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?