Success Warrior: The Blog That Embraces ADHD

My Thinking Has Changed

It's a process of course and I'm not sure at what point you say that you have changed how you think.  The transformation is ongoing.  My wife and I are still learning about money and will continue to change how we think about it.  Some of the things we do are designed in a great part to do just that.  There are milestones though that you pick out and last night was one of those.

I was listening watching the crowd last night as we were waiting for the concert to start.  Some coworkers were nearby talking about buying a car.  One of them is going to buy a brand new H3 this year.  I wasn't really paying too much attention but I heard that the payments would be spread over 72 months.

Inside, I just cringed.  72 months.  That's a big promise.  Many people don't even keep their cars for 6 years.  This guy might.  I don't know.  It doesn't matter. 

A year ago, I wouldn't have even thought twice about this.  Car payments are just a part of life.  6 and 7 year loans for cars are becoming more common.  There is nothing out of the ordinary about this.  Now, just the thought without really thinking it through just makes me want to yell out, "Don't do it!"

This morning, in giving it more thought, I can't help but think about the situation my wife and I are building.  We should have everything in our lives, including the house, paid off in 45 months.  At that point, saving up for a vehicle will be easy and I'll pay cash for every car I buy for the rest of my life.

Being on this program really changes how you think.  And that's a good thing.

Everyone knows that sex sells but did you know that sex borrows too?

I didn't know that until I joined Prosper.  I should have guessed it or known it based on the fact that it's just the way things work.  Still, it didn't dawn on me until it was pointed out to me.

At Prosper, borrowers can upload a picture of themselves to put a face with the loan.  I never really looked at the pictures.  I saw them but I didn't really *look* at them.  It's a picture uploaded on the net from . . . well, just about anywhere.  It doesn't mean much.  At least not to me but others obviously look at them.

One guy was trying to get a loan funded.  I don't remember any of the details of the loan but it didn't get funded.  There was something that just didn't mesh with hsi story or the numbers or something.

So he tried again.  Only this time, he uploaded a picture of a model dressed to show off what she had as his picture.  He didn't change any information in the text area which included his name and the obvious fact that he was a man.  Lenders (that pay attention) were discussing the tactic and trying to decide whether it was false advertising or a good strategy.  The borrower never said that it was a picture of him.  Didn't even imply it.  Several other people have pictures of things that aren't them as their picture like a cartoon character, their kids, or their pets.  There is no rule that says the picture has to be of the borrower.

The loan funded.

The final vote in the forum discussion that I was participating in was that it was a good ploy by the borrower and that lenders should be smarter than that.

One of the benefits of Prosper.com

For those people who go there to borrow money who aren't there because no one else will give them a loan, Prosper does have one nice feature.

I told you that borrowers put down the interest rate that they want.  This is the starting interest rate.  Lenders then start bidding on the loan at the amount of interest that the borrower has suggested.  If the amount of the loan is funded before the bidding time ends, lenders can continue to bid.  To get in on the loan, they have to bid a lower interest rate.

This is a great aspect of Prosper that you don't find at banks or credit card companies.  Since all the lenders can see what the bidding is, they can choose to continue to bid or not.  The result is that many borrowers get their loans funded at lower interest rates than they thought they would.

In one case, I saw bidding take an interest rate down 9%.  That's huge!  You wouldn't find that out in the banking world.

Even some of the less dramatic changes in interest rate of 1% -1.5% is great.  It's a matter of how much lenders think they are risking.  At some point, lenders quit bidding because the risk outweighs the gain for them or because they are looking for a higher return regardless of risk. 

If you have fair credit, a good debt to income ratio, a plan, and want to consolidate high interest credit cards, Prosper might be the vehicle to help you out.

Tomorrow, let's talk about sex.

Prosper: A loan offer that was hard to pass up and some education

One thing that I have noticed about Prosper is the high number of high risk borrowers.  These people can't get loans in traditional places so they come to Prosper with hope.  Some come with unreal expectations and some are put out when they don't get the loan.  Not everyone is there because they can't get a loan someplace else and I'll cover that tomorrow.

Here's a loan that was hard to pass up.  A guy came to Prosper to borrow some money.  Borrowers set the interest rate of their own loan.  You can look at your credit score and see what the average interest rate is for your risk category but you can set it at whatever amount that you want.  So this guy set the interest rate at 0% for his loan.  I can't remember what amount of money he was asking for.  It doesn't really matter since he didn't get a single taker.  I guess it doesn't hurt to try but why in the world would you lend money to a stranger at 0%?  And why would you lend money to someone who doesn't understand that?  In his loan description, he went on and on about being a Mason.  This supposedly made him low risk and exempt from interest.

Borrowers who don't get funding can ask lenders on the forum why they aren't being funded and lenders will jump in with answers.  Like all tools, there is good and bad to this.  The good part is that honest people can take the advice and improve their credit, their financial situation, and their listing.  The bad part is that not honest people can learn how to tweak their listing to attract lenders. 

I read one listing a couple of weeks ago and couldn't see why this person was borrowing money.  I told her that with her financial situation, she didn't look like she needed a loan.  She was trying to consolidate her credit cards but she had enough money to pay them all off in 6 - 8 months.  A couple other lenders gave her the same advice.  Why pay the origination fee and get into a 3 year loan when you could be done with it all in 6 months.  She insisted that she wanted the loan.  It made me wonder what she wasn't telling us.

Prosper has been a great learning experience.

So, can we finally start talking about Prosper?

I joined Prosper last month and I have lent out $100 to people.  $50 to two different people. 

Here's a quick refresher since it's been so long since I have talked about Prosper.  Prosper is a place where people fund loans for other people, taking banks and credit cards out of the equation.

One of the things about Prosper is the diversification of risk.  You don't normally fund a loan in it's entirety.  Most people buy $50-$100 of a loan so several people take on the risk in small amounts.  They lend to a large number of people (or 2 in my case) to spread out their personal risk.

Like I said, I'm not going to get rich by doing this in $100 increments.  There are lenders at Prosper who have tens of thousands of dollars invested so it is possible to make it work for you. 

There are two things that I am getting for my hundred dollars. 

1.  I am still making money as long as they pay their loan.  24% interest between the two loans.  One of the things that my wife and I wanted to focus on this year was getting interest paid to us, no matter how small.  We are trying to reverse the financial inertia of interest so that it's coming in instead of going out.

2.  I am also learning things.  There is a forum where people talking about borrowing and lending money.  You start to look at things from a banks point of view.  Some of the people trying to borrow money are laughable.  I'll go into that more tomorrow.

I am a stock owner now

One of our plans for this year was to divide up the money that we normally put into savings and invest it in other ways.  The first thing we did was move much of our savings to an Orange account where it could earn more interest than our credit union pays.  The next thing I did was buy a stock.

Now I can't say that this is necessarily going to make me rich.  You see, I bought one share of one stock.  I can't even say that I own stocks.  I own stock.  That sounds weird but it is a start. 

I'm not even sure what I own.  =)

I read an article by Ben Stein and he listed off some good bets.  I picked one and bought it.  ADRE for those of you out there that know far more about this game than me.  It's an index fund so I probably can't go too far wrong in my ignorance.

I did buy a book on investing with the Barnes & Noble card that I got from my parents for Christmas but I haven't had a chance to read it yet.  I have other books that I have in the queue ahead of that one.  I'll get there though.  I want to have at least a working knowledge of the stock market by the end of this year. 

One more drill to change how my wife and I think about money.

What I track in addition to net worth

The net worth exercise was interesting and motivating and it's something that I'm going to update through the year out of curiosity.  I like exercises that build money awareness for people. 

All that being said, I don't know what tangible use the exercise had.  I don't know if net worth was created for bragging rights or if it had some other purpose but I do know that being worth zero isn't going to help me.  Supposedly at that point I could sell everything I own and pay off everything I owe.  That's not realistic though because then I wouldn't have a car or a house.  Having an adventurous 2 year old and living 120 miles from a hospital, you can understand why I'm reluctant to give up my car.

So I've been tracking my balancing point in a different way for the past little while.  I keep track of my assets minus my house and car and compare those to my debt.  This will show me when I'm in a position where I could liquidate my assets and pay off my debts and still have a house and a car.  This is more useful to me.  It's a far worse number.  Net worth: -$3,287.  Balancing point: -$148,354.95.

It's a worse number but is a more realistic reflection of what I need.

We are going to see how much we can change those numbers this year.  Our net worth should go above zero easily.  The balancing point will take longer to reach zero.  We are going to change it primarily by paying our debt down.  We'll continue to save and invest but most of the change will occur because of reduced debt.  By the time that number reaches zero, we'll probably be pretty close to debt free.

It will be a great financial step.

So how does it feel to be worth less than nothing?

I may not have been blogging here as much over the holidays but I was always looking into money matters.  I'll be sharing what I've been doing in the next few days.  At least the parts that I can remember.  The nice thing about this blog is that money is a daily part of life so there always seems to be something to say.

A few days ago I came across a site where you put in your assets and your debts and it tells you your net worth, http://www.networthiq.com/.  There is nothing very special about this since you could do the same thing on a spread sheet or with a pencil and paper.  The thing is, I hadn't done it so filling the information in on the site made me think about it.  The site will graph your progress each month.  Again, something that you could do with a spread sheet. 

I highly recommend that you do this whether you use the site or not.  The site does make it easy to share the information with others.  I'm not sure what the purpose of that would be.  I'll share mine to give you an idea of what the finished product looks like, http://www.networthiq.com/people/successwarrior/.

You can surf around to see how other people are doing.  I haven't done this much.  I surfed people in my pay range and found that most of them are in the positive, unlike me.  I think that's probably because people in the negative don't make their page public but that's just a guess.

One thing that I found out after checking the Blue Book on my car for this exercise was that I'm upside down on that loan.  I had that suspicion because our previous car broke down and we added that loan onto the loan for this car.  It's almost even though and this year we'll fix that little problem.  It really bites to owe more than something is worth.

I set my networth page to remind me to update each month and I'm going to track my progress for the year.  My goal is to be worth something.  =)

Words have power but numbers have their own beauty in truth

I loved math when I was in high school.  Not because math itself was fun or interesting but because there was a correct answer.  When you write for English or a history essay exam, there is a bit of subjectiveness that comes into play.  Even if you have things mostly right, your style might not mesh with the instructor and you can receive a lower grade.

A couple decades later and I find that math still provides the same stability.  Many people don't know where their money is going.  They have a general sense but many people overstate the amount of money that goes to bills and understate how much many they nickel and dime away. 

Keeping track of where your money goes is a great way to bring the beauty and truth of numbers to your aid.  Some people probably don't want to know though.  =)

Being a little bit of a number junkie still, I go a little bit further.  My wife and I track where we spend our money.  We keep a form on the fridge and record what we spend each day.  At the end of the week, I move the numbers into an excel form.  During our weekly meeting, we go over what we spent because awareness is more than half the battle.

The extra bit that I do is to have the form show me in percentage form where my money goes each month.  After 1 week, here's what where it shows our money went for January.  I'll break down what's in each category in another post for anyone that cares.  The headings cover numerous things.

Savings: 6.61%
Housing: 41.74%
Transportation: 0%
Debt: 41.32%
Other: 10.33%

Reversing the flow

I think this year is going to be a good year for my wife and I, so let me throw out a disclaimer to start things off.  I don't post this blog to brag about what we are doing.  Anyone can do it.  In fact, that's the reason that I post this blog.  If my wife and I can go from where we were and succeed with this plan, then just about anyone can do it.

Okay, let's get on with it.

I have a 401k through my employer.  I'm not really a big fan of 401k's but that's a personal thing.  That being said, my employer does a 50% match and there is no way that I'm going to turn down 50% free money.  Even if I take a 20% hit to get the money out when I quit, I'm not going to find a place where I can absolutely get that kind of return on my money so I put in the max that they will match. 

That money also earns interest or at least it should.  One of the things about my plan is that we are trying to change our life from paying interest to earning interest, even by just a little bit.

It didn't work out that way for the quarter ending in June of last year.  I got my statement and my money had earned me -$1.47.  I lost a buck and half in interest.  Even putting money into a 401k, I was still paying interest.  Now with the 50% match, I'm not going to quit.

I didn't get a statement for September for some reason.  I wasn't worried about it but it does mean that I didn't have any information to report to you at that time.

I got my statement for the quarter ending in December and the market has turned around.  Last quarter my money gained $198.52.  How cool is that?

Yes, it's not that much.  $65 a month hasn't change my life today.  It does however fit the philosophy of the plan and that's important and over time the interest is going to have a huge impact on my money.

Interest is a powerful force in this world and you get to choose whether it works for you or against you.