How to Get Started with Lending Club

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

Getting Started with Lending ClubThere 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

A Two-Step Approach to Preparing Kids for a Giving Holiday: Part Two

The holiday season will soon be upon us.  If you find yourself stressed out every holiday season by financial and time demands, now is the time to decide that this year will be different.  Now is the time to decide on a giving holiday. Not only will you benefit, but your kids will as well.

Last time we talked about teaching your kids to give during the holidays, and this time we’ll talk about the second part of creating a giving approach to the holidays–teaching your child to have reasonable expectations for presents.

Years back, the holidays weren’t simply a time to get-get-get.  As a girl, I loved reading Little House on the Prairie, and I was always amazed by how delighted Laura was by the simple presents she received.  One year it was a tin cup and an orange.  Another year it was a corn cob doll.  Now, our kids receive oodles of presents and still demand more and are disappointed when the present opening is over.

Preparing kids for a giving holiday part 2How to Set Reasonable Expectations

If you’re the parent of older children and you previously gave them too many presents, you might sit down with them well before the holidays and let them know that they won’t be getting as much this year.  You can explain that you want to focus more on giving rather than receiving.  Plan on some resistance, but if you hold firm and continue to treat holidays this way, your kids will adapt.

If you’re children are younger, you can start the tradition of a simpler Christmas now.  Your kids may express some resentment as they age and see how much their peers are getting, but if it’s your family tradition, they will likely understand.

How Many Presents to Give

You and your significant other will need to decide what works best for your family.

Some families decide on a dollar limit per child and don’t go over that amount.  This is the way that my mom always handled Christmas for my brother and I, but she carried it a step further and made sure that we each got an equal number of gifts, too.

Other families say that Jesus received 3 gifts from the Wise Men, so they give their kids 3 gifts for Christmas.  Another take on this is to give your child 3 specific presents–something they want, something they need, and something they’ll wear.

In our family, we are blessed with grandparents and godparents that give our children many presents.  So, we buy our children very little for Christmas.  The one time we did buy our kids a lot of Christmas presents, they simply received too much.

Finally, some families take an extreme approach and don’t exchange presents at all.  Instead, they donate all the money they would have spent to charity.

If your children are already used to lavish holiday celebrations, scaling back may be difficult, but it’s not impossible.  First teaching children to be givers and then scaling back may help ease the transition for your child.

How do you determine how many presents to buy your child?  Do you worry about going overboard with gift giving?

Original photo credit: Theresa Thompson, on Flickr

A Two-Step Approach to Preparing Kids for a Giving Holiday: Part One

While you may not want to think about it yet, the holidays are right around the corner.  The commercial machine is cranking into gear.  My local Costco already has rows upon rows of Christmas presents for kids and Christmas trees and wrapping paper. . .Soon, there will be endless Christmas ads on television for all the latest toys and electronics your kids will beg for.

Each year, Christmas seems to become more and more about spending money and over consuming.  If you’ve come to dread the holiday season and the gimmes that come with it, now is the time to plan a different type of holiday.  Now is the time to plan a giving holiday.  Make a plan now, before the holiday is in full swing.

You can take a two part approach to this.  Part one is to allow your children to have an opportunity to give.  Part two is to reduce your child’s expectations for the gifts they will receive at Christmas.

Preparing Kids for a Giving HolidayToday, we’ll be talking about part one.

Strategies to Allow Your Children to Give at Christmas

While it’s nice to get things for Christmas, giving is also nice.  Well before Christmas starts, sit down with your kids (if they are old enough) and discuss how you’d like to give of your time.  If they’re still young, say under 5, you can just start a new tradition of giving of yourselves during the holidays.  You’ll experience very little resistance from the little ones.

Put in time.  One way to give, especially if you’re on a tight budget, is to give of your time.  You could volunteer to work in a soup kitchen or to help assemble thanksgiving meal baskets at your local church.  You could go through your closets and donate excess clothes or other items.

Give your money.  If you have more money than time, you can give your money to help make the holidays better for another family.  You could pick a name from a giving tree that pops up in December.  (The post office often has one as does Whole Foods and other grocery stores.)  Take your child with you to buy a present for the child in need.

Or, you could donate to a charitable organization like World Vision.  Look through the catalog and either choose to sponsor a child or to make a one-time contribution.  Let your child know how the money will be used and help him to realize how much more he has than the family of the child who will be receiving the money.

Another organization, Samaritan’s Purse, has a giving project, Operation Christmas Child.  You fill a shoebox with simple toys and school materials for a needy child.  This is a nice project to do with your children, and you can give without spending a lot of money, if your money is tight.

If you want to get away from the consumer driven holiday season, know that you CAN have a different kind of holiday this year.  However, you’ll need to start now and take the first step–teaching your children the importance of giving at the holidays.  Next time we’ll talk about the next step, adjusting expectations.

What’s your favorite way to teach your kids the importance of giving during the holidays?

Original photo credit: Theresa Thompson, on Flickr