To my savings or to my mortgage

Last weekend, I met one of my girl friends for breakfast at IHOP. It was our quarterly get together and for some reason, we've met at the same place for the last 3 times. I don't mind since I love IHOP.

The usual conversation started with, "How's it going" and "How's the family" while we peruse through the menu. I don't know why I even bother looking through the menu since I always order the Quick 2 egg breakfast. Occassionally, I will order the Belgian waffle. We gave our orders and started talking about what we've been doing since last we saw each other. Our conversation led to a lengthy discussion of finances.

It all started with her question, "Should I put more $$ towards my monthly mortgage payment or put it towards my savings"? For me, it was a strange question because it should be a no-brainer. Put the extra money towards savings, of course. But for my friend, it wasn't so obvious. She believes that if she puts extra money every month towards the mortgage, she'll pay off her house sooner and save money in the long run. Makes sense. My take on mortgage payments is that why should I put more into it when I can reap the benefits of tax deductions for the interest and property taxes?

So I ask her the following questions:
1. How does her savings account look like? Does she have at least 9 months worth of "cushion" in case of emergency, like a job loss or medical expense? If not, she should put the extra $$ into savings because to have cash is important especially in this economy.

2. Why doesn't she invest in mutual funds or CDs and make her extra money work for her? This way, she can have more emergency money she'll have access to instead of sinking it into her house.

Putting extra $$ towards your mortgage isn't going to help you if you lose your job. You're still going to owe the monthly mortgage on it regardless. The lender doesn't care how many extra payments you've made in the past. The lender won't lend you back that extra amount if you are in need of it. So why give it to the lender before its due?

So my advice: make your money work for you and put it into a high yielding savings account or invest in mutual funds or CDs. Unless you have more than 9 month's worth of cushion savings, don't give your lender anymore money than you have to. Take care of yourself first before you give to your lender because your lender won't take care of you.

She agreed with me. Of course our conversation didn't end there. We started talking about college funds, buying Citibank stocks, etc. Amazing what girl friends talk about. And you thought it was all about clothes and shoes shopping, spas and massages and getting our nails done.