Beating Broke

Personal Finance from the Broke Perspective

Frugality and Brand Names

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The words Frugal and Frugality have been some very popular words lately.  With the economy the way it is, it’s not very hard to see why. Even so, I still know people who claim to be frugal, but refuse to buy anything but the brand name products.

There is very little room for brand names in a frugal lifestyle.  The good news is that many of the non-brand name products are very similar products.  In some cases, they are the exact same product.  In other cases, they are not even close to the same thing.  In those cases, you have to weigh how much you want that exact product against your desire to save money and live frugally.  Is the extra $1 worth it?  Depending on the product, you might make an exception.

If you decide it is worth it, here are some things you can do to try and help cut that cost.

  • Coupons!  Check the manufacturer’s website.  Many have customer loyalty programs that you can sign up for and get occasional coupons.  Look through the Sunday paper.  Or, see if you can find a coupon train to join up with.  Swap Mamas has one, and I’m sure many other sites do as well.  There are also coupon trading sites that you can make use of.
  • Buy in bulk.  If you’ve just got to have it, buying in bulk can sometimes help cut the cost.  My favorites are Sam’s Club/Costco and Amazon.  If the item is perishable, maybe you can find a friend that will split it with you and you can still reap the frugal benefits.  Sometimes it’s worth the cost of a Costco membership.
  • Cash back rebates.  If you have a credit card that gives cash back, you can use it to help cut the cost of the item.  Just make sure you’re paying off that card every month, or the interest will eliminate any benefit.
  • Supermarket Loyalty programs.  Some supermarkets have a loyalty program.  Spend $XXX and get $X off!  It’s usually not anything spectacular, but every little bit helps.

Sometimes the brand name is worth it.  But, I encourage you to try the generic stuff too.  You just might be surprised to find that it is a very sufficient replacement.

Photo Credit: http://www.flickr.com/photos/thisisbossi/ / CC BY-SA 2.0

Coupon Angel

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I’d never heard the term before, but JD at A Penny Saved used it today.  Coupon Angel is a term that he uses (and maybe more people do as well?) to refer to people who leave an unused coupon for a product sitting on the shelf or near the product at the store.  If you, like JD, happen upon one you get a usable coupon for an item.  Kinda cool.

I’ve seen it happen but never had a term for it before.  Now I do.

Yes, Peer-to-Peer Lending is Risky, But Not Cursed

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After my last two posts, and then this one, you must be beginning to think that this is P2P lending week here at Beating Broke.  I hadn’t intended it to be this way, but it just seems like that  is what’s on the brain and it’s getting a bit of buzz lately too.

Jim, from Bargaineering, wrote an article today about how risky peer-to-peer lending can be.  I completely agree.   But, he also made it sound like he thought that they should be avoided altogether.   And that I disagree with.

P2P lending is risky.  It’s just as risky as bank lending is for banks.  And look at the mess they found themselves in not too long ago.  But, as P2P lenders, we can learn a lesson from that.  First, you shouldn’t be investing your nest egg in anything this risky.  Once again, diversification is the key.  On a scale of risk, P2P lending lands somewhere on the risky side of stocks.  So, if you properly diversify, P2P should probably only make up about 2-5% of your portfolio. Also, the banks lent out way too much of their portfolios to way too many people that they really shouldn’t have.  If you’re careful about who you lend to, you should be able to significantly reduce the risk.  What that means is that you probably won’t be lending to to many people who will be paying 20% on their loans, and will be lending to more people who are paying in the 4-7% range.  That’s OK.

Why any at all?  Because the returns can be pretty good.  Depending on the model you take, your return can be in the 5% range.  The riskier loans you lend to, the higher the potential return.  Some of them are in the 20% range.   Of course, the caveat there is that those are also the most risky loans and the most likely to default.  And, much like in the banking world, if a borrower defaults on a loan, you will lose money.  You might manage to recover some of the money through collections, but it will only be a percent of what you lent out.

My advice?  (not that it’s worth much) Be cautious.  Don’t lend more than you can stand to lose, and keep the ratio of P2P investing pretty low in your diversified portfolio.  Do your research.  Lending to some 24 year old who is using the money to finance a class on real estate investing is probably not the best idea.  Chances are, that loan is headed for default.  On the other hand, lending to a mother/father of 3 who is going to use the money as a down payment on a house could be a safer loan.  In the comments of Jim’s post, he mentions that he doesn’t invest in anything that he doesn’t understand.  He doesn’t invest in options or futures because he doesn’t understand them either.  That’s a very valid point, but I think it really boils down to how much information you want.

I think if Jim wanted to, he could find all the information he wanted to learn how to use option and futures investing.  (note: I don’t understand them either and don’t invest in them.)  P2P lending is a bit of a different cookie though.  The bones of it are simple.  One person is lending money to another person.  In essence, as a lender, you are the bank.  Using the available data, you review the loan applications and decide on which ones have the least risk of default.  If you feel like taking on some riskier loans, you decide how risky and modify your acceptance practices to reflect.  Is there more to it than that?  Of course.  But, if you keep your wits and only dabble a little while you’re learning the ropes, you can learn all of the intricacies from trial and error while not losing your shirt.

As with anything, there is risk involved.  P2P lending has much more than most investing models.  If you are adverse to risk, you really should probably avoid it.  If not, get your feet wet.  And per the usual disclaimer, seek the advice of a professional before making any major decisions.

Update: It seems the original story that spawned all of this (here at The Big Money) caused a bit of a stir at Prosper.com headquarters.  They’re asking for a retraction and refuted the article with some of their own facts.