I was recently speaking with a good friend of mine about a financial situation. To preserve his anonymity, let’s just call him Johnny Fontaine. Johnny is a hard-working freelance musician in New York and New Jersey with a small amount of savings at his disposal, about 10-20 thousand dollars. Johnny was asking me about Consolidated Edison (Ticker: ED, how cool is that?). Instead of giving him a quick answer, I decided to craft a total plan for him.

Since Johnny earns less than 95 thousand dollars a year (at least as far as the government is concerned), he is eligible for the Roth IRA. Hooray!

Step 1: Get a discount online broker. I may go so far as to recommend my broker to him personally, but I’m not going to endorse them in my column until I start seeing some payola. There are plenty of resources online to compare brokers. www.bankrate.com has a lot of impartial information, and www.infochoice.com.au has a free online test that can match your preferences with online brokers. An online broker should offer very competitive transaction fees (about $5-10 a trade) and no additional fees. You could pay to have a personal broker, but why do that when you have me?

With a Roth IRA, Johnny is limited to contributing 3,000 dollars a year. He’s going to have some cash lying around, which dramatically increases the chance he will one day wake up penniless in Atlantic City, handcuffed to a prostitute named Roxie.

After the investing the initial 3,000 dollars, I suggest Johnny put the remaining amount into t-notes.

Step 2: Invest in Treasury Notes A treasury note (T-note) is a government issued fixed-income instrument that pays a specific amount of interest, with a minimum maturation date of one year. It’s basically like a corporate bond, except the source of the T-note is the US government, which (God help us) will never go bankrupt. As such, the T-note pays a lower interest rate than any other type of fixed-income security, with the exception being Enron bonds.

Here’s how we will work it. Let’s assume Johnny has 15,000 dollars to start with. After placing the initial 3,000 dollars into his Roth IRA, he is left with 12,000 dollars. We know he is going to want to put 3,000 dollars in the Roth IRA the following year, so that amount will be put into one-year t-notes. Another 3,000 dollars will be put into two-year T-notes. Because there is no such thing as a four-year T-note, the remaining 6,000 dollars will be put into 3-yr T-notes.

Every year, Johnny will cash in the T-notes, having made (very) modest interest, and then put the 3,000 dollars maximum into his Roth IRA. When his three-year notes mature, he can take that final 3,000 dollars and stick it in a one-year note until he’s ready to put that into his IRA.

To purchase T-Notes, Johnny can go to www.treasurydirect.gov, which has an online purchasing system. He will need to follow the instructions on the website to start a new account, and then he’s ready to go.

But wait, there’s more. Wait! C’MON, GUYS!

I have heard wind that a certain bank that begins with a “C” and ends with “itibank” is offering very competitive rates on their Certificates of Deposit (CD’s) as a part of a new promotion. Unfortunately, I was unable to find out this information on-line, so Johnny will have to traverse the mean streets of the Upper West Side and find out for himself. He will also want to check with whichever bank he is currently using, as CDs are often negotiable, and he may be able to lock in a higher rate at a bank he is currently in business with.

Oops, I’m out of space. I guess I’ll leave Johnny hanging until next week with the second phase of the plan, which is choosing the individual investments for his IRA