Dear Mary: My daughter recently came home to live (she pays a very nominal rent) while she gets her bearings in a new career. She has about $10,000 in credit card debt and now owes me about the same amount. She pays me what she can, when she can. I am charging her 6 percent interest on the unpaid balance.

A financial adviser at an investment company told her she should put money away in savings (with his investment company, of course) so she could grow her portfolio while trying to pay off her debts. I suggested she would be better off paying all her debts first before she starts a savings plan. What would you advise? -- Anonymous, e-mail

Dear Anonymous: Your daughter definitely needs to begin saving money immediately, no matter her debt situation. But she should not be investing money at this point. Saving money means putting it away in a safe place; investing means putting it at risk in order to receive a greater gain on it than simple ordinary interest. She's not ready to begin investing until her debts are paid and she has created a strong financial foundation for herself. So back to saving.

Your daughter needs to start building a contingency fund -- money she accumulates that will be there to bail her out should she experience a financial emergency. She does not need an investment advisor to do this. She can open a savings account at any bank or perhaps even a credit union. Then she needs to make a habit of putting 10 percent of her take-home pay into that account -- every payday and without fail.

If she does not have a contingency fund, the first time anything unexpected happens (her car breaks down or she has a medical expense), she will feel forced to run to the credit cards (or the Bank of Mom) to get past the financial crisis. So yes, she needs to be saving, but not investing, at this time.

Watch your mailbox. I am sending you a copy of my book "Debt-Proof Living" for her. I hope that both of you will read it. This will help her create a financial road map to follow. And make sure she lists you as one of her creditors when she creates her Rapid Debt-Repayment Plan. It will be exciting for her (you, too!) to see the exact month and year that she will be debt-free.

Correction: In a recent column, I stated that if you sell your primary residence on a short sale, expect to pay ordinary income tax on any amount forgiven by your mortgage lender. Since then, it has come to my attention that Dec. 20, 2007, President Bush signed legislation that the amount forgiven on a short sale of a primary residence is not taxable by the IRS for 2007, 2008 and 2009. I regret any confusion this may have caused.

Do you have a question for Mary? E-mail her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, CA 90723. Mary Hunt is the founder of DebtProofLiving.com and author of 17 books, including "Debt-Proof Living." To find out more about Mary and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.
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