Beating Broke

What’s Your Financial Weakness?

January 19, 2015 By MelissaB 12 Comments

We all have a financial weakness. That one area where we struggle to do the right thing. We might even struggle with deciding what the right thing is. If we remain unaware of our financial weakness, it can wreak havoc throughout our financial life, as my weakness did mine.

However, knowing your financial weakness, your financial Achilles’ Heel, so to speak, can help you become a better manager of your finances.

My Financial Achilles’ Heel

Me? I like to squirrel things away for the proverbial rainy day, but when the rainy day comes, I don’t like to dip into my stash.

My husband and I have an emergency fund. True, it’s smaller than we’d like, but we do have one in place. Considering 28% of Americans don’t have any emergency fund (CNN Money), we’re glad to have our small one.

There are other ways I squirrel away things. We buy produce in season at lower cost by doing creative things like renting an apple tree. Then we store it away for the cold winter months. (It makes me feel a bit like a pioneer. A pampered pioneer, but a pioneer, nonetheless.) Right now we have a deep freezer in our basement that is filled with plums, grapes, blueberries, strawberries, and applesauce. If we didn’t have money for groceries, we have enough fruit to easily last us for two to three months.

Having an emergency fund as well as a stocked pantry doesn’t sound like a problem, right?

Right. I’m being financially responsible and preparing for a time when money will be tight.

Here’s the problem.

I don’t like to dig into my stash.

If I have a financially lean month and I’m faced with a large expense like a car repair, I don’t do what would be logical–dip into my emergency fund. Instead, my first inclination is to put the repair on my credit card and leave the emergency fund intact.

If I have a month where I don’t have as much grocery money, I’m more likely to put groceries on my credit card than make a significant dent in our food stash.

My behavior makes.no.sense. No sense.

And yet it took me years to figure out that I do this and to realize that I have to fight the natural inclination to go in debt rather than dip into my reserves. Part of why my family struggled with credit card debt is because of this irrational behavior. Now the credit card debt is paid off, and I have a chance to start anew, well aware of my weakness.

What’s Your Financial Weakness

So, what’s your financial weakness? What completely irrational behavior do you exhibit? Are you even aware of what it may be?

Honestly, finding the chink in your armor, so to speak, may take years. I think it took me nearly 15 years to figure out mine, and I made a lot of financial mistakes during that time. I’m not sure why I exhibit this behavior except that perhaps growing up, I always saw my parents struggle with money. They never had money to create an emergency fund. Credit cards were their emergency fund, and they had to use them frequently.

I’m guessing for most of us, the experience is the same. Financial behaviors we saw in childhood and learned as normal become the basis for some of our adult decision making.

What is your financial Achilles’ Heel?

Confessions of a Professional Blogger – Book Review

January 16, 2015 By Shane Ede 10 Comments

Confessions of a Professional Blogger

By: Miranda Marquit

Disclaimer: I received a copy of this book from Miranda. My policy on books I receive free copies of is that I don’t review them unless I like them.

How many of us, myself included, don’t jump at the chance to get a little insight into how someone who does something that we want to do for a living, for a living? I know that when Miranda asked me back at the end of 2013 if I would read her book that I immediately said yes. It’s been a little while since she first sent over a copy, but that’s totally on me. I read a lot of books, and somehow hers got lost in the shuffle and ended up at the bottom of the to-read pile. I wish it hadn’t, but it did.

On to the book. It’s a short read at just over 100 pages, but it’s chock full of excellent information on becoming a professional blogger. Miranda leads the reader through the steps of starting out and gaining fans for your blog, or for gaining customers for your freelance writing. Throughout the book, Miranda focuses quite a bit on the details on how she manages her freelance clients, the way she’s created the “package” of services that she provides, and how she structures it all to the benefit of all involved.

If you’re looking to test the freelance writer waters, Confessions is a quick read that’s loaded up with information on where to start, what you need to do, and how to keep it rolling. You’ll find the book to read like a lot of Miranda’s articles, smooth and concise. And who better to learn from than someone who used her freelance writing to become the primary breadwinner for her household?

You can pick up a copy of Confessions of a Professional Blogger at her site, MirandaMarquit.com.

Lending Club Returns 2014 EOY Update

January 12, 2015 By Shane Ede 20 Comments

If you’ve been reading here for very long, you’ll know that I’ve been posting and discussing my Lending Club returns since the end of 2011. For the first year or so, I updated with quarterly updates. I didn’t do that in 2014. Part of the reason for that was that it was a busy year for me, and the time to put together a full post on that every quarter just wasn’t always there. The rest of the reason was that it was beginning to feel redundant to me, so I slowed them down a bit. Now, I’ll be doing the updates on a yearly basis (twice a year at most) to hopefully avoid that feeling of repeating myself in each one. On to the Lending Club Returns 2014 update.

If you don’t know what Lending Club is, the simple answer is that it’s a peer-to-peer lending network where people like you and me can both borrow and lend to people like you and me. Want a little better explanation? Head over to my Lending Club page to read more.

Lending Club Adjusted NAR

When we left 2013 behind, my NAR on my Lending Club account was sitting at 13.16%. A full year of lending has passed, and, as I’ll explain in just a bit, there’s been some changes to the account. At the end of 2014, my NAR is now showing at 9.61%. Down from 2013’s EOY number, but still a very healthy return on my investment. For comparison’s sake, the S&P 500 returned about 11% for 2014. So, ultimately, I could be getting more of a return on my money in an S&P 500 index fund. The biggest difference for me is that each of the loans I’ve invested in on Lending Club has a set rate of return. The only thing that changes that rate of return is a default. I’ll talk about defaults in a minute, but the rate of default is pretty low. Try and get a set rate of return on an index fund. Your brokerage will laugh you out of the office.

Lending Club Defaults and Late Notes

As of the time of this writing, there are no late notes listed on my account. In 2014, three notes went into a default status. At the end of 2013, only one had gone into default. It’s a little bit higher rate, obviously, than it had been previously. But, as my portfolio on Lending Club has grown, the odds of a default here and there also has grown. The full picture looks pretty good still. Since I began investing in Lending Club, I’ve invested in 118 loans. Only 4 of those have gone into default. That’s a default rate of about 3.4%. Flip that around, and if the trend holds, 96.6% of the loans I invest in will not default. 96.6% is a pretty good success rate if I do say so myself.

The 4 loans that have gone into default meant a total of $52.17 in written off principle. Of that $52.17 that was written off, $10.74 has been recovered through collections for a total loss of principle of $41.43. I’ll go into further detail in the next section, but the interest I make on the non-default loans more than makes up for that lost principle.

Lending Club Income

The biggest reason that I invest in Lending Club is for the higher rates of return and the income that it provides to continue building my portfolio. I bank the interest payments and then reinvest them into new loans when I’ve passed $25 in available funds. Those interest payments, after fees, totaled $115.69 for 2014. That’s up from $109.88 in 2013. Less of an increase than I expected, honestly, but still $115.69 that I didn’t have before. And it still leaves me with about $75 in income on the account after you account for the lost principle that was written off. And that’s $75 that I’ve reinvested into principle and am now earning interest on. Given my current rate of return, I can expect that to increase by about $12 next year.

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Another of the metrics that I like to look at is the average amount of interest earned each month. I reached point where the payments (principle+interest) each month exceeded $25, and I could make reinvestments each month, but the next benchmark I’d like to reach is to make $25 in interest each month to reinvest. That’s one new loan to invest in each month. The average for 2014 was $9.64, so I still have a way to go, but it’s increasing year over year. It was $9.16 in 2013, $5.94 in 2012, and $1.91 in 2011.

I think the thing that I like the most about Lending Club is the income potential and the growth I’ve managed with my portfolio. I haven’t deposited any new money into the account since November of 2012. Through active investing and reinvesting, my portfolio has increased by almost $200. I think that’s pretty good on deposits of just a hair over $700.

The Future of my Lending Club Portfolio

In the past, I’ve talked about changes I planned on making to my investing strategy in this section. I’m pretty happy with my returns, and with the numbers that I’ve just shown you, and so there won’t be any immediate large changes. If the default rate jumps by a lot, there’s a good chance that I might begin investing a bit more conservatively. But, if it holds steady, I see no real reason to do so. My portfolio is pretty heavily weighted towards the B and C grade loans in any case. And I don’t know that moving to A grade loans would give me the return I’m looking for. So, short term, there won’t be any changes to my investing strategy. I’ll just continue to reinvest the payments and see what kind of growth I get in 2015.

Do you have any questions I can answer about my experience with Lending Club? Other things related to peer-to-peer lending that you want to know? Let me know in the comments below, or through the contact form linked in the bar on the left.

Want to open an Investment account with Lending Club? Click here to start the process.