Beating Broke

Personal Finance from the Broke Perspective

The Lending Club IRA : Peer-to-Peer Enters the Retirement Realm

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You already know that I like Lending Club as an investment vehicle.  The returns are good (or great, depending on your default rate), and I like the idea that my money isn’t going to line the pockets of some corporation, but is being used to help someone who needs a loan get a better rate than they might get at a financial institution or through credit card usage.

Recently, Lending Club started offering IRA accounts to the lenders.  My first thought, was something along the lines of “that sounds kinda cool”.  But, then I got to thinking about it.  Many of us struggle to put money away for our retirements.  Do we really want what little money we have put away in an investment that carries as much risk as Lending Club notes carry?  I like risky investments, but even I don’t think I’d want all of my retirement money in these notes.

One use that could redeem it is using it as a supplemental IRA.  If you’ve already got a 401(k) and an IRA that you use to invest in more traditional, lower risk, investments, you could use a Lending Club IRA as a way to diversify further and add a little more risk to your portfolio.  That would also allow for keeping a higher percentage of your 401(k) and standard IRA in investments that are a little less risky.  Of course, that would also mean balancing your investment portfolio over several accounts.

I tried to figure out some of the finer details of the Lending Club IRA through their site, but either it isn’t all that clear, or I’m just a bit dense.  😉  So, I emailed them to get a few questions answered.  Here’s what I found out.  The accounts are administered through a company called Self Directed IRAs.  I’m not all that familiar with what a self directed IRA is, but it basically looks like an IRA account that you can use to invest in just about anything.  They offer several different IRA “types”, so it will depend on which the LC IRA falls under to determine what other investments you can add to your account besides the LC notes.  It doesn’t seem out of the question to assume that you would be able to invest in stocks and such as well.  (I’ve replied to the email I got to try and determine this for sure)  Based on what I was seeing on the administrators website, it was looking like the account might be pretty heavy in fees.  The email from Lending Club managed to answer that question as well.

There are no fees associated with a Lending Club IRA with a balance of at least $5,000 in the first year (you have all year to reach this), or $10,000 in the second year and beyond.

If you don’t meet those requirements, the account carries a $100 annual fee.  Pretty hefty if you don’t meet the requirements.  There’s two ways to look at that, however.  If you’re IRA is large enough, it shouldn’t be a problem to keep $10,000 in Lending Club notes and still keep your risk diversification.  If you’re IRA is smaller though, you’d be automatically raising the risk of the account my meeting the requirements.

Anyway you look at it, I don’t think it will be the most popular IRA account around.  But, it’s nice that they offer it for those of their customers who want a tax sheltered way to take advantage of peer-to-peer investing.  You can read more over on their site: Lending Club IRA.

What are your thoughts on the Lending Club IRA?  Too risky for retirement funds?  Good as a part of the retirement portfolio?

I Quit My Job: Overcoming the Fear

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One question I’ve been asked over and over when talking about quitting my job is how I overcame the fear of not being able to find a new job, or not being able to pay my bills.  Obviously, both of those questions played a part in the decision.  My answer might surprise some.  I didn’t.  At least not to the point that they’ve completely left my mind.

At the moment, I’m not looking for another job.  I took on a part-time job, working for a local computer repair shop, and I’m not even looking for a new full-time job.  The part-time job doesn’t pay anything even close to what I was making at my full-time job.  And, the truth is, I don’t care.  So far, using the income from my wife’s full-time job, and the income from my part-time job, along with some of the income I make from this site and others, we’ve been able to pay the bills.  We haven’t been able to keep up with our debt repayments on the same aggressive schedule that we had been on before, but we can pay the bills.

Even so, making the decision to quit my job meant overcoming the fear of both of those things.  And, I did it.

Almost a year before I quit my job, I wrote a post on another site of mine, entitled Overcoming Fear.  In it, I wrote about facing fear with rationality.  Looking at fear with a rational eye, and truly, asking “What’s the worst that could happen?”  I knew, during the decision making process, that the part-time job was available, and that it would likely be mine for the asking.  The worst that could happen there was for that particular job to become unavailable.  But, there are other part time jobs available here, and I could take one of those.  The hours at another one of them might be worse, and the pay might even be worse, but jobs were available.  The worst that could happen was that I could end up having to take a different part-time job that I wouldn’t like as much.  The worst that could happen with our bills would be if we couldn’t make ends meet.  The absolute worst case scenario would be if we were pushed to a point, financially, where we would have to declare bankruptcy.   Even that is was a pretty remote possibility, because I could always take on a second part-time job to help bring more money in.

I found the worst case scenarios, understood what the ramifications would be for each, and took a leap.  And, in the end, I’m very happy that I did.  My stress levels have gone way down.  I enjoy what I’m doing again.  And, I’m in control of what happens with my life, now.

if it makes you fly...

Overcoming fear can be about the best case scenario too.  With any decision, there is always something that is a positive.  For me, the positives of getting out of a situation that I was suffering in, regaining control of my life, and stopping the trade of my time for money, made it well worth my while.

Do you fear?  I encourage to read my post on Overcoming Fear, look at your fears with a rational eye, and ask yourself what the worst case scenario is.  Some fears aren’t worth fearing.

Share with us.  What are some fears that you’ve overcome?  What are some fears that you want to overcome?
photo credit: notsogoodphotography

Starting a Business? Read This Guide!

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One of the best ways to break out of the daily grind, and do something that you really enjoy, is to start a business.  You’ll likely work twice as hard, but because it’s something that you love, you’ll enjoy every minute of it.  When my wife quit her job, she could have used a lot of the advice that is contained in the guide I’m about to share with you.  There were lots of questions about the structure and methods that are necessary to starting a small business.  Luckily, if you’re starting a new business, you can read the guide and cut through some of the learning process.

The guide I’m talking about is one that has been put together by my friend, Eric, from Personal Profitability.  It’s free.  All you have to do is have an email and sign up for his newsletter.  He’s a stand-up guy, so your email is safe with him, and all you’ll get is some really great information about starting a business and personal finance.

So, go over and sign up for the newsletter and get your copy of the Starting a Small Business guide.

The guide is 16 pages long, and covers everything from developing your idea into a business to increasing revenue and income, to the proper ways to exit a company you’ve started if that’s what you want to do.  It’s not all-inclusive (that would take a couple hundred pages), but it is a great start on your way to starting a small business.