Saving is a finite solution. You can only save so much, can only be so frugal. Your power for earning is unlimited with the right resource (you), the right tools (knowledge), and the right force (hard work).  That isn’t to discount saving.  Saving is an important part of the equation too.  But, because of it’s limited ability, it can only be so much a part of your overall wealth and financial independence equation.  Do you know what limits savings’ ability?  Your earnings. You can only save so much as you earn.  If you only earn $8 an hour, you can only save $8 an hour.  Far less, really, because who can live on $0 an hour?  Not many.  So, the more you make, the more you can save.

There’s another side to that, even.  The more you make, the more ability you have to make more.  That’s the root of the old saying, “It takes money to make money”.  While you can actually make money without having much money, the more money you have, the more opportunity you will find to earning more money.

Increasing your earnings isn’t always an easy equation to solve, though.  Many people feel like they’re trapped in the job they have, the payscale they’re in, and the life path they’ve chosen.  Not at all true!  Your earning potential is unlimited if you combine the resources at hand and improve the ones that aren’t.  You’ve already got you.  Increasing you knowledge of the work you want to do is pretty easy as well.  It just takes a bit of time, and some crafty searching online.  Pretty much anything you want to learn about is available online.  Heck, there are even entire sites dedicated to free college courses.  All you need is to dedicate some time to learning whatever it is you want to learn.  You can find that time by taking it from some of your TV watching time.

Follow all that learning up with some good old fashioned hard work.  That’s it.  Just hustle a little.  Unfortunately, there isn’t any magic formula for that one. I don’t know how to motivate you to work.  I don’t know the right things to say to you to make you want it.  You’ve got to provide that part.  If you can’t find the motivation to pull yourself away from American Idol for an hour to learn something, or work on making yourself a better earner, there’s just nothing that I can do for you.  You’ve got to find that part for yourself.

But, listen.  If you’re capable, like me, of getting your finances under control; of learning how to keep a budget, pay your bills on time, and learn from mistakes, there’s no reason you can’t learn how to earn more.  You CAN learn how to do something you want to do.  You CAN learn how to make yourself more marketable.  And you CAN earn more.  And, if you do, you WILL tip the scale in your direction.  You’ll start to earn more.  You’ll be able to save more.  And you’ll find that opportunities will present themselves to you.

How are you going to improve yourself today?

Earning > Saving is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

Be warned. This post has absolutely nothing to do with personal finance. It does have to do with how some of you get your personal finance articles from Beating Broke, however.

More specifically, with those of you who use Google Reader to read the articles here on Beating Broke.  The latest stats show that there are a couple hundred of you or so.  Last month, Google announced that they would be discontinuing the Google Reader service on July 1st, 2013.  As a result, if you use Google Reader, you will no longer get updates from this and other websites.

Now is the time to make a few changes to make sure that you can keep updated.  Lifehacker has a good roundup of some other popular RSS readers that serve as replacements for Google Reader.

There are a couple of other ways that you can make sure you don’t miss any of the content from Beating Broke.  Use one of the services listed in that Lifehacker article, or subscribe to receive new content via email by clicking this link (Subscribe by eMail) and then entering your email and clicking subscribe.  You can also subscribe to the Beating Broke newsletter for additional content (it doesn’t include the regular articles).

You’ll likely want to rinse and repeat that for each of the sites that you currently subscribe to through Google Reader.  Be sure to do it before July 1.  I’m not sure what their plans are for after July 1, or if you’ll even be able to access the site, so getting it done earlier is better.

Attention Google Reader, um, Readers is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

We’ve all heard about the many different crowdfunding organizations out there.  Probably the most famous of them is Kickstarter.  Or maybe Indiegogo.  Adam from Man vs. Debt recently crowdfunded his documentary “I’m Fine, Thanks” through Kickstarter.  Using crowdfunding sites has become pretty popular.  It’s a great way for artists and creators to fund the products that they are creating through the fans while still giving something back to the fans.

Recently, I found a site called GoFundMe.  It’s another crowdfunding site.  Except, in this case, it’s more of a crowd fundraising site.  Personal crowd funding if you will. Individuals and organizations can post a need, and then share it with friends, family, and the public through social sites and links that they can share.  Their friends, family, and anyone else interested can then go and fund the need.  Best I can tell, there aren’t many restrictions at all as to what it is that you can post as a need.  Want to use it to fund the down payment on a house?  It’s been done.   Want to use it to pay for a wedding?  Been done.

Anytime I see something like this, my mind starts to wander about and find stuff that’s a bit “funny.”  I can see the good of a site like this.  It only takes a few seconds on their homepage to see that there are lots of people using the site to help people in need.  People who have medical issues.  People who have had house fires.  People who want to set up memorial funds.  I can even see how it would be kind of cool to create one to have people contribute to a wedding fund or honeymoon fund instead of buying wedding presents.  But, with every one of those that I see that seem to be legitimate things that people might want to create a fund, I see ones where you really have to wonder what some people are thinking.

you really have to wonder what some people are thinking.
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For instance.  I ran across one that was a fund to help with the down payment on a new car.  Another asking for help with a down payment on a house.  It’s ones like that where my cynical side really comes out.  I’d like to think that the people really have just had a bit of down luck and just need that little bit to dig themselves out of a hole.  Or that little push to keep going to work.  Or whatever.  But, there’s that personal finance blogger side of me that wants to know why, if you knew you were going to need a car, or wanted to buy a house, weren’t you saving in the first place?

I guess there’s a small chance that the fund wasn’t intended to be seen by anyone more than the persons friends and family.  But, it is public.  And then there’s the question of taxes.  If I go create a fund, call it my retirement fund, and then raise a million dollars, what does Uncle Sam think of that.  I did a little digging, and, according to the sites FAQ section, they state that “most donations on GoFundMe are simply considered to be ‘personal gifts’ which are not taxed as income in the US.”

Which makes me wonder.  Maybe I should create a “don’t want to work anymore” fund. Set a goal of about $45,000 and see if I can’t take a year off work…

What do you think? Am I being too hard on this?  Are you going to go out and give it a try?  Would you give/donate to someone you knew who used it?

Personal Crowd Funding? is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

Gary Dek is a contributor to Gajizmo.com and is always looking for ways to make and invest money. Gary previously worked for an internet company on their M&A team, as well as investment banking and private equity firms in California.

Some of life’s necessities, like homes and arguably cars, cost more than most people can save in 5 or 10 years. This means they have to borrow money to be able to pay for their needs. Unfortunately, if you are like many Americans, you have probably borrowed money for things you want and cannot afford. The average American family carries more than $10,000 in high interest credit card debt. This is in addition to other loans like mortgages, car loans, student debt, and home improvement loans. It is important to spot signs you care carrying too much debt before the burden of interest rate payments starts eating into your savings and investments for retirement.

Are You Paying Down Your Debt?

If you are only able to make the minimum payments on your credit cards and other loans every month, it may take years to become debt free. If you are missing payments or just scraping by with the minimum payment, this is a sign of too much debt. A credit counselor may be able to help, or you may be able to negotiate with credit card companies for lower payments and interest rates. Companies will often alter interest rates and payment schedules for customers with a good payment history and credit score, but it is essential that you negotiate these terms before your credit dries up, your score is affected, or the company doesn’t want to lower their rates for you.

Another way to lower credit card interest and pay debt faster is to transfer balances to cards with 0% to 3% APR introductory offers on balance transfers. Look for cards with offers of 12 to 18 months of reduced interest on balance transfers which will give you time to make higher payments on balances without accruing interest. A low interest rate means that even if you continue to pay your current minimum payment, you will be paying more on the principal/balance so you can reduce the amount you owe, and therefore the interest payments, faster. However, don’t rely on transferring balances between companies – this is not a substitute for financial discipline and wise money management.

Have You Have Been Denied New Credit?

Too much debt can affect your credit score even if you make all your payments on time. Banks and other lenders look at both your credit score and your debt to income ratio when deciding whether to approve loans like mortgages. If your debt to income ratio is too high, meaning you would have difficulty paying additional debt, lenders will not approve new credit.

If a bank or other lender has rejected a loan application, they will send a letter explaining their reasons for denying your loan. The most common reasons are a poor credit score, unacceptable debt to income ratio and no credit history. While it is necessary to use some credit to establish a credit history and score, too much credit can make it difficult to get new loans, especially when those loans could be financing an investment opportunity that would contribute to your long-term financial security and wealth. Never let a new luxury car loan or excess spending impede your ability to take advantage of an investment opportunity.

If a high debt to income ratio is your problem, consider simultaneously lowering your debt while finding ways to increase your income. Like many financial bloggers explain, a side hustle can be crucial to meeting your future financial goals. You can research ways to make money from home, including freelancing, consulting, and teaching classes, or pick up a part-time job on the weekends, many of which offer health benefits that can save you thousands on premiums each year.

Does Every Paycheck Go Towards Paying Bills?

If everything you make is going toward paying off your debt, with very little or nothing left over, it is a sign that you are carrying too much debt. There should be some money left after paying monthly expenses like rent or mortgage payments, utilities, phone and groceries, for savings and small, unexpected costs called emergencies. If all the money left after paying your monthly expenses is going to pay credit card bills and other loans, you have too much debt.

No Savings

Financial experts counsel individuals to have at least 3 to 9 months expenses in a savings account to provide a safety net in case you lose your job or are injured and unable to work. This is in addition to retirement accounts and other savings and investments. Those with no savings or short term investments have to depend on personal loans, or worse, cash advance companies, if an emergency arises.

If you do not have enough left after paying creditors to put aside money for savings, consider taking a temporary part time job to help pay down debt and accumulate money for emergencies. Talk to creditors about reducing interest payments and start putting any extra money in a savings account or types of safe investments. The best advice is probably to change your spending habits. Avoid buying unnecessary items like expensive clothing, jewelry or the newest electronics until you have provided yourself with enough savings to cover emergencies.

Do You Pay Your Bills On Time?

If you do not pay your bills on time because you need to wait for another paycheck, you definitely should avoid overspending for a few months to catch up on your payments and avoid completely ruining your credit history. Living pay check to pay check is stressful and leaves no margin of error if you lose a job or even a day or two of work. Paying your bills after the due date costs more since most creditors and utility companies add a late fee as a penalty for late payments.

Talk to creditors about rescheduling due dates so you can make your payments more easily and try to consolidate and reduce as many payments as possible until you get your debt under control. Imagine how much happier you would be if you didn’t have financial stress to compound all the other obstacles in life you already face.

Is Your Debt Making You Sick?

If you are struggling with debt, you may be experiencing stress leading to physical and emotional illnesses like ulcers, depression, headaches, high blood pressure and heart attack. It may also be taking a toll on your personal relationships, especially your marriage. Financial problems are one of the leading causes of friction and arguments in marriages. It can also cause people to avoid friends and family because they are embarrassed by their financial difficulties or because they can no longer afford to participate in activities with their friends.

While getting your finances back on track will help alleviate many of the symptoms of stress, talking to family, friends and/or professional counseling can help you get back into the life you once enjoyed. You may be surprised to find that other people in your circle are not as prosperous as they seem, and the support of friends and family can help you through difficult times until you get out from under your debt.

Final Word

In America, debt has become a way of life for most families. Instead of trying to keep up with the neighbors, try paying off bills, putting money in savings and keeping debt to a minimum. You may not have a new luxury car, but you also will not have the large payments and the stress that goes with buying things you cannot really afford.

Original image credit: Carrying a heavy sack of potatos by canorus, on Flickr

Signs You Are Carrying Too Much Debt is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

Ok, so I saw this post over at FStoppers about What a Week of Groceries Looks Like Around the World, and I couldn’t help but mark it for a second look, and eventually an article here.  Click on that link and go take a look.  Look at what each picture contains and then come back and see if you come to the same conclusion that I do.  I’ll wait.

Done?  Ok, first, let’s talk about some “givens” that I found to be somewhat ironic, simply because they also could be considered stereotypes.  I’ll start at the top.

• Mexico: OMG, you guys like Coke!  
• Germany: First thing I noticed was all the beer and wine right up front.
• Italy: Lots of the expected breads and pastas
• Japan: Fish, noodles, and rice.
• Mali and Chad: That’s it?

Obviously, there are some things that we expect.  Countries like Mali and Chad that we’re hearing about starvation or near starvation like conditions in sometimes have an obviously lesser pile of food.  Japan is notorious for it’s high-fish diet.  And Germany.  Germany!  I suppose I can’t expect much else from the country of Octoberfest.

A couple of surprises.  I’m a little bit surprised by the lack of sausages in the Poland picture.  For the number of Polish sausages we eat here in the states that is.  (Ok, that’s kind of tongue in cheek.)

Now, let’s see if you noticed the same thing I noticed.  Every single country on that list eats way more fresh food than the American family.  Seriously. Look at that picture.  There’s a little section of it that’s got some produce (a couple of tomatoes, some onions, and some grapes), and another small section of fresh meat.  That’s it.  The rest looks to be processed and packaged foods.  The only other countries that appear to even be close are Canada, Great Britain, and Australia.  Which is funny.  In an ironic sad way.

All four of those countries are usually lumped together as “first-world” countries.  We’re rich!  We have everything we could ever want!  And somehow, every other country on that list eats better than we do…  Heck, let’s look at Mexico.  Most Americans tend to think of Mexico as a drug addled, gang run, hovel.  But, look at that food!  Fresh herbs right off the plant!  A whole table of fresh fruits and vegetables!  Same story for India, Bhutan, Guatemala, and Equador!

Why is it that we all think that produce is so expensive, but we’ll gladly pay $10 for a large pizza?  Or $10 for a burger and fries?  It also makes me wonder just how much of that food those people grow themselves.  It’s not that expensive to start a garden.  Heck, even a container garden will do.  We’re just getting ready to plant out our second season (see season one’s results) of container gardening.  So far, I’ve spent about $2 on seeds.  Buy a few pots, get some soil, and plant some plants.  Fresh produce!

I’ve gotten a bit ranty, but it amazes me how poorly we eat in our “rich” country.  You’d think we’d be smarter than that…

World Diets: A Week’s Worth of Groceries is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

The following is a guest post brought to you by: 

Mother’s Day is all about showing mom just how special she really is and what a positive impact she’s had on your life. Unfortunately, finding a gift that says all of that can be a daunting task. Coming up with the perfect present is even more challenging if you’re on a budget. It fact, the challenge can seem downright impossible. This is where a lot of people panic and end up at an all-night convenience store sifting through leftover cards the night before Mother’s Day. However, it is possible to get a great deal on Mother’s Day gifts; here are some ideas….Diamonds are a girl’s best friend.

Okay, real diamonds are out of the question if you’re on a budget; however, jewelry is still a possibility. Instead of something formal go for something fun like a bangle bracelet, chunky ring, or an eye-catching necklace. Charming Charlie is an excellent option for fun accessories that won’t break the bank. The best thing about this store? It’s color coded so you can find mom’s favorite color in a snap!

Add a personal touch.

Want to give mom a one-of-a-kind gift this Mother’s Day? No problem. How about giving her a personalized item with your image on it? The options of what you can personalize are just about endless from throws to calendars. One great option is the multi photo color changing mug from personalcreations.com. This mug is under $20 and you can add up to 5 photos of you, your children, your siblings, or you and mom together. IT makes for a fun surprise because it just looks like a plain black cup until hot liquid is added.

I need a spa day.

Your mom could probably use a luxurious spa day; however, for the wallet weary that simply may not be an option. Luckily, you can still give mom a relaxing spa-like day. Head on over to Bath and Body Works and check out their Mother’s Day gift baskets. They’ve got options for all different budgets; for example, there’s a Kiss, Sparkle, & Scent gift basket that includes a travel size warm vanilla sugar body lotion and shower gel, a candle, and a whipped vanilla lip gloss for $15.00. You can get this basket and then add in a bottle of nail polish and facial mask for just a couple of dollars more.

It’s the thought that counts.

Yeah, the line “it’s the thought that counts” sounds totally cliche, but it’s often true. When it comes to Mother’s Day, you can probably make mom’s face light up without spending a dime. How? Make mom a coupon book full of things you’ll do with no complaints. For example, if you have younger siblings still at home, give coupons for free babysitting. You can also include coupons for things you know mom doesn’t like to do such as weeding the flower beds.

There are a lot of things you can do for mom this Mother’s Day without spending a fortune. The trick is to know what mom likes from hobbies to special foods to tastes in jewelry and clothing and then to think outside of the box.

Mother’s Day Deals – Great Gifts At Great Prices is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

Mother’s Day is right around the corner.  If you’re scrambling to find ways to show mom how much you love and care for her, don’t worry.  There are many ways you can do just that without breaking the bank or relying on the same old boring gift of breakfast in bed or dinner out.

Projects for Younger Children

I have one word for you–Pinterest!  Seriously, head over to Pinterest and just search “Mother’s Day Crafts.”  There are so many creative, frugal ideas to choose from.  Here are some of my favorites:

Hand print flower–Paint your little one’s palm, then press their palm down on paper.  Either paint or add flowers to the tip of each finger.  Your child’s hand makes the stem of the “flowers.”  Then, cut out paper to make a flower pot and glue that to the bottom of the hand print.  On the paper pot, write a message stating something your child loves about mom such as, “You make the best chocolate chip cookies,” etc.

Book mark–Does mom love to read?  Cut out a rectangular strip of construction paper, and then glue a small picture of each of your children on the front.  Laminate it; use a paper hole punch to make a hole in the top, and hang some yarn through the top.

Gift Ideas for Adult Children

If you’re an adult, your mother probably has every consumer item she could want or need.  Instead of shopping and spending money on something she may or may not enjoy, why not go the non-consumer route.  Why not give mom a gift from the heart?

A letter–If you haven’t told mom lately how much she means to you, now is the time.  For instance, when I was in high school, my friend and I spray painted our biology teacher’s rocks in his front yard in the middle of the night.  Not the best idea, I know.  I felt so guilty, I woke my mom up at 2 a.m. to tell her.  She didn’t freak out or lecture me; she just told me that we’d need to clean it up in the morning.  I appreciate that she could stay so calm, but I’ve never told her that.  I’d include that in my letter and also all the ways she has helped me grow into the woman I’ve become.  (The spray painting days are long behind me!)

A gift of experience–If you do want to spend some money on mom, why not give her a gift of experience?  My grandma always wanted to ride a hot air balloon.  However, she was a child of the Great Depression and was extremely frugal.  Even in retirement, when she knew she’d have enough money for life, she couldn’t justify spending money on what she viewed as an extravagance.  Instead, her kids chipped in and got her a hot air balloon ride for Mother’s Day.  She talked about that gift for years.  It was one of her favorite experiences.

This Mother’s Day, take the time to plan something special for mom to show her how much you love and appreciate her.  Often, you just need to use some creativity, not money, to show mom how much she means to you.

What’s the best gift you ever gave your mom for Mother’s Day?

Creative, Frugal Mother’s Day Gift Ideas for Kids and Adults is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

Let’s be honest.  We’re all a little bit irrational with money.

Think of the person who drives 5 minutes out of his way to buy ten gallons of gas that is 2 cents cheaper per gallon.  Was the additional .20 cents savings worth 5 minutes of his time?  No.

What about the person who buys clothes she had no need for just because they were on clearance 75% off and were such a great deal?  Is spending money for something you don’t need ever a good deal?  This person just spent more than they would have if they hadn’t run across the “bargain”.

Stop Short Term Financial Thinking In Its Tracks:  Do The Math

The best way to stop short term thinking in its tracks is to do the math.

Take the person who drove 5 minutes out of his way to save .20 cents on gas.  An easier way to see how worthless this endeavor was is to compute an hourly wage for his savings.  There are 12 five minute increments in an hour.  Twenty cents saved per 5 minute increment gives us an hourly wage of $2.40.  If you’re always chasing the gas bargains, ask if it’s worth $2.40 an hour.

Nope.

Of course, only you can decide when an endeavor to save money becomes worthwhile, but doing the math will help you decide.

A friend was recently asking me whether she should refinance.  She just refinanced a few years ago, and as part of the deal, she opened a high interest rate checking account that nets her about $200 in cash back a year.  If she refinances with another company, she’ll lose the high interest rate checking account, which she didn’t want to do.

However, she found a new company that offered a mortgage interest rate that is 1.5% lower than her current interest rate.  In addition, she would have no fees to pay to refinance.  We did the math and found out if she refinanced with the new company, she would save $700 in interest on her mortgage in one year.

Not refinancing to keep the high interest rate checking account was essentially costing her $500 a year, but in her short term thinking, all she could focus on was the “loss” of $200 a year in cash back.

Take the Emotions Out of Your Financial Decisions

Have you ever noticed that it’s much easier to tell other people what they should do with their money rather than figure out what we ourselves should do with our money?  That’s because we’re not emotionally tied to someone else’s decisions.

Too often our emotions muddy up our financial decisions.

If you’re contemplating a major financial decision like buying a house or refinancing your home loan, first do the math.  Look at hard numbers to see which decision would benefit you most.  In my friend’s case, refinancing is the clear winner.  Over the course of her 10 year home loan, she’ll save $5,000 total by refinancing rather than keeping her current loan, even when factoring in the high interest rate checking account.  It’s hard to argue with the numbers.

If you’re still unsure, talk to friends about your decision.  Just make sure to talk to friends who are financially savvy, not those who are broke.  As Dave Ramsey says, “Broke people giving financial advice is like a shop teacher with missing fingers.”  Take the advice from those who will steer you toward the right financial decision.

We’re all guilty of irrational money decisions.  Recognizing this weakness and taking the time to do the math and seek other people’s opinions can help each of us make smarter financial decisions.

What irrational money decisions have you made?

Original Image credit: Burning Money Isolated on White by Images_of_Money, on Flickr

Are You Guilty of Short Term Financial Thinking? Here’s How to Fix It is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

I recently had the chance to chat with Todd Tresidder.  If you don’t know the name, don’t worry.  Up until about a year ago, I didn’t either.  But, the short of it is that the guy is retired.  In fact, he retired much earlier than most will.  At the ripe “old” age of 35, he retired.  Which must mean he’s off golfing around in the Arizona heat, right?  Or down, sipping OJ at some southern Florida retirement village?  Not likely.

Todd is retired in the sense that he doesn’t report to a boss.  He does what he wants, when he wants to.  One of the things that he wants to do is write books that help people like you and I become better financially.  He’s got several that he’s written so far, and I’m sure he’s working on more.  During that first meeting, Todd and I spoke for a while on retirement.  Speaking with another financially minded person, I usually expect to hear people talk about 401(k)s, IRAs, and stock purchasing.  I don’t discount those tools, but I just don’t feel that, like Social Security, you should be depending on them for your whole retirement.  Surprisingly, Todd agrees.  The longer we spoke, the more we found that we agreed on.  At the end of our conversations, Todd offered me a copy of his book on retirement. I accepted.

Long story short, I finally read it.  It took me a while, but I’m glad I got around to it.

If there’s anything that stands out about the book, is that Todd knows what he’s talking about.  He’s got the experience behind him to talk about the subject in an informed and educational manner, and technically, probably knows more about some of his subject matter than I ever will.  He spends the first several chapters of the book dispelling a few myths about retirement, and about the way in which most people tend to think about it.  He then takes off on a few chapters of some of the math and logic behind the different ways of calculating your retirement needs, and calculating that mythical “number” that everyone seems to be seeking out that will indicate that they’ve saved all that they need to save for retirement.  Not only does that one perfect number not exist, he argues, but the calculations that we make to arrive at it are completely flawed.

The rest of the book is focused on what I like to call the New Retirement.  He goes into detail on the ways to properly estimate your income needs for the future, and then into ways that he believes (and I agree) that a properly diversified retirement “portfolio” should be structured.  I don’t want to spoil too much of the book so I won’t say much more.  What I will say is that the book isn’t terribly long.  It’s not a deeply structured manual on all the different retirement accounts.  And it’s not terribly expensive.  It’s $4.99 on the Kindle (free for Prime members), and about $10 in paperback.

Pick up a copy of How Much Money do I need to Retire at Amazon.  You can check out Todd’s site as well as the other books he’s written at FinancialMentor.com.

The New Retirement is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

If this is the first of my Lending Club return updates that you’ve read, let me catch you up a bit.  It all started with a little Lending Club / Sharebuilder experiment.  It’s moved on past that, to an ongoing series here at Beating Broke where I share, on a quarterly basis, how the account is doing, the things I’ve done with the account recently, and the things that I might be thinking about trying over the next quarter.

How I invest in Lending Club

Because of where I live (North Dakota), I’m not able to directly invest in fresh loans.  I’m forced to use the FolioFN trading platform to buy (and occasionally sell) the notes that I’m investing in.  But, based on my returns, I don’t think I’ll be complaining anytime soon.  If you’d like to read more about how I select my Lending Club notes, you can read my post on that subject here.

Lazy Lending Club Investing

While I consider investing in peer-to-peer investing to be a nearly passive income source, it isn’t a pure passive income source.  What I mean by that is that it does require some active management in order to keep the money invested in loans, and not just sitting fallow in your account.  Without meaning to, I put that to the test this last quarter.  In February, I don’t even know if I logged into the account.  I certainly didn’t buy any new notes.  What that means is that for the better part of February, the money that I had coming in just sat in the cash account not doing a darn thing.  By the end of February, the cash account was nearly 10% of my Lending Club portfolio.  I invested all of that back into notes in March, but it was a lesson in needing to log in and check the account once in a while.

Lending Club Loan Analysis

Analysis might be a bit too strong of a word.  At the end of the quarter, I had invested in a total of 62 notes.  Of those 62 notes, 19 had been paid off, and there have been no written off loans.  There is one that has slipped into the delinquent status column, however, and is showing signs of ending up in the written off column. The balance on principle of the loan is less than 1% of my total portfolio.  I might be able to sell it, but it’s far enough delinquent that I’d have to sell it at a significant discount.  Honestly, I haven’t decided if I’ll do that or not.  I’d rather it just came back around and was paid off, but I’m more of a realist than that.  Maybe we’ll be talking about the written off loan effect at the end of next quarter.

Lending Club Return

So this is the part that everyone’s been reading for, right?  If you look back at the 4Q12 update, you’ll see that my rate of return (displayed as NAR in the account dashboard) was 14.48%.  I screwed up a bit and didn’t record the NAR displayed at the end of March.  As of 4/24/2013, it’s being displayed as 14.63.  That still includes the one delinquent loan, so it’s likely to go down some if that loan is sold at a significant discount, or if it is written off.  The spreadsheet I use to keep track of the numbers shows a a return of 15.86% and 13.26% (adjusted with inflation, which may or may not be necessary).

The cash flow in the account remains pretty good.  I had several loans paid off in the last quarter that was reinvested.  All told, the portfolio of active (principle remaining) loans grew by 2 over the first quarter.  The average amount of money churning back into the account each month is averaging well over $30 a month now allowing me to invest in one new note (at $25/each) each month and then another when the balance grows beyond $25 again.  Monthly interest received is teetering around the $10 a month line.  I think my next goal might be to get the interest income up to $25 a month.  That would be pretty sweet.  I’d be investing in a new note each month on just the interest along.  If I want to do that anytime soon, however, it means I’ll have to start putting money into the account again.  I haven’t put anything into it since November of last year, and I haven’t yet decided when I’ll start putting money into it again, but it will likely be soon.

Embracing Risk, and Increasing Returns

I suppose that somewhere along the way, here, I should mention risk.  The notes that I’m investing in all carry a risk of potential default.  If they all were to default, I’d lose every penny in my account.  The odds of that happening are pretty small.  But, the odds of having one or two loans default out of a couple hundred is significantly higher.  If you’re going to invest in Lending Club notes, or any investment, you need to know and understand the risks.  That’s your warning, and my disclaimer.

Now, take a minute and go look to see what your bank or credit union of choice pays on their savings account.  How about their best rate on a CD?  Now, even if I were to invest my portfolio into loans with a better credit rating (and, supposedly lesser risk), I could easily be making 6-9% if there weren’t any defaults.  It beats the heck out of the rates at my credit union.

One last disclaimer.  Please don’t put your liquid (or, emergency) savings into risky investments.  You need those readily available, and relatively risk free.  Even at a paltry 0.25% in a savings account, it’s in the best place.  Every other drop of savings is fair game though.  Your money needs to be working for you, not the bank.

If you think Lending Club (or Prosper) is something you want to give a look (maybe you’ll want to try an experiment like I have?) you can sign up at the following links: (Lending Club | Prosper)

Lending Club Return Update 1Q13 is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.