife and I received some shares of stock as a result of an estate settlement. We sold some of the stock this year, for a loss from the price when we received it. How do I account for this on our taxes. Is it chalked up as a loss or something different because the manner in which it was received?

A: If you can buy down your mortgage to 20 percent equity with a cash infusion, and get rid of PMI, then do it. You can take the $80 per month savings and send that to a mutual fund (try an S&P 500 index fund) to build up your savings and investments.

As for your stock, it is indeed a loss. You can carry forward a loss for up to 3 years. So make sure you use it up and do not let it expire. Your tax preparer can advise you further on how to make the best of it.

Q: My 86 year old mother was persuaded by a bank rep to take $10,000 of her CD’s and invest it into a Pershing Annuity.

Now, my mother is very upset because she knows nothing about mutuals, stock, bonds, etc. She doesn’t even understand what she did, although she says she went to the bank and signed some papers. She does not have a clue as to what she signed or what it was for. My mother says the rep. called her and told her this would be a better way to invest her money, and my mom believed her. What I want to know is if there is anyway my mom can get out of this annuity and put the money back into CDs? The amount of interest she was getting on the CD compared to what she is earning with the annuity is drastically reduced, as it would be based on the Market’s fluctuations. She has two funds ONEBX and OGIGX. May I get some advice on what may be done, if anything, to put things back the way they were. My mom is much too old and not at all well-versed in the ways of the Stock Market to be involved in such a process.

A: You can contact the Federal Trade Commission if you think there was something untoward about the way your mother was approached.

You may also be able to get her out of the annuity, although she will lose some money (life’s lessons are expensive).

But there’s a bigger issue here. You and your mother should sit down and seriously discuss her ability to handle her finances alone at this stage of life. It is entirely possible that you should be listed as a co-owner of all her bank accounts and possibly she should even give you power of attorney. If for nothing else, to keep her from making such costly mistakes.

It will be very difficult for your mother to give up control of her finances. But if she is prone to making these kinds of mistakes, soon there won’t be anything left.

Q: This year my husband started “dabbling” in on-line investing…small amounts, since he’s still learning. A few months back he bought 150 shares in a company that was going to have a 4 for 1 split in late October. Several days after the split date his on-line printout showed the split (he now had 600 shares) and a $ amount of about 1200.00. He decided to sell, and did an on-line transaction. It was confirmed on line, and a few days later he received a written confirmation.

Several days later we got a "correction" …Ameritrade had “taken back” the $1200, and showed that we had traded 150 shares for a grand total of $299.00.

A call to the company got him a “Oh, well. I guess we posted it too soon.” We wrote to the CEO of the company on November 19 and have not had our letter acknowledged. My husband found a regulating agency which he wrote to to complain, and we have not yet heard from them.

My question is: What rights do we have here? If they showed he had the 600 shares, and confirmed twice that he sold 600 shares, how could they just take it back with a shrug of the shoulders?

I really hate to just have $900 snatched away without any explanation.

A: The whole thing smells funny to me. File a complaint with the Federal Trade Commission and the SEC. You need to go back and see exactly what happened on what date. The company, if it is complying with SEC laws will have an exact record.

Q: I am a newly divorce female. I need help with investments. I just opened up a 401k with my employer. I am only investing 3% at this time. I have two small children. My income is roughly about $2600 after taxes. My monthly bills are as follow:

Mortgage: $1102
Car note: $480
Credit cards $250
Utilities $200

I just opened a savings account. Please give me some investment direction. I was interested in the Roth IRA. I don’t know much about. I don’t even know where to go to open one. I respect your financial expertise.

A: I’m glad you’re trying to save even when things are tight. A Roth IRA is a good place to put some of that cash, because it will grow tax-free forever (You can invest the funds in a mutual fund, CD, or shares of stock).

However, before you do that, I’d like to see you open up a money market account and build up an emergency reserve of 3 months’ worth of expenses. So the account should have $6,000 in it. After that, you can then start socking money away in a Roth IRA or other retirement vehicle.

And, congrats on putting something away in your 401(k).

Q: Some months ago I was driving in Atlanta, listening to you on Clark Howard’s show when you listed 10 – 12 things to do to shape up finances. I was scribbling fast — trying not to wreck — but didn’t get them all.

“Kick a bad habit” was super advice in my case: I’ve quit eating meat, quit smoking, and have saved money. Does the excellent list appear somewhere on your web site, or would you pls email it?

A: I have a book coming out this spring called 50 simple things you can do to improve your personal finances. The list came out of that book. On my site, look up personal finance resolutions. I think you’ll find a few other suggestions.