Beating Broke

The Smell of Napalm

November 13, 2013 By Shane Ede 12 Comments

Napalm is a sticky, flammable substance that was invented in the 40’s, and used in several wars. Because of it’s stickiness, it attaches itself to everything, then burns at somewhere over 800 degrees. When it’s done, there’s no more jungle. No more enemies walking around. It’s vile enough, that it’s use on concentrations of civilians was declared a war crime by the UN in 1980.

By now, you’re probably wondering why a site about personal finance is discussing Napalm. Well. Here’s the thing. Debt is a funny thing. Most of us have it. Some of us have quite a bit. And most of us would like to get rid of it. In fact, most of us would just love to Napalm our debt. One fell swoop. Drop some sticky burning substance on it and have it gone in a few short minutes. We’d like that so much that we buy lottery tickets, raffle tickets, and buy books and products that promise some get rich quick scheme. People with debt are always looking for the debt Napalm.

We like to fantasize about what we would do if we won a couple million in the lottery and set our debt on flames. Erasing it, with one fell swoop, while getting rich at the same time. Much like Kilgore in Apocalypse Now, we love the “smell of [debt] napalm in the morning.”

Instead, we’re given the “debt snowball“, or the “debt avalanche.”

The truth is that debt is so easily gained, we want to find a solution to it that is just as quick. An afternoon with a credit card and a shopping mall can add thousands to the total. Thousands that could take us years to pay off. We wish we could find the Napalm to incinerate our debt.

Some people think that bankruptcy is that Napalm. But, as quickly as a bankruptcy can eradicate your debt, it doesn’t leave you without any scars. For many years afterwards, you, and your credit score, will suffer the consequences of the bankruptcy. Credit will be nearly impossible to attain. Prospective landlords and employers are even running credit checks before renting or hiring people.

We need to stop looking for the Napalm. We need to stop assuming that all is lost. We need to take some responsibility, find ways to make more money, save more money, and pay down more debt. We need to stop adding more debt.

If you want to get rid of your debt, it’s a slow burn, not a Napalm strike. Even in the world of personal finance, Napalm is a war crime.

Original image credit: korea by the U.S. Army, on Flickr

All Is Not Lost

November 7, 2013 By Shane Ede 13 Comments

I can’t tell you the number of times that, in our seemingly never-ending struggle with debt, that I’ve seriously contemplated just giving up. Just throwing in the towel and saying f-it. You know it’s bad when you catch yourself fantasizing about it. About how much easier your life would be without the struggle. Just declaring bankruptcy, taking the hit on your credit score, and moving on with your life.

Even now, after having written about personal finance for over five years, I still find myself in that place occasionally. We let our budgeting lapse, and inevitably our spending gets out of whack again. Something happens, and the emergency fund just doesn’t seem to cover it all. Or, worse, doesn’t seem to replenish itself as quickly as it should.

I can try and lay the blame somewhere. That always helps, right? If it isn’t my fault, then I can’t be blamed for it. I can’t be the one that everyone points to as the failure. I can deflect that attention to someone or something else. That helps. Until it doesn’t.

Every single time, it’s really me that deserves the blame. It wasn’t the boss that refused to give me a raise. It wasn’t the heater in the car that needed to be fixed. And it certainly wasn’t the kids that needed to eat. It was me. Every. Single. Time.

I failed to negotiate the raise. I failed to have enough saved up to make that repair. I failed to budget properly to make sure that we wouldn’t have to cut corners at the grocery store. Me. I did that.

I could just give up. I could miss having to work harder to be paid appropriately. I could miss having to pay attention to my budget to save money for car repairs, or to pay for groceries. I could do that. Giving up would be so easy.

Until it isn’t.

How to Get Started with Lending Club

October 17, 2013 By Shane Ede 7 Comments

Over the past couple of years, I’ve been talking about peer-to-peer lending. I’ve shared my returns each quarter (see last quarters’), and shared how I go about selecting the loans that I invest in via FolioFN. One thing I haven’t talked about in detail is how to get started with Lending Club. So let’s do that. Let’s talk about how the strategies that you can use to get started with Lending Club.

What is Lending Club

Before we talk about strategy for investing with Lending Club, we need to briefly discuss what Lending Club and other peer-to-peer lenders are. They act as a service for both borrowers and lenders. As an individual, you can apply to get a loan, or you can invest in a loan. If you’re getting a loan, the peer-to- peer lender will vet the loan for risk, and then provide that information, anonymously, to the prospective investors. As an individual, you can also invest in the loans that have been vetted. The borrower then repays their loan just like they would if it were borrowed from a traditional lender (banks, credit unions, etc) and each payment (with interest included) is split out to each of the investors. In short, they make you and the other investor/lenders into the bank. There’s a lot more too it, but that’s the basic rundown. Now, lets talk about three strategies that you can use to get started with Lending Club.

Go Big or Go Home Strategy

There are some people who refuse to do anything on a small scale. You know who you are. If this describes you, this is likely the strategy that you will use. Decide on the percentage of your overall portfolio that peer-to-peer lending will be, then calculate how much of an investment that means you’ll be making. Deposit that amount into your Lending Club account and start investing it into loans. Depending on the size of your deposit, it might still take a little time to get it 100% invested into loans, but you’ve got the full amount in the account and ready to go. As you progress, you’ll also want to make regular deposits that match the % of portfolio that you’ve set for your investment accounts.

Slow and Steady Strategy

Some people really like systems. They like to decide on a path, set the system that will take them down that path and rarely deviate from that system. In this strategy, you still decide what the percentage of your portfolio that your Lending Club account will occupy. But, instead of making one large deposit to assign it, you make several smaller, timed deposits to bring it up to the % of portfolio that you’ve decided on. Each deposit will be invested as you go. Ongoing deposits will likely be larger than they would be with the above strategy because you’ll be increasing the account balance to match the % of portfolio as well as including your amount of new investments.

Get Your Feet Wet Strategy

Some of you are still a bit leery of peer-to-peer investing. You’ve heard that it’s risky. You aren’t sure if it has a future, or, more specifically, if it has a future in your portfolio. Maybe you like investing in high-value stocks and bonds and playing it safe. But, still, you’re tempted. Tempted by the rate of return that I and others are claiming to receive. This is the strategy for you. Instead of selecting a percentage of portfolio like the above two strategies, you want to just get your feet wet a little and test the water. Decide, instead, on an amount of money that you want to use to test the waters. At a minimum, it should probably be something like $125-$250 minimum. That amount will allow you to invest in $25 increments and reduce your risk by having at least 5-10 loans in your account. Using this strategy lets you feel the system out with a minimal amount to lose. Even if you lose it all, it’s not a large percentage of your investments.

Get Started with Lending Club

As investors and stewards of our money, it’s important to find the best way to handle our money. For many of us, that means finding ways to eliminate our debt, earn more, and invest smartly. I’m not a financial adviser. I’m just some guy that likes learning things about money. I share those things, and my thoughts on them here. One of the things that I’ve been using to grow my investment portfolio is Lending Club. I’ve been very happy with the service, and I recommend it.

Which strategy do I use? At this point, I still have significant debt. I happen to believe that investing while you are in debt is not all that smart. So, I’m more focused on my debt than I am on investing. I’m still firmly in the get your feet wet strategy with my investments. In the time I’ve been testing the waters, my portfolio has grown to quite a bit more than the minimum investment I suggest above, but that’s where I started, and that’s the strategy that most closely resembles my usage of Lending Club today.

If you’re thinking about getting started with Lending Club, be smart, know that there are risks, but I don’t think they are as bad as some would claim. Know that, just like stocks, there is a chance that you will lose your entire investment. Just like investing in stocks, that chance is pretty small. I’m not an adviser (that hasn’t changed in the last two paragraphs) so if you’ve still got questions, and want professional advice, I suggest you talk to your adviser first.

I’ve consistently been getting returns on my money of 13-14%. Even in the boom times of online savings accounts, the interest rates weren’t that high. Heck, even if you believe Dave Ramsey and his 12% returns on stock investments claim, it isn’t that high. Getting you feet wet in Lending Club offers a potentially good rate and, I think, is worth a try.

Original Image Credit: Feet by lukasberg, on Flickr