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Investor Psychology

Use Money Wisely

Money Smart Women author Janet Bodnar tells a reader what to do when she wants to pay off debt but her husband wants to buy stocks.

My husband recently received an inheritance that is well under $15,000, and he wants to dump it all into the stock market. Here is the problem: Our annual household income is between $40,000 and $50,000, we have $20,000 in credit card debt. We live from paycheck to paycheck, and furthermore, we just put a down payment on a $25,000 vehicle that will take forever to pay off. Do you advise dumping the entire inheritance into the stock market, or do you advise something else? I feel this is a disastrous choice on my husband's part.

I agree this could be a disastrous choice, especially if your husband's notion of "dumping the money into the stock market" means taking a big risk on a single "sure thing" that you may never have heard of. That's not so far-fetched, given your family's financial history. Also, you could earn a much better return -- equivalent to the double-digit credit-card interest rate you're probably paying -- by paying off some of that credit card debt.

At the same time, if you're living paycheck to paycheck, you probably don't have anything set aside in savings, and you don't want to miss an opportunity to take advantage of this windfall, however small it may be. All in all, that's a lot of pressure on a single inheritance of "well under $15,000."

I'd recommend starting a savings kitty by putting, say, $3,000 to $5,000 in a high-rate bank account that would give you access to your cash in an emergency. Put the rest toward your credit-card balances and then tear up your cards, or at least put them on ice until the rest of the balance is paid off. If it's possible, get rid of that $25,000 vehicle and buy a used one, or get along without the extra car.

Once your debts are under control, you can take the money you would have been sending to creditors and start a program of regular investing. That's a far more sensible -- and potentially more profitable -- plan than "dumping" your money into the market.