The way I see it, there are two types of investing you can do:

1. Tax-Advantaged - This is where you should focus you attention. There’s more than enough options in this area to have you set for retirement and have your kid’s college paid for, all while reducing your taxes. Keep things simple and focus on investing here.
2. Taxable - This is the area of investing that should take a back seat for most people. Only go here if you’ve exhausted all options above. If you do invest in this area, please don’t use money that could be securing your retirement or your kid’s college.

Again, that’s just my take on things. I’m sure there are people who could argue against it. To me it’s just the simple way to approach things. Here’s more…

Tax-Advantaged Investing Specifics

Whether they know it or not, most people are already doing tax-advantaged investing through their 401k. This is great! However, even more tax-advantaged investing can be done through a Roth IRA (which uses after-tax dollars, and earnings are tax free if withdrawn after 59 and 1/2).

This is the investing sequence most should use:

1. 401k to Get the Employer Match
2. Roth IRA to the Max
3. Back to the 401k to the Max

See the 2009 Retirement Contribution Limits to find out how to get to the max.

This approach will help you avoid taxes now and in the future. The government, via the IRS, is trying to encourage you to save for your retirement so you won’t simply rely on Social Security. That’s why we have these types of accounts. And that’s why most of these accounts come with stipulations about leaving the money where it is, for it’s intended purpose.

A Roth IRA can be opened at a bank or at an investment firm. I recommend Vanguard. They don’t have minimums on their accounts and their funds are some of the cheapest in terms of fees. If you don’t have one of these, please go open one today. Just do it and get started. It’s really simple.

There’s even more tax-advantaged investing you can do. I won’t get into it here, but I’ll just refer you to this article on 529 Plans and other tax-advantaged education savings accounts.

Taxable Investing Specifics

Taxable investing is taking your after-tax dollars and investing it without a tax-advantaged account. Simple, right? The key thing to remember here is to only invest money here after you’ve exhausted your options in the tax-advantaged areas. These investments will be taxed before you put the money in and the earnings on the investments will be taxed.

Taxable accounts can be opened up at the same places as tax-advantaged accounts, at banks and investment firms. But the best places are the one’s who’ll let you trade cheaply, since you’ll theoretically be doing that more often (because of no limitations by the IRS). These are places like eTrade, Scott Trade, Zecco, Sharebuilder, etc.

More Information

There’s obviously more to investing: what to invest in, proper asset allocation, etc. But the above should hopefully give you an initial framework when trying to decide which direction to go with your investing. Maybe next week I’ll tackle the subject of different funds and asset allocation.

So what’s your take? Is there ever a reason to go with a taxable account first?

photo by thelastminute

WTDirect is offering a cash bonus of up to $150 to customers who open up a new savings account. They have an interest rate that is currently one of the best. Apparently, this offer is not going to be around very long, so open an account today.

Here’s how it works: Simply apply online for a WTDirect account, deposit $10,000 or more by July 31st, and keep your funds on deposit with WTDirect through October 31st.

You’ll earn a cash bonus of up to $150 based on the following schedule:

• $150 bonus for a $50,000 balance
• $100 bonus for a $40,000 balance
• $75 bonus for a $30,000 balance
• $50 bonus for a $20,000 balance
• $25 bonus for a $10,000 balance

Based on my crude calculations, this bonus, combined with the current APY for the savings account, could provide an annualized return over the next three months of close to 3.00%. Not bad.

Sign up for a WTDirect savings account today to get a cash bonus of up to $150.

After looking back at my own savings goals for 2009, I’m feeling pretty good about things. Still, I need a reminder to stay focused on the end goals. Here’s a list of the 2009 IRS retirement plan contributions limits…

2009 Retirement Contribution Limits

Traditional and Roth IRA - $5,000

401K, 403b, 457 Plan - $16,500

Simple IRA - $11,500

SEP IRA - $49,000

Defined Contribution Plan - $49,000

Keep in mind, some of these limits have “catch-up” type rules which allow folks over the age of 50 to contribute more. Also, remember that some of these limits are capped by income thresholds. Check out the IRS website for more information.

Still Time to Go for the Max

Okay, let’s say you haven’t yet contributed to a retirement plan this year. No worries. You’ve got a while to contribute, so get to it.

For your 401k, you’ve got till December 31, 2009. That leaves 6 months, or 12 paychecks if you’re paid bi-weekly. If your goal is to max out, you’ll need to put $1,375 per paycheck towards your 401k. That’s a lot, but I know there are some readers who could make this happen.

For a less daunting goal, try maxing out the Roth IRA, an retirement account that uses after-tax dollars, but allows your savings to grow tax free. Your limit is lower ($5,000), and you actually have longer to contribute. With an IRA you’ve got until you file your 2009 tax return in 2010. If you file as soon as you get your W-2’s, then make your end goal January 31, 2010. If you wait until the last minute to file, then maybe set March 31, 2010 as your end date.

Similar to the calculation for the 401k, take the IRS limit, in this case $5,000, and divide it by the number of paychecks you have left. If you’re shooting for January 31, 2010, and you’re paid by-weekly, that’s $358 per paycheck. Not too bad. Most two income families could likely do this.

So what do you think? Can you do it? I’ve found it to be easiest to save when my savings are automatically deducted from my paycheck, before I get to spend it. So, as I always say, head over to your human resource or payroll department today and set it up. But first, read how to open a Roth IRA for the first time.

Retirement savings is important, but there’s a whole lot more to getting your financial house in order. If you’re up for a bigger challenge read my mid-year financial check-up series. Good luck.

“How would you like to trade in your old gas-guzzling clunker and get $3,500, or even $4,500 cash to buy a new one?”

Well, the cash for clunkers stimulus program does just that. Although, the jury is out on whether the program will actually help individuals, the auto-industry, or the environment. One thing is for certain, your tax dollars (approx. $1 Billion) are involved, so it’s a good idea to know the details.

Cash for Clunker Bill (now Car Allowance Rebate System)

The cash for clunkers legislation was signed into law by President Obama on June 25th, officially as the Car Allowance Rebate System (CARS) to be administered by the National Highway Traffic Safety Administration of the U.S. Dept. of Transportation. Here’s a pdf of the C.A.R.S. Law.

Cash for Clunkers / CARS Details

Essentially, you trade in your less fuel efficient vehicle and get a credit towards a new, more fuel efficient vehicle. Key points to note:

• Rebates range from $3,500 to $4,500, depending on the type of vehicle you trade in.
• The vehicle you are trading in must be less than 25 years old on the date of trade in.
• It has to be a new vehicle you are buying or leasing.
• Both vehicles can be either domestic or foreign.
• Your trade-in (clunker) must get 18 or less MPG (with the exception of some vehicles)
  • Cash for Clunkers MPG / Rebate Chart
  • Find your clunker’s MPG
• You must have owned, registered, and insured your trade-in (clunker) for more than a year.
• The dealer you buy the new car from will handle all of the details.
• The Cash for Clunkers program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.
• Your trade-in (clunker) will be destroyed. So, the dealer will only give you scrap value for it, above and beyond the CARS credit.

How to Apply for the Cash for Clunkers / CARS Program

The cars.gov website makes it fairly easy to understand how the Cash for Clunkers / CARS program actually works. They detail the process in the chart:

1. You’ll first need to visit cars.gov for information on the program. I guess this is here so they don’t have any unqualified folks applying to the program.
2. Your next step is to find your car.
3. Once you have your new car picked out, bring the paperwork showing you’ve had the clunker (to be traded in) for at least one year. This includes the title, registration, and insurance.
4. The dealer will then handle the submission of the paperwork to NHTSA.
5. NHTSA will then review your paperwork and ensure the purchase meets the Cash for Clunker program requirements.
6. Lastly, 10 days after you turn in your paperwork, the NHTSA will issue a credit to the dealer. This being the case, the dealer will likely sell you the new car and make the trade prior to getting full approval, giving you the credit before they receive it.

Who to Contact for More Info

If you’d like to know more about the program, be sure and visit the website at www.cars.gov, or call the hotline at (866)-CAR-7891.

I had a great holiday weekend. We celebrated the 4th of July like most people. We spent some time with friends and family, went swimming, grilled hotdogs, and even watched some fireworks.

At some point over the weekend I caught a story on the Today Show that reminded me about the cost of our freedom and independence, and the need to support those who give so much. It was about Keith Zeier, a wounded soldier, once told he wouldn’t run again, who had trained to run a 100 miler to raise money for the Special Operations Warrior Foundation. Here’s the video:

As you heard, Keith has raised more than $60k and is going to raise even more as a result of his story. If you’re looking for place to provide support, I encourage you to check out the Special Operations Warrior Foundation or visit the National Resource Directory for other groups to support, including those that provide Money Manegement and Financial Counseling.

Sadly, a member of the pf blogging community recently lost a friend who was fighting for us in Afghanistan. Take time today to read Remembering a Fallen Soldier and Freedom isn’t Free at Good Financial Cents.

QuickHits

• How-To Roundup over at All Financial Matters
• Wealth Creation: Is it a Myth? at Lazy Man and Money
• The Little Budget Travel Book, a new offering from David at Money Ning
• Win a New iPod Nano from Gather Little by Little, who’s celebrating two years.
• 16 Powerful Personal Finance Programs at Get Rich Slowly

Carnivals

• Carnival of Pecuniary Delights #14: I Forgot Day Edition
• Money Hacks Carnival #71: Canada Day Edition
• Carnival of Top Personal Finance Posts #9
• Carnival of Debt Reduction: Waffle Iron Day Edition
• Best of Money Carnival
• Carnival of Money Stories: Declaration of Independence Edition

How Do You Make Investment Decisions?

Making investment decisions can be a scary and overwhelming process. It seems like we are constantly bombarded with information about the market – one moment everyone’s excited, and a few hours later they are all disappointed. How can anyone make sense of this? The single most important thing to remember is that your investment decisions are largely determined by your personal situation. Creating a personal investment policy statement can be a great way to clarify your objectives and organize your financial planning.

Establish Your Investor Experience Level

Your investment policy statement is a document that outlines guidelines for you and your investment advisor. The policy should start by establishing your investment knowledge base. Are you an experienced investor, or are you just starting to learn? A financial advisor who understands this will have a better idea of how to communicate information effectively. Morningstar has a great outline to help you get started.

Know Your Investing Goals

The next step is to define your financial goals: what are your goals, how much will they cost, and when will you need the money? For example, one goal could be to have one million dollars at retirement in twenty years. This exercise will help you identify your long-term financial objectives.

Define Your Desired Asset Allocation

The final part of the document should focus on your asset allocation decision. Based on the discussion on financial goals, you can outline your risk tolerance, and select investments that match your objectives and appetite for risk. Less experienced investors should consult a financial advisor to help them complete this section. If you have done a good job defining your financial goals, a professional and ethical financial advisor will have the right pieces of information to make the proper choices on your behalf.

Other Considerations

In addition to helping your understand your financial picture, an investment policy statement also has some legal advantages. If your financial advisor is given an investment policy statement, they must take it into consideration when choosing your investments. In trying to maximize their commissions, some financial advisors may try to sell you investments that are less than optimal. Giving them a well-crafted investment policy statement can help prevent this unscrupulous practice.

In these uncertain times, we seek clarity and objective guidance more than ever before. An investment policy statement is a great first step towards determining what is right for you.

Editor’s note: While I don’t personally use an investment advisor (my investing is fairly simple right now), I think providing them a guideline to follow is an excellent idea. And even though I don’t have an advisor, it’s still good to have a personal investment policy to help guide your own decisions, regardless of the changing times. My goal over the next week is to create my own policy and try and share it here on the blog. Thanks, Vik!

I’m excited to finally be getting around to talking about the new Ally Bank and their top of the heap annual percentage yield. You’ve probably seen them in the news recently, seen their ads all over the Internet, or watched them shoot to the top of my list of top high-yield online savings accounts. Below I’ve detailed a bit more about Ally Bank and their account opening process.

FDIC Insured

Deposits with Ally Bank are FDIC Insured up to $250,000 per depositor. So, no worries there. By the way, it’s worth a minute of your time to check out Ally Bank’s FDIC page, where they show you how to make the most of the insurance limits.

The Best Interest Rate and Other Basics

As I mentioned above, they have one of the best rates currently available. They also have a no penalty CD with a very nice rate. Prime Time Money readers know that these rates aren’t what they used to be, but they beat the heck out of your standard bank savings account rates, which are hovering close to 0% these days.

There are no minimums and no fees with this account.

Recent Changes and Controversy

Ally Bank has been around a while, just under a different name: GMAC Bank. They changed the name in May of 2009. The change in name came with a promise to be the customer’s ally. With the best rate going right now they’re certainly looking like the bank ally they hope to be.

Ally Bank did take bailout fund last year but is apparently well-capitalized. Recently, the ABA asked U.S. regulators to crack down on Ally and their above market rates.

According to the CNN Money story, Ally’s CEO, Al de Molina, responded strongly with this statement. “You might want to assist your members in figuring out how they are going to compete in the new market place, rather than ask regulators to direct Ally Bank to pay its depositors less competitive rates.” Boom! de Molina brings the attitude!

In the end, I think the controversy is just stemming from bank industry politics. With the FDIC insurance I feel confident in Ally Bank for my savings needs.

Opening an Account

I’m personally giving Ally Bank a shot. Here’s how I opened an account. Opening an online savings account with Ally Bank is fairly easy. You just need to provide some basic information (including your SSN and drivers license), allow a hard credit pull, set up a deposit, and you’re good to go.

To do the deposit you’ll either need your bank’s account and routing number, or you’ll need to mail in a deposit. I preferred to do the former.

You have the option of keeping this account setup for transfer, which I elected to do, so I can quickly transfer funds in once I decide how much I want to move here. The setup process is similar to other online banks…you wait for two small deposits and then verify the account for transfer.

But it’s different than others in that you immediately get access to your online account. The whole process took less than 15 minutes.

Other Services

It’s worth noting that Ally Bank also does a classic CD, no penalty CD (which looks like a better deal that the savings account), and money market account. You budget trackers out there should know that it works with Quicken.

For the longest time, I’ve been in the second camp, happy to pay off my student loan debt using the minimums, knowing I had other financial goals that took precedence.

Well, that time has come and gone. With the down payment of our house complete, repayment of our high-interest auto loans, and money saved up for our first baby, the only big financial hurdle Mrs. PT and I currently face is the repayment of our student loans. And we’ve already taken action…

Last month we paid off one of our loans with one big chunk payment. Most of the funds came from our most recent ESPP flip (forced extra savings using company stock). And by the end of the summer, we should be able to wipe out the last student loan.

Overall I’m definitely proud to be able to close out this debt, but I do have mixed feelings whether this is the best move financially. With stocks, real-estate, and other investments on sale right now, I wonder if this money could have been better served elsewhere.

But I won’t be wondering long, as there are huge benefits to having this debt behind us: more money available for savings, more flexibility in our budget, one less payment to worry about, etc. Not to mention, student loan debt is the debt that would never be forgiven, even in bankruptcy. Lastly, it just feels good to be rid of it.

How about you? What did you do, or what are you planning on doing with your student loan debt?

In other news, last week I participated in a few blog carnivals. Check them out:

• Carnival of Pecuniary Delights No. 13: The Summer Vacation Edition
• Money Hacks Carnival #70: Banking Edition
• 210th Carnival of Personal Finance - Punch Out Edition

And there were plenty of nice article from last week throughout the blogosphere:

• What to Know Before You Draft Your Last Will and Testament
• Should There Be Mandatory Personal Finance Classes In High Schools?
• Do You Keep Money Secrets From Your Spouse?
• When Trying Harder Isn’t Good Enough
• Do a Background Check on Your Financial Advisor
• Roth IRA as an Emergency Fund
• Cash for Clunkers, Your Gas Guzzler Rebate

Have a great week!

Know Your ATM and Foreign Transaction Fees- We ended up using our ATM card once and thought we’d only see a $2 fee. To our suprise, our ING DIRECT Electric Orange account charged us 2% foreign transaction fee. This is definitely something we should have researched prior to making the ATM withdrawal. Foreign transaction fees weren’t that bad on us the rest of the trip since we just used the local currency (Euro), but that’s definitely something you need to be aware of prior to using your credit card. Most fees are set at 1% to 3%. Capital One is one of the only companies that doesn’t charge you this fee.

Download Skype to Save on Phone Expenses - We’re still really big on Skype and used it make all our calls back home. We called both our friends and family who have Skype themselves, and occasionally used it to call a land line or cell phone using the Skype credits I had left over from my last trip. Skype is free for computer to computer video calls.

Consider Cancelling Services Back Home - Prior to leaving on our recent trip we’d been having some trouble with our Internet connection. So, we decided to call and just cancel it to save us from paying almost a month of service fees when we were out of town. AT&T offered to give us a month for free and then lowered our rate going forward to keep us from cancelling. Call your service providers today and let them know of your complaints or if you think you’re paying too much. They’ll likely work with you to help you cut some from your monthly expenses. Note: before cancelling anything, make sure you’re aware of any cancellation fees or big fees to have the service set back up when you return.

Inform Your Bank and Credit Cards - Most banks and credit card companies have fraud alerts set up on your account that prevent your card from taking any unusual charges, like in a foreign country. So, it’s usually a good practice to call them and let them know where you’re going. I usually do this at the airport while I’m waiting. We actually forgot to do this this time around. And suprisingly we never had a transaction questioned. Maybe it was because we were in Europe, I guess, versus a less developed country.

Add-On a Cell Phone International Feature - If and when we didn’t use Skype on our trip, we used our cell phones. Prior to leaving though, we called and made sure we had the international flat rate feature turned on. This usually costs around $5 for the month, but it lowers your per minute and per text charges to a more reasonable rate.

Do you have a good money-related travel tip? Leave it in the comments below…

So, reluctantly I stepped into the nearest Blockbuster, knowing I was about to pay $5 for something I could have rented for $1. Still, I was pleased to find the movie I wanted heavily stocked on the shelf. Then, I proceeded to the register where the person checking me out asked if I wanted to rent it for the one-night price of $1.99, or keep it for a week at $4.99. Obviously, since I was planning to watch the movie that night, I happily opted for the $1.99 price. Does anyone know when Blockbuster began offering this price and if it’s a nationwide offering?

Anyway, I left feeling good about my purchase, and at the same time, pleased with Blockbuster (a Dallas-based company) for altering their pricing structure to compete with the $1 boxes. The way I see it, this move will keep the brick and morter Blockbuster stores around for a bit longer. Eventually everything will be digital and you won’t need a store, but for now it’s nice to see them making the smart changes required to stay competitive.

I realize $1.99 still isn’t $1.00 or $0 (the Redbox price with promo code), but Blockbuster has the advantage of being able to stock more DVDs. Thus, increasing the chances you’ll actually leave with the movie you want. I think I’d pay $2 instead of $1 if I knew the movie would be there. Also, Blockbuster allows you to turn the movie in by store closing, whereas the $1 boxes seem to give you a 24 hour window to return the movie (correct me if I’m wrong about that one). All this to say, I think going forward, I’ll probably be using Blockbuster more for my movie renting needs.

By the way, I’m not really a movie rental subscription service fan, but I have tried both Blockbuster Total Access and Netflix and written reviews. So check these out it you’re interested: Netflix Review, Blockbuster Total Access Review.