prosper

i've been sitting on the sidelines on this whole prosper thing for a while now and i'm finally going to jump in and see what the hoopla is about. the story behind prosper, if you don't know, is that it's a web site that allows people to lend or borrow money from other people and they handle the collections, credit scoring, and the whole infrastructure behind setting up and servicing loans. all you have to do is put your money in, set your terms, and approve or deny loans.

i don't know what kind of return that you really could expect -- especially after calculating for losses from defaults, but i do understand that prosper would be able to cut the fat from some of this process and, as such, be able to offer lower rates, which would be interesting to me from a borrower's standpoint.

the problem is, as i see it, that in order to make money, you'd want to service loans on the lower end of the credit spectrum and that would likely open you up to higher risk. if you can balance that and set rates accordingly, it may be a decent place to park some cash.

dinner conversation

we had dinner with some friends last night and one of them made a comment: "you know i think you guys are probably like us. we don't have a whole lot in savings, we have some in retirement, and got some credit card debt . . . ". i don't recall where the conversation went from there, but i thought it was a pretty accurate picture of the average american.

well, i didn't correct him and tell him that we have a fully funded emergency fund, save and/or invest a good chunk of our take home, and carry no debt except our mortgage. i really don't know how i was instilled with this sense of right and wrong when it comes to my finances -- i suppose it must have been my upbringing, but it really is alarming how the everyman must live.

the way people spend, i have no idea how we, as americans, can afford to retire. are we banking on social security? are we going to work forever? win the lottery?

savings vs eliminating debt

a friend of mine jokingly said to me the other day that he wished he had some high interest credit card debt because that would be an easy way to 'make' 10-20% on his money with no risk. it's funny, but if you get down to brass tacks, it's entirely true. a lot of people ask should i be saving money or paying down debt? well, to me it comes down to the rates on each -- if you can make more in interest in your investments / savings (factoring in your risk) than the interest demands on your debt, you should save, otherwise you should pay down your debt.

the interest you avoid paying by paying down your debt is identical to money that you actually sock away in your savings account.

tax break

sounds like we're all getting checks (unless there's an income limit put in place) from the government this year -- in an effort to stave off recession. last i heard it was something like $400 per person, but could be higher, depending on what comes out of congress.

the idea behind it is that since we as americans spend every penny that comes our way and then some (we had a negative savings rate last year, if i'm not mistaken), and this would stimulate the economy and get money moving around.

i'm not an economist, but i'm all for getting more money.

passive income

i'm interesting in how to generate passive income. that is, income that you can pretty much rely on without having to work. an example of this would be interest income -- if you have $100,000 in a bank yielding 5%, you'd net $5,000 per year without having to do any work at all. Of course, that's a lot of cash to be sitting around idly.

the point of having passive income streams is that at some point, if you've got enough money in the right places, is that you can live off your passive income entirely. this is the point that i call my retirement horizon -- if i can achieve that, it'll likely be goodbye to my 9-to-5. i'll probably still work to some degree on projects that i'm particularly interested in, to keep busy, that type of thing.

but to really know what your retirement horizon is, you have to have a clear picture of what your spending is and what you expect your spending to be. i don't keep too tight a budget, so i only have a general idea what this amount is, but since retirement realistically is a long way off for me, i don't spend too much time fretting about it. my bank does a nice job of displaying a spending report, but that includes transfers into other accounts as spending, so it distorts the amount of 'spending'. it does a decent enough job to show a general guideline, though.

early retirement

i've been thinking about retirement a lot recently. i'm a ways off in terms of normal retirement age, so there are probably more variables for me to think about than your typical retiree. what it comes down to is whether my savings and investment return will be able to at least break even with my spending. since i would be an early retiree, there are some things that i need to consider that other retirees may not have to worry about:

1. mortgage. we recently built a new home and while we did put down 20% on it, we are nowhere near owning our home free and clear, so that means that i'll have to cover my mortgage from savings and/or investments. i don't know about you, but the notion of doing that just seems wacky to me. if i were realistically considering retiring tomorrow, i'd really have to put a lot of thought in selling the house and moving into a place that we could easily afford the mortgage or rent on.

2. college savings. we have a new addition coming into the family soon, and i was planning on saving toward college. i'd have to be able to fund that.

3. medical expenses / insurance. we currently have insurance through our employers, a large portion of which is paid by our employers. something else that would eat away at our savings.

4. a longer timeline. i'm relatively young, so i'd have to cover another 10, 20, or even 30 years more than the typical retiree.

just adding these few things up in my head, i'd be pretty comfortable with about a million dollars in pretty safe and pretty liquid investments to retire tomorrow. so, by the sounds of it, it'll be back to work for me -- at least for another few years.

moonlighting

i was listening to some financial self-help show and after a lot of mumbo-jumbo, the bottom line was that we all need to find ways to boost our income. so, i took a look at myself to see what other things i could do to generate income outside my primary job. here's what i came up with:

1. moonlighting. by networking i can try to pick up some contract work on the side. i do this every year about this time -- many companies are doing the same things we are doing at this time of year, which is resolving to make big differences. you can tap into that behavior and get in and do some side work.

2. rental property. you can generate some side money by renting out property. of course, there's an investment involved and the returns usually don't come until after a year or two.

3. credit card / banking plays. by risking your credit score, you can sign up for credit cards or bank accounts that are giving out bonuses.

4. revolving credit plays. again, by risking your credit score, you can take advantage of 0% credit cards and stash the amount into something that returns better than 0%.

any other ideas?

money leaks

ever *know* you have twenty more bucks in your wallet and go to get it and find that it turned into a five? it happens to me more often than not -- i have to pay to park, so i usually try to carry a little bit of cash with me. well, it turns out that little bit of cash is a really easy for me to loose track of -- a sandwich every now and again here, a coffee there, and *poof* my parking money is gone.

anyone have any tips on plugging these money leaks?

how to save money

i tried searching for some interesting ways to save money this morning. it turned up the usual suspects: quit smoking, pack your lunch, make your coffee at home, drive less, and blah, blah, blah. most of these don't apply to me, and i get tired of reading how to save 10s of thousands of dollars a year with methods that simply won't work for me.

i've found that the key to saving money is stashing it away before you get a chance to spend it. whether that's increasing your 401k contributions, set up a second direct deposit from your paycheck, or whatever other automated method you have before you to divert the money before it gets into your hands.

2007 returns

so, 2007 is closed and you should be able to see how well you did. we returned a paltry 5% from our brokerage account and performed similarly in our retirement accounts -- we ended up doing better in CDs and some savings than in investments, but, we're in the market for the long term, and i think our holdings are positioned well for the long term. for what it's worth the s&p 500 returned around 3.5% for the year, so we were able to edge out that index.

even though we're long term investors, i think it's a good idea to check our returns from time to time. this allows us to balance our investments and also make a determination as to whether the time that we spend in investing is worth it -- if we were simply performing as well as the s&p 500 or worse, it would likely be a good idea to rework some of the investment choices that we make and weigh them more heavily to an index fund.

i know there are some people talking about a potential upcoming economic downturn which would impact the stock market. don't be afraid of these downturns, they are perfectly normal and are buying opportunities -- historically speaking bear markets are far shorter in length than bull markets and in the long run, the bulls have won the tug-of-war.

how to make money online

i'm always looking for ways to supplement my income, whether that's by picking up some contract work or selling something i don't need anymore on ebay, but those opportunities aren't always available. recently, i've been trolling the web for things that i can do to to make an extra buck or two. here's a summary:

1. open up bank accounts. i have several bank accounts that i have opened whenever i have found the opportunity that have signup bonuses. these don't generally end up paying off a lot of money, but it's hard to resist a free hundred bucks.

2. surveys. i take a few surveys online that pay a few bucks a pop. it doesn't amount to a lot of money, but at a few bucks a pop when i'm not doing anything, it'll pay for a burger or something else when i'm running around.

3. 0% interest balance transfers. i've just recently started signing up for some 0% balance transfers and putting the money into cd's.

that's what's on my radar right now, and it's important to know that some of these will have an impact on your credit score.

retirement horizon

so, i've been thinking about retirement, but i'm nowhere close to the standard retirement age. i imagine -- and i have a pretty vivid imagination -- that it might take me anywhere from 5 to 10 to 20 years to build up the savings and investments that we would need to retire. but, why the big range? well, it's all about a standard of living in retirement. i imagine (again, don't forget about my vivid imagination) that we could retire today if we drastically downsized, took the occassional part-time, temporary, or contract work, really lived frugally, and gambled our futures by neglecting medical, life, and other insurances, but that's not really the type of living that i think i'd enjoy in retirement.

i've punched in some numbers on various online retirement calculators, but arriving at a 'what do i need to retire' amount is a problem that's bigger than the sum of its parts.

for one, there are a lot of unknowns -- what age do you want to be when you retire? well, the sooner the better is probably the answer for a lot of people, but that begs the question -- what's the soonest i can retire? that depends on what your income requirements are in retirement, the rate of inflation, the return on your investments, and how long you'll live. these are not the easiest things to arrive at, especially if you're not close to the traditional retirement age.

let's say you have got all these things answered, or at least approximated. that means you have a total dollar figure that you need to retire and a withdrawal rate that will allow your money to outlive you. well, next that means that you have to plan on how to position your investments so that you can safely earn the return you expect from the previous exercise while minimizing risk and having at least some part of that liquid enough so that you can draw from it.

even if you've got all that figured out, you have to account for some level of risk -- medical surprises, downturn in your investments, spiking cost of goods, any number of things that could throw a monkey wrench into your plans.

in the face of all that, people do it every day -- not millionaires -- normal people retire everyday. so, take a deep breath and smile, it can't be all that hard if everyone's doing it. just wait and see -- here in 5, 10, or 20 years, we'll be one of them!

happy new year

hooray, 2008 is upon us! what this means to many is that it's time to make some resolutions -- get fit, quit smoking, get our financial lives in order and all that. i'm not a big believer in resolutions and i don't remember the last time i made one, but i stopped in at costco the other day and knew that people around me were certainly going to be doing some resolutioning -- the first display was for weight loss, the next display was for the same, then protein shakes, powers, and bars, anti-smoking products, and everything you could imagine to build a better you.

well, i'm sure when the smoke clears and the gym quiets down here in 2-3 weeks, everything will be back to normal, but until then, i'd like to embrace this time of year and offer hope and encouragement to those that do really want to make a change for the better. let's get out of debt, start planning for retirement -- or better yet retire, start saving more, start earning more, or do whatever it is that we all need to do to make 2008 and our future better!