Now till Retirement

Do you have an emergency fund set up? What the hell do I mean by emergency fund you ask? I am talking about money set aside for the unexpected(hopefully in an high interest bearing savings account). Most people sadly will answer no to this question when it most definitely needs to be a resounding yes. Without at least a couple months worth of expenses put away, you are tempting fate to lash out at you and bring in some sort of high cost mandatory bill. You never know what may happen… your car might call it quits, you might be injured, you may be laid off, etc. What are you going to do when you need money in these instances without an emergency fund?

Most people turn to credit cards, and treat them as their emergency fund. This is also bad… very very bad. Credit cards have their uses, but never if you can not afford to pay them off. The reason credit card companies make as much as they do is because people get themselves trapped be it stupidity in use or sheer desperation when crisis(what we are discussing here). If you take out high interest debt when in a bad situation, it is probably only going to make things worse, so rather then do that… we are going to plan ahead to make sure that isn’t ever necessary.

How much do you need to spend a month? Mandatory expenses only(shelter, food, utilities, transportation) anything that can be cut without a second thought(cable tv, going out, coffee shops) in a crisis doesn’t really matter. Once you figure out that number you want to have that amount times four to eight months… wherever you feel comfortable. This number may be high, but it will be much much higher to use credit to deal with problems so we are going to work towards reaching this number as a goal.

Figure out how you can fund your account(anything will do cut back expenses, do online surveys, work overtime, part time job, whatever) and begin adding as much as you can a month until you reach your goal, there may be setbacks(those crisis’s we were talking about), but with money in the fund you will be able to handle them better and bounce back much quicker then if you had used debt.

About three weeks ago I decided I wanted to try out another peer to peer lending service. This time Lending Club would be the target of my investment dollars due to two factors. First off the minimum investment is the not to taxing sum of twenty five dollars and secondly you will receive a twenty five dollar sign up bounty with even just the minimum funding.

So as you can see we are getting a one hundred percent rate of return instantly upon successful funding! How could I refuse? How can anybody refuse? I decided to sign up under another member, rather then just go to the website myself because they also receive a twenty five dollar bounty for their referral of me. So not only am I getting free money, I get to help someone else get a little bit as well without any extra effort!

The applications to become a lender and create an account are short and simple. Creating the ability to lend to others is the easy part, funding it is also easy(link a bank account) but takes quite a while. After you have linked one of your bank accounts It must be verified, which takes some time. Once verified then the request for a money transfer may take place, which takes even more time. After about a week(10 days for me) you should have your twenty five dollar minimum in your new Lending Club account.

You will notice that it pretty much jumps up to fifty dollars instantly. At this point I withdrew my original twenty five dollars to be used for the next investment opportunity and left the “free” money in the account to play around with on a low credit risk loan. If you do as I did, you basically get a free twenty five dollars earnings interest you can forget about and then reinvest the principal you added in the first place to the next deal such as this.

If you are thinking of trying this, feel free to sign up under me…. any bounties I get due to referrals will be used to fund more low risk loans rather than cashed out.

Do you track your income and expenses? Do you set aside money for specific goals or purposes? Do you even manage your finances? If you are like the old me, the answer is nope. This is bad, very bad. The first step before any other in taking control of your financial life is to track and budget your incoming and outgoing money. You cannot get a grasp or make any significant changes, if you don’t have a firm idea of how things are working.

You must be able to accurately track your income and expenditures so that you may allocate accordingly with you financial goals in mind. A plan must be made what to allocate money for(bills, savings, emergency fund, discretionary fund, investments, etc.) with the income that comes in… What do you have to spend out of necessity? What are your goals, long and short term? Without a plan you may as well not bother budgeting, or even sticking your money in the bank… because the option of sticking it in the mattress makes just as much sense. I cannot make your plan for you, as it revolves around your needs and wants, but I will say make sure you allow for some fun in your budget. If you fail to give yourself some discretionary funds to be wasted if you so choose, odds are you will be very unhappy with trying to live with a budget

What can we do to track whats coming in and going out? There are many options out there which range from good to bad, but anything is better then nothing. I personally suggest some variant of Quicken to help you keep track of your finances, but a spreadsheet in OpenOffice (free open source word suite), or even a notepad would do…. so long as you are actually keeping track. Once you have decided how you are to track the income and the expenditures, its time to actually go collect that information and input it. Make sure to include information on your assets and debt as well(may as well track everything while making the effort). When all is said and done and you have entered all the data necessary (Hopefully your income exceeds your expenses), you can move on to actually making your budget plan and sticking to it via some automation.

A lot of times a plan for a budget will fail, besides over ambitious spending cuts, because there is easy access to your money to spend at will. We are going to set up some hurdles to that with the use of online banking and multiple accounts. The money will still be readily accessible but when it is not in one pool it is easier for most people to leave it alone and a feeling of guilt can be associated with taking something away from its expressed purpose. We want to use a banking service that has high interest rates, no fees, and easy access…. I suggest using ING DIRECT to open multiple savings accounts(One to receive your income and the rest to allocate to your various needs and goals: bills, savings, retirement, emergency fund). We also need to open two Electric Orange Checking Accounts(one for your “allowance” a.k.a. your discretionary fund and another for all outgoing monies from the various funds). The reason we want to do everything at ING DIRECT besides the consistent great rates is immediate transfer of funds between accounts.

Once you have all your accounts up and running the basic idea is to deposit your income into your main account automatically and to have all of the other savings accounts use the automated savings plan feature to withdraw the amounts you came up with for each need and goal every month when planning the budget. The other account that should be set up to withdraw automatically from the primary account is your allowance checking account(this is the debit card you will carry with you for random purchases that are not planned… that are hopefully within what you budgeted for yourself).With all the funds separated into their respective goals and needs, we now transfer the money from those accounts to the other checking account when a bill comes due, you have reached a goal, or you need to move the money to an investment account. These are the accounts we pretend do not exist on a day to day basis so we can keep on track. Do not even think of taking money from these accounts except for their purposes, until the end of the month if there is an overage. That overage should immediately be applied to savings or retirement and just not even be considered as still existing to be used in any other fashion.Hopefully with this system, you can implement whatever your budget may be and stick to it easily.

I have been toying around with various vehicles of investment for quite some time now, many of which I would like to write about in the future. I need to get the ball rolling though to build up my motivation to write up some decent posts. So why not make this easy on myself and just start off with my latest little financial adventure in peer to peer lending… Prosper.com.

Maybe you have heard of peer to peer lending, but I am going to assume you have not. With peer to peer lending services, such as Prosper, loans are made in the same manner as a bank would make them… the difference is the funding comes from individuals like you and I bidding on little piece of the debt.

With Prosper, a borrower will sign up with an application just as at a bank. The credit ratings and other pertinent information will be gathered and added to their profile, and the request for loan funding will go out. This is where we, the lenders, come in. We get to look at the various loan requests, all the information a loan officer would, and decide whether or not we would like to loan that individual money and at what interest rate to do so.

The more riskier the loan request, the higher the interest…. but the more likely you shall not receive your investment back. The less risky, a lower return interest wise is to be expected but is a better bet for the long haul. Unlike a bank though you do not have to bid on the entire request. You can bid on part of a loan for as little as fifty dollars, while others like yourself do the same to bring the loan to the amount requested by the borrower, thus spreading the risk among multiple parties.

The ability to bid small amounts with the 25 dollar sign up referral bonus at Prosper is what drew me in to try this service. I decided to bid on a low risk loan at a small 7% rate of return with the minimum of fifty dollars with the hopes of getting the twenty five dollar bonus. I figured fifty dollar locked into a 7% rate of return for the term of the loan was not a horrible move since the likely hood of repayment is high, and the bonus more then makes it worth it with this strategy.

I successfully bid on a very low risk loan and received my bonus immediately, which was promptly removed to my online savings account as profit on my investment. The catch is, to receive the twenty-five dollar bonus, you have to sign up by being referred by someone… someone like me perhaps. If you were to click any of the links in this article to prosper or the banner I have on the left, you would be eligible for the 25 dollar bonus upon successful funding of your first loan… and I would also get another 25 dollars for referring you to the service. Once you have signed up you can also refer others for the same deal.

In my opinion this Prosper.com deal is pretty much a win win situation as long as you play it smart.

In my home there are numerous items which lead to the what would be known as “clutter”. I am not alone in this regard, as many people tend to have too much stuff they don’t use and probably never will… you are probably one of those people. Having unused items in itself is not necessarily a bad thing, the not so good is when you have run out of room to store it all where it is out of the way and does not detract from usable space where current functional items are kept. This point has been reached by myself as I have a mild case of pack rat syndrome.

I am not crazy enough to save old newspapers in the corner of a room every day until I pass into whatever awaits you after death, but I do have a hard time throwing away anything that I could possible reclaim value from. What I mean by reclaiming value is selling, giving, donating, or using at some further distant date…. which would be fine and dandy except I tend to never get around to those things.

As to why any of you would care, maybe clutter is blogging you down as well. Take a look around how much stuff do you have that is in the way? Ask yourself, do I really need all this stuff. What purpose does it serve? Is my life better having a Sega Game Gear Cartridge of the game: Asterix and the Great Rescue, when the Sega is long gone? Someone else may want that game and be willing to pay you five dollars to have and enjoy it, rather then letting it sit in a box in the closet until the day you die or get evicted.

Now imagine selling all that random crap for a dollar, five dollars, ten dollars…. whatever the hell you can get for it. It is now no longer just junk sitting and rotting, it is now someone else’s junk to deal with while you have added to your resource pool. The few bucks you get per item, if you have as much garbage as I do, should be enough to add a sizable chunk to your yearly retirement savings… or pocket cash. Whatever you do with the proceeds is up to you, even though I would invest them… its better than letting too much crap fill your life.

Most of the “clutter” is stuff I have been meaning to sell forever but never seem to get around to doing. Today the lack of effort is going to change. I have set up a new eBay account, Paypal account, and a new ING Direct Checking account to handle this. Once the checking account is up and running I am going to force myself to start listing at least 5 items a week until I get rid of all the stuff that serves no purpose in this household, be it functional or sentimental.

I challenge any of you with a similar situation to do the same, who knows it might be fun… if not at least your feedback rating on eBay will go up.