You learn that Pippi went missing in the Cemetery, and the mayor asks you to rescue her.
Explore Podunk
Make sure that you have your Cash Card with you. After getting rid of the poltergeist in your house, you should leave your house and follow the dirt path that goes east and south. Note: you can go diagonally if you press diagonally on the control pad. You can also hold B to run. On the way south, you will have random enemy encounters with Crows, Wally, The Hippie, Centipedes, PseudoZombis, Snakes, and Stray Dogs. These enemies are quite strong, and it is somewhat likely that you will not survive. You will return to your last save location if you are defeated. Just keep trying until you have leveled up enough to defeat the enemies more easily.
You will cross a bridge and find a woman in pink. Talk to her to learn that Pippi is missing. The woman asks you to tell the mayor in Podunk. (Note: you can't go into the pink woman's house.)
As you continue going south, you will find some houses. You can go into the house with the round door and talk to the mouse, who tells you that you can only enter buildings that have round doors or have signs.
In town, you will find a Department Store (the sign says Dept.) Inside, you will find an ATM, where you can withdraw the cash that your father has been depositing. To use the cash machine, you have to go into your Goods menu and Use the Cash Card on the ATM. There is also a phone, but you have to pay $1 to use it.
You can go upstairs to find different shops: a drug store, sporting goods, foods, and a pet store.
Get the Canary Chick
At the pet store, say that you want to buy the Canary Chick, but refuse to pay. The shopkeeper will give it to you for free. If you feel like it, you can take the Canary Chick to the Canary Village, which is northwest of downtown Podunk, or you can wait until later to go there.
Canary Village
If you want to go to the Canary Village now, go northwest from downtown Podunk to find it. Go to the middle of the south wall of the Canary Village to find an entrance through the wall. Inside the wall, go north, then northeast, then go to the northernmost part of the village and walk behind the white building to find a hidden exit. Use the Canary Chick on the bird and you will learn the second Melody. Then go southeast from the Canary Village to return to Podunk.
Prepare to go to the Cemetery
To the left of the Department Store, you will find City Hall. Go inside and go upstairs, and talk to the mayor, who is sitting in a chair. He will say that the lost child is in the cemetery, and he will ask you to help, so say Yes.
Before you go to the cemetery, you should try to fight monsters to earn enough money to buy the Wooden Bat (Teeball Bat in the fan translation) from the sports store in the Department Store. It is the strongest weapon that you can get right now. If you are impatient, you can get the Slingshot instead, but it is weaker and it misses about 1/5 of the time, so the upcoming battles will be more difficult if you use it.
You should also buy some Bread from the food place in the Department Store so you can warp out of a dangerous place if necessary.
Go to the burger shop that is west of the Department Store and get some Hamburgers.
When you are ready, go to the Department Store and deposit all of your money into the cash machine, in case you die (you will lose half of the cash that you are carrying if you die).
It is recommended to Use (not Eat) the Bread outside of City Hall to turn it into Crumbs, because it will be helpful to warp back here when you are done in the cemetery.
Be sure to save your game in the Department Store, or better yet, go to the southeast corner of town, then go southwest and keep going along the dirt path to find a Healer's house. He has a free phone, and if you save there, you will be much closer to the cemetery if you die and go back to the Healer's house.
Rescue Pippi
The cemetery is in the southeast of Podunk. If you are at the Healer's house, you can go southeast from there to go to the cemetery.
As you approach the cemetery, you may have random encounters with Gang Zombies, Ghosts, Mr. Bats, and PseudoZombis. Some of the people that you can talk to in town, namely some of the blond guys wearing blue, are secretly PseudoZombis as well.
After you cross two bridges, go east and then south between the trees. Continue going south until you see a stone wall. Go left to find an entrance into the wall. Go through it.
Go south past the church, then go east when you can't go any farther south. Then when you can't go any farther east, go south. Go east when you can, then go north when you can. Go north and then west to find some tall mausoleums. Go into the hole between the buildings.
Go down the stairs, then go through the door. In the next room, there are some coffins. Check on the bottom-left casket to find Pippi. Talk to her, and say No to her first question, then Yes to the second question to get the Franklin Badge. (If you answer incorrectly, you can still get the Franklin Badge later.) Then Pippi will lead you to the exit. She asks you to go first. If you made any Crumbs (by selecting Bread in your Goods and choosing Use instead of Eat), you can Use them to warp out of the Crypt with Pippi.
You might want to keep Pippi with you to help you level up. You can equip her with weapons, such as the Slingshot.
If you are ready to part ways with Pippi, go talk to the Mayor with her.