Prime Time Money

Creating an Investment Policy Statement

I don’t write enough about investing. So when Vik from Kanjoh.com offered to share an article related to having an investment policy, I was excited to share it. Be sure and leave Vik some good comments and swing by his site to check out more of his writing.

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!

5 Comments | Posted in » Investing and Retirement

Ally Bank Review: High Interest Online Savings Account and More

Ally Bank Review

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. Right now their online savings account rate is set at 2.00%. They also have a no penalty CD with a 2.15% rate. Nice! 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.

2 Comments | Posted in » How To Save Money

Paying Off Student Loan Debt Early

If you have student loan debt, are you planning to pay it off early? Or are you simply making the minimum payments because you’re comfortable with the low interest rate, tax deduction, and low payments?

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!

12 Comments | Posted in » Debt Reduction

5 Money Tips For Travelers

With the heavy summer travel season now upon us, I thought I’d throw out some quick travel tips. These are mostly based on the money-related lessons I learned while travelling to Ireland the past three weeks. For more detailed banking information see my previous post, Banking Tips for International Travel.

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…

4 Comments | Posted in » Money Stories

Blockbuster Takes on Redbox with $1.99 One-Night DVD Rentals

This past weekend I visited Blockbuster for the first time in a while. I’d written them off to a certain degree after my discovery of The New Release, Redbox (and Insideredbox.com), who let you rent DVDs for $1 or even $0. To be honest, the only reason I even considered entering Blockbuster was because I desperately wanted to watch a particular movie and it was out of stock at the $1 rental box closest to my home. And I’m not quite up to speed on the online movie watching, nor do I have an on-demand type cable or satellite TV service. I’m a bit old school when it comes to movies. Hey, at least I don’t watch VHS anymore.

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.

8 Comments | Posted in » Frugal Living, Money Stories

Clearing Up Old Credit Report Errors: Reader Q&A

I recently recieved an email from a reader regarding cleaning up old credit report errors. Here’s the question (my emphasis added):

Does it count as an error on a credit report if there are accounts turned to collections that have actually been paid years ago?  When my husband and I were applying for a mortgage, he got turned down because he had supposedly unpaid medical bills–from when he was 19.  His parents insurance should have covered the charges, but his mother cannot find paperwork from that far back (my husband is 30 now).  The collections agency hasn’t even been helpful when we contacted them for more information.  Can we dispute the collections notice on his credit report even if we can’t prove the account was paid?

Here’s a paraphrase of my response: 

I think you can claim that this is an error and report it as such. The credit reporting agency will then send the request to the creditor to prove that the account is truly in bad standing. If they don’t come up with proof that you still owe that money then they have to remove it. In other words, the onus is on the creditor to show that it’s valid. I wrote a bit more on this topic here: How to Fix Your Credit Report and Identity Theft.

I also reached out to some other pf bloggers for a response. Here are their replies (emphasis added):

Yes, it’s the responsibility of the collections agency to prove the debt is valid and they must provide written proof on request. Probably the easiest way to go about it is to contact the medical provider themselves and make them prove it. They probably can’t.

-Kyle from Amateur Asset Allocator

Yes, a credit bureau dispute would put the onus on the collections agency, and ultimately back on the medical provider to show proof of delinquent activity. And even if this is a legit collections attempt, at more than seven years old it should come off the husband’s report, unless there has been recent activity (which I doubt for something that far back in the medical field, unless we are talking thousands of dollars).

-Jason from Frugal Dad

The debt is past the statute of limitations of 7.5 years. Therefore the negative remarks will need to be removed, even if there was recent activity. Of course, the laws vary by state, so the reader will need to check in their individual state. Here’s something that might help: Gettin’ Out of Debt: Part II

-Madison from My Dollar Plan

So what’s your take? Do you have anymore insight into a solution? Do you have experience with this issue that you’d be willing to share in the comments below?

6 Comments | Posted in » Credit Cards and Credit

QuickHits: Father’s Day Weekend Edition

Happy belated Father’s Day to all you Dads out there. I just celebrated my first one, which Mrs. PT did a great job of making extra special. The holday reminded me of how lucky I am to be a Dad and the huge responsibility I have to protect my family and their future. Now that I’m a Dad, two financial products become more important, in my mind: college savings and life insurance. I’m promising that I’ll try and kick-start both this week.

One of the things we got to do this weekend was swing by T.J. Maxx and Marshalls and spend our two $25 gift cards. Similar to my previous reveiw of these discount stores, I was most impressed with T.J. Maxx in terms of store cleanliness, organization, and service. At T.J. Maxx we picked up the following with our $25: a small picture frame, two books for little Miss PT, and a t-shirt for Mrs. PT. They also threw in a re-usable shopping bag (a special they were doing last weekend only). Unfortunately we ran out of time and couldn’t make a decision on anything at Marshalls. I was definitely pleased with our purchases overall though and will be back to both stores soon.

Hits be Nimble, Hits be Quick…

107 Things That Make Good Financial Cents
Don’t Buy A House Just Because People Say It’s A Good Time To Buy
5 Personal Finance Podcasts Worth Downloading
Confessions Of A Recovering Spendaholic
How to Watch Live Sports and TV Online For Free
A Cottage Bathroom Remodel
How To Get Free Stuff? Just Ask
Carnival of Pecuniary Delights: Catch a Wave Edition

In other news, we made it home safe from Ireland. Had a great time, but I’m glad to be back sleeping in my own bed. This week I’m looking forward to sharing some posts related to our travels and some other fresh ideas I have floating around. Thanks for reading and have a nice week.

2 Comments | Posted in » Personal Finance Links

529 Plans: The Smart Way To Save For College

The following is a guest post by DebtKid, who blogs about his debt management journey. He runs a small software development company in Seattle and just launched a new online coupons section on his blog.

Parents who are in the unenviable position of saving for their retirement and their child’s education must start early to ensure their financial goals are met. The controversial topic of which is more important retirement or college savings becomes less of an issue with proper planning well in advance.

State sponsored 529 plans have been around since 1996 but have been gaining popularity in the last few years with parents who choose to pay for all or some of their child’s education. The following information explains the benefits and risks associated with these accounts.

What Are 529 Plans?

To put it simply a 529 plan is an investment account that offers tax advantages which make it very appealing as a way to save for college education.

Each state offers a 529 plan and you also can choose between a prepaid plan or a savings plan. If you want flexibility in your plan you may opt for the savings plan which is generally offers less growth but can be used at any institution. The prepaid plan on the other hand is used to pay for tuition at today’s rate at a specific institution. If you use your states 529 plan you may be eligible for state tax deductions. Interest earned in the account (when used for college expenses) is exempt from federal and possibly state taxes.

Benefits Of Using A 529 Plan

This method of saving for college expenses offers benefits beyond tax breaks and deductions such as:

• Parents retain control of the fund. This is important if you worry that your child may grow up and decide to use their college savings for a trip abroad or a new car. You have control over the account and make the decisions when and how the money will be used.
• Until you decide to withdrawal the money you will not have to worry about reporting information on your tax return. The year the money is taken out of the account will be the only time you receive a 1099 form to report taxable or nontaxable earnings.
• These plans offer flexibility in that you can move your investment to another 529 savings plan or change the beneficiary in the event your child does not go to college or receives scholarships which cover the expenses.
• Most 529 plans allow for substantial deposits which are not just limited to the parent. Grandparents, aunts and other individuals can contribute to your child’s education over the years. In most cases there are no age restrictions or income limitations for these plans.
• Plans owned by a parent or other donor will not have a significant impact on your child’s ability to receive federal financial aid as is considered a “parental” asset.

Risks and Drawbacks

As you can see using a 529 plan can be an excellent way to put money back toward ever growing college expenses however they are not without certain risks or penalties.

• Withdrawing money for anything other than college expenses will result in the owner of the account having to pay income tax on the earnings as well as a 10% penalty. If you have received a state tax deduction you may have to repay that as well.
• Some colleges take into consideration family owned 529 plans when determining scholarship or grant recipients.
• Certain savings plans have high administrative fees which can reduce your earnings. For this reason it is very important to carefully review all information before committing to a specific plan. Do your research, shop around and compare plans carefully to find the best option for your family.

Saving for future expenses, whether they are expected or unexpected is necessary in every household. For families with children going to college, using a 529 plan can make preparing for the high cost of education makes paying those expenses less of a drain on the household budget.

5 Comments | Posted in » Kids and Money