Beating Broke

January Financial Reset

January 17, 2014 By Shane Ede 4 Comments

You’ve had your fun. You spent the holidays with your loved ones, did some frugal gift giving (right?), and probably ate way more than you should have. But, the new year is upon us, and it’s time to get back to business. It’s time for a January financial reset.

With tax season right around the corner, there’s no better time to get all your financial books from the last year in order, take a good look at the balance sheet, and decide on the directions you’re going to take your finances in the coming year. For some of you, that will mean finally getting a handle on your debt. For others, it will mean finally paying off your debt. And for more of you, it will mean finding the best ways to make your money work for you as you build your net worth and make strides towards financial independence.

For those in that last group of people, this post isn’t likely to help much, but you might want to take a peek at my Lending Club page for a great way to keep your money working for you. The rest of you, stick around.

Reformulate your debt

If you’ve still got debt hanging around, a new year financial reset is a great time to investigate reformulating it. What the heck does that mean? It means taking a good look at the debt that you’re carrying, and considering the options you may have to pay it off earlier.

Reduce the rates: The worst feature of credit card debt is the interest rate that they like to charge. 12%, 15%, 22%, or more. The interest payments eat into any payment you make on the debt quickly, and make it that much harder to make any meaningful progress. If’ you’ve got good credit, consider finding some good 0% balance transfer cards to transfer your existing balances to. You should be able to find something with a 12 to 15 month 0% rate. Be aware of the balance transfer fee when you do this, but otherwise it can be a good way to help you make some good progress on your credit card debt repayment.
Refinance: In some cases (mostly secured debt) you may want to look into a refinance of the loan. If you can reduce the rate on a loan and extend the length of it, it can free up some of your debt repayment money to go towards loans with higher rates and speed up your debt snowball.

Recalculate your debt snowball

Now is also a really good time to update all the numbers on your debt snowball plan. (or debt avalanche if you’re so inclined) Unless you’ve been keeping it updated throughout the year, the numbers are probably pretty out of date, and need to be freshened. Take the time, while you’re doing this, to determine if you need to move one debt ahead of another, or if you can afford to increase the snowball payment to speed it up.

Seed your budget

Your budget can be the lifeline for your financial life. It’s a blueprint for how you’re building your financial house. Even a simple budget can help tremendously, and the beginning of the year is a great time to give your budget a full inspection (or just to start one) and make sure that it’s got all the categories you need, that it’s still balancing, and for planning out where you’re going to focus your efforts in the new year.

Examine your bills

We all get bills throughout the month. In many cases, we throw them in a pile, then enter them into bill pay, (or, gasp, write checks) and then forget about them until they show up the next month. While you’re going through your finances from the previous year, pay attention to the bills that you’re paying. Are there bills that have increased? How about ones that you meant to cancel the service but didn’t? Or maybe there are some that you just haven’t called to try and get a better rate for? Know what time it is? You guessed it. It’s time to cancel that service. It’s time to call and see why the rate increased, and if there’s a change you can make to get a better rate. It’s time to compare your services with their competitors and see if there isn’t a better rate/service available out there. You may think it’s a waste, but you could end up saving hundreds a month. And that can quickly make your debt snowball grow!

Keep on your financial path

Here’s the most important thing you have to take away from this post. You’ve got to keep on that path. Once you’ve done the things above, you’ve taken some really solid steps on your path to being debt free, but they’ll only work if you keep working with them. Keep that budget going, keep a close eye on your bills, keep your snowball updated, and know how much debt (and at what rate) you have left. Whether your debt feels like a mountain, or just a molehill, knowing the what/when/where of it make the climb that much easier.

Will you take the time to do a January Financial Reset?

Do We Inflict Peer Pressure On Ourselves?

January 15, 2014 By MelissaB 10 Comments

When my husband and I got married, we were flat broke. Broke. We bought the cheapest wedding bands that we could find, and my diamond is small. However, that was my preference. I wanted to stay within budget, and I personally like smaller diamonds rather than the big rocks that some women wear. (All I could think was that when I had babies, I’d accidentally scratch them with a big ring.)

Still, there have been times that I’ve been in the presence of a group of women, each with a huge rock on her hand, and I’ve been a bit embarrassed by my small diamond. I’ve wondered what other people thought of us and our financial situation.

Peer Pressure Doesn’t End in High School

In high school, peer pressure is at its peak. If you want to be popular, you have to follow what the other kids are doing. I didn’t cave to peer pressure often. Instead, I had a few close friends, and I followed the path that was important to me. I was relieved when I graduated because I thought the peer pressure would finally be done.

In college, I found that the peer pressure did relent. People would respect your choice if you didn’t do what they were doing.

However, as I got older, I began to realize that there are societal norms that you’re expected to maintain. This becomes the “keeping up with the Jones'” phenomenon.

The Pressure Becomes Internalized

My husband and I are digging our way out of serious debt. We are scrimping and saving, knowing that in a few short years we will be out of debt and can start fresh. We can have all of our money be our own once we’re out of debt.

Meanwhile, we drive a 10 year old minivan with over 125,000 miles on it. I wear my small diamond ring, which I don’t ever plan to replace with a bigger version. We rent an apartment instead of owning a home.

No one is pressuring me to spend money that we don’t have. No one is passing judgment on us (at least not to us directly). But it’s hard not to look at other people’s lives and see the “stuff” that they have. The nice cars. The nice home with brand new furniture and a manicured lawn.

No one is telling me I’m failing, but I feel it sometimes. I feel that I’m not living up to society’s standards. I can see how easy it is to want to keep up with the Jones’, even if you can’t afford it. I can see how easy it is to pull out the plastic just this once because you’ve been scrimping and saving and just want to be like other people once in a while.

For the people who can afford it, there is no danger in this. For the people who can’t afford it, there’s just debt and heartache. You might then be just like those you want to be like.

Me, I’ll keep resisting the peer pressure, even though now it’s mostly pressure I put on myself.

Lending Club Returns Update 4Q13

January 6, 2014 By Shane Ede 4 Comments

Another quarter has come and gone, so it’s time for an update on the Lending Club returns I’ve been getting on my account. At the end of the third quarter, my account was sitting at a return rate of 14.69%. It’s actually improved a bit since then, but Lending Club has also added the ability to adjust the displayed NAR, which does some funny stuff (see below) and reduces the rate a bit. I think that’s a good thing (again, see below) and that’s the rate I’ll likely be using for future updates.

Lending Club Adjusted NAR

A few months back, Lending Club introduced what they’re calling an adjusted NAR. Basically, it uses the historical charge off rates of loans at the different stages of delinquency. Obviously, the current loans have a historical rate of charge off of 0%. Once they go into the Grace Period, about 23%, 16-30 days late, about 49%, 31-120 days late, about 72%, and in full default, about 86%.

As an example, my portfolio currently has two notes that are in the 31-120 days late category. So, when Lending Club is adjusting my NAR, they use the 72% figure and assume that 72% of the principle will be lost. Using that number, they then calculate the new, adjusted NAR. With the two notes late, my adjusted NAR is currently showing as 13.16%. Still a very healthy number, and likely a more realistic number. I like the new adjustment, as it should give investors a more realistic number to look at.

Lending Club Defaults and Late Notes

As I mentioned above, my portfolio currently has two notes that are 31-120 days delinquent. And, if you go by the historical numbers, those two notes have about a 72% chance of eventually going into collections. I’ve been lucky enough to only have had one note actually go that far to date, and the collection agency was able to get a bit of that money back for me. It wasn’t the entire amount owed, but a significant portion of the principle, which I was happy for. I could try and sell off the two delinquent notes, but at this point, I wouldn’t get much out of them, so I think I’ll just ride them out and see what happens. The total principle involved is only about $35, so it would mean about a month and a half of lost interest payments. That’s a risk I’m willing to take.

The Future of My Portfolio

With the rates I’m getting, I don’t foresee stopping my investing through Lending Club. I may even start putting some more money into the account sometime in the future. At the moment, I’m content to just leave it and reinvest the payments each month. I’ve seen a few other investors that have either significantly changed how they’re using Lending Club, or have begun backing out of it altogether. I think it’s something that you need to be able to change how you do it, but I also believe that backing out altogether is a mistake at this point. The technology is still relatively new, and many of the changes that we’re seeing Lending Club make have been for the better.

I’ve created a page that consolidates all of the posts I’ve done on Lending Club, as well as the quarterly updates since I began doing them. If you’re interested in starting to invest in Lending Club, you can read more on my Lending Club page, or you can sign up for an account and give it a go.