Q: My husband and I owe $300,000 on our house (valued at $900,000), but that is our only debt. We have about $40,000 in mutual funds, so we have some emergency money, but our retirement account is only fair. Our annual income is about $325,000, and my husband will receive a $30,000 bonus at the end of the year. Should we pay our mortgage with it, invest in annuities, or buy a resort property? With mortgage rates low and housing prices down, my husband says a beach house would be a very good investment, but I'm not sure.

A: I'm confused. You and your husband make more than $300,000 a year and yet you have only $40,000 in mutual funds and a "fair" retirement account. What's up with that? It sounds like you do not have a handle on spending.

The money you have in mutual funds is not an emergency fund; it's an investment. Markets go up and down, and your $40,000 can become $30,000 before you know it. An emergency fund is money kept in a federally insured credit union or savings account; it is invested in safe deposits that do not fluctuate in value. You need to figure out where all your money is going and make sure you have eight months' worth of living expenses in an emergency fund.

And forget about getting a vacation home. You and your husband still have a big mortgage on your current home, and your retirement funds are lacking. You need to pay off the current mortgage and boost your 401(k) and IRA contributions before you even think about buying a vacation home.

It's not how much money you make, it's what you do with the money you make, and it sounds to me as if you have been spending it, not saving it. That has got to turn around right now.

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Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.


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