Q. We could use some advice investing money. We recently sold a rent property and it netted $33,000. We also have $10,000 from a flood loan that government provided due to hurricane Allison. We started repaying it monthly in February at $357 for the next two and a half years. The loan rate is 4 percent.

We'll also have a tax refund of $8,000 this year.

Our obligations include our house note, $1,500 a month for mortgage and escrow, two car payments totaling $956 monthly, and $15,000 in credit card debt. I recently lost my job but my wife makes $55,000 in her teaching job. Between us, we have $220,000 in 401(k) and 403(b) accounts. We also have $5,000 in savings and $15,000 in mutual funds.

Our oldest child will start college this fall. We can survive on my wife's salary for at least six months, I hope, while I look for a job to replace my $65,000 income. My wife and I can be very frugal since we both grew up in impoverished families, but our three kids do not know that lifestyle.

Nevertheless, they will need to cope.

Assuming a worst-case scenario--- no job for me for a year--- what should we do immediately and into what investment vehicles should we put our money from the first paragraph.

---J.C., by e-mail

  

A. When you have a major shortage of income, concern over what your cash is earning is the equivalent of "re-arranging deck chairs on the Titanic"--- what you might earn in interest is tiny compared to the actions needed to increase your staying power and security. Keep as much of your liquid assets earning, but in absolute safety.

Now let's start with a real action plan.

As outlined, you have $71,000 in financial assets outside of qualified plans and $55,000 in income from your wife. Against that you've got about $3,100 in monthly obligations, including minimum credit card payments. Your wife's $4,583 a month in gross income probably nets to about $4,100 a month after about $370 in federal income taxes and additional deductions for medical insurance.

That leaves only $1,000 a month to pay the operating expenses on your house, cars, food for your family, clothing, and other expenses. I'd call that a tough squeeze.

Step 1:   If she hasn't done it already, have your wife adjust her income tax withholding down to what you are likely to pay.

Step 2:   If she hasn't done so already, have your wife eliminate new contributions to her 403(b) plan.

Step 3:   Are you eligible for unemployment? If so, apply today. It will cut your cash needs substantially and reporting on your job hunt will keep you active in searching.

Step 4:   Take a hard look at your cars. While many car owners are "upside down"--- particularly after the fall trade-in glut--- if you have any equity at all you should examine owning a low cost second car with no payment and, perhaps, a new car with a small lease payment. This and unemployment benefits could narrow your cash shortage by as much as $2,000 a month.

Step 5:   Put your credit cards away. Switch to cash and checks for all purchases. This will reduce random acts of spending.

Step 6:   Talk to your kids. Tell them that you still have an average income but that it's only half what it used to be.   Give them a role to play rather than making them be spectators. They can help with home chores; help with lawn care, laundry, home cleaning, food buying, and meal preparation. It will help them learn to become smart shoppers.

Step 7: The hardest step will be telling your eldest child that, like it or not, there will be a year of post graduate work because entering college will be deferred. The year can be used to earn money, take community college courses, and mature.

Step 8: Make a careful and complete list of your expenses and spending. Look for areas to reduce, eliminate, or defer.

Exercise diligence in all those steps and your $71,000 cash cushion is likely to last at least 24 months, not 6 months. If you find a new job the day after you go through this list, you'll start your new job lean, strong, and calm.