Beating Broke

Personal Finance from the Broke Perspective

The Recovering Spender – Book Review

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As personal finance bloggers, Lauren Greutman and I travel in a few similar circles on Facebook. So, when she announced on one of the groups that I am a part of that she was releasing The Recovering Spender, and that she was looking for some bloggers to read and review the book, I jumped at the opportunity. I don’t do a whole lot of book reviews on here.  I should probably do more, but especially lately, most of my reading time is taken up by textbooks. I do a few reviews here and there of fiction books, but I tend to keep those isolated to my author/book blog, Novelnaut.

Shortly before the official launch date of the book, Lauren and her team sent me an advanced copy of the book in one of the best book review packages I’ve ever seen.  Lauren really knows how to make a person feel special! But, you likely aren’t reading this to find out about the confetti and handwritten thank you note she sent with the book. So, let’s get to the review.

What is the Recovering Spender about?

The Recovering Spender Cover
Must Read for Spenders

As you can imagine, I’ve read a few books on the subject of personal finance. One of the first, and most influential in my personal finance journey was Dave Ramsey’s Total Money Makeover. Reading that book change a lot of the ideas I had about money, and how it should be handled. The Recovering Spender has the capability to be that book for a lot of people.

Every one of us knows a spender. They’re the people in our lives that are always spending their money. And spending money they don’t have. Maybe it’s your spouse (it was for Lauren’s husband), or maybe it’s a close friend. You know at least one. You do.

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In The Recovering Spender, Lauren shares her own story of coming to the realization that she was a spender. She writes candidly about the deep hole of debt that she created through her spending habits, and how crushing it was. She then talks about the decision to come clean, and the grace that her husband had in not only handling the situation, but joining with her in trying to find ways to pay the debt off. If you’ve ever struggled with your personal finances, even if you’re not a spender, you’re going to see some parallels in Lauren’s story.

Becoming a Recovering Spender

Instead of crumbling under the debt, Lauren and her husband decided to beat it. And beat it they did. Through a whole lot of trial and error, and some pretty creative saving, they eventually reached a debt free life! Like some of the other addiction programs, the Recovering Spender program has 12 steps that you can follow to overcome your spending habits, save money, and pay off your debt.

She’s really condensed all her own work down into a set of tools (worksheets and other resources) and advice that should give the spender in your life (even if it’s you!) a real sense of hope that it can be done, and a push to start doing it.

The Recovering Spender, by Lauren Greutman, has earned itself a spot on my book recommendation list right next to Ramsey’s Total Money Makeover. If you struggle with spending, debt, and personal finance, you owe it to yourself to find a copy of The Recovering Spender and read it.

Peer-to-Peer Investing Update Mid-2016

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It’s been a little while since I last wrote one of these updates.  January of 2015 to be exact.  Needless to say, there have been a few changes in my peer-to-peer investing in the last year and a half.  One of the biggest changes, I’ll talk about below.  First, let’s see where my peer-to-peer investing was when we last looked at it.  (You can read the full post here, or just read the recap below.)

Peer-to-Peer at EOY 2014 (Recap)

The biggest change in my Lending Club account at the end of 2014 was the NAR (which is an adjusted rate of return) had dropped from a little over 13% in 2013 down to 9.61% at the end of 2014.  Despite the drop, I felt like that was a pretty good rate of return, and reason enough to continue to invest in peer-to-peer lending.

Two other factors that I looked at were default loans and interest received.  In 2014, there were 4 loans that had gone into default. There had been only one in 2013, but with an increase in investing on my part, the rise was somewhat expected.  The total principle written off in 2014 was $41.87.  Total interest minus fees for 2014 was $115.69.  Take out the written off principle and you still get income on 2014 of $73.82.  Again, not a bad little bit of semi-passive income.

Peer-to-Peer in 2015 and the first half of 2016

So, it’s been a year and a half since I last shared one of these updates.  First, let me do a bit of a quick overview of where the account sits now, and then I’ll share some changes that have had some effect.

Peer-to-Peer income

Beating Broke Lending Club Update
Is Peer-to-Peer Investing Worth Your Time?

I like talking about the income (and resulting rate) first.  Why?  Because that’s the meaty money part of it. 🙂  And I like money.  At the end of 2014, my NAR was 9.61%. Here we are in August of 2016, and my NAR is currently showing at 9.89%.  It’s gone up!  I love when that happens!  There’s a couple of factors that likely have helped with that.  The first is that there haven’t been any defaults since 2014.  Right now, there are 3 loans that are threatening.  1 that’s in that nasty 31-120 days past due category.  Typically, if they get that far, they’re as good as defaulted.  We’ll see, but I fully expect that loan to go into default in the coming months.  The other 2 are split between the Grace Period and 16-30 day categories.  More often than not, those loans tend to come back to the current status.  Having them default could eat into the income for 2016, but that’s one of the risks we take in investing for higher returns.

Peer-to-Peer Income 2015

2015 was a bit of an odd year.  I didn’t pay nearly as much attention to the Lending Club account as I should have, and so, often when I would log in, I would have quite a bit of my portfolio sitting around doing nothing in the cash account.  At one point, I had about 40% of the entire account sitting in cash because I hadn’t done anything with it in a while. That doesn’t equate to good income.  For 2015, the interest minus fees only totaled up to $103.07.  Down from 2014, but purely reflective of my inactivity in reinvesting the cash.  The upside to 2015 was the lack of defaults.  Because there weren’t any defaults, the income minus written off loans was still 103.07.  That’s better than 2014, so even though my inactivity caused a reduction in gross income, it also may have sheltered me from defaults and thus preserved more of the income.

I’ve been a bit more active in 2016, and my income reflects it so far.  As of the end of July, interest received minus fees was at $72.04.  If that trend continues, 2016 will be slightly better than 2014.  One of my goals when beginning this account was to achieve $10 per month in income.  At this point, I’ve done that.  I just have to remain active in reinvesting the funds in order to maintain that level.  Next goal, $20 per month!

Peer-to-Peer Changes

One of the things that I wrote about in my “How I Invest” article was how I wasn’t eligible to directly invest or borrow because of the state that I lived in.  Probably the most significant change since the end of 2014 is that my state is now eligible for both.  I haven’t toyed with the borrowing side, but I have touched the direct investment side.  My experience there is mixed. One of the things I like about it is that you aren’t paying any fees or premiums on the investments that you’re buying.  That means you make more money over the life of the loan.  That’s good.  The downside, to me, is the delay in investment.

Direct Investing vs. Trading Platform

If you’re unfamiliar with how the direct side works, you basically go in and choose which loans to invest in.  You’ve got some ability to filter, but not all the same ones that you have on the FolioFN site.  Once you select some loans, you press the invest button.  Here’s where the delay comes in.  The loan only gets investing if it gets fully funded.  So, if you invest in a loan early in the process, you could be waiting a while before there’s enough investor commitment to fully fund the loan.  Once the loan is fully funded, it goes through a vesting process.  The folks at Lending Club look it over, make sure everything is what it is supposed to be, and then the loan finally gets funded.  And then you wait until the next pay date.  All told, you’re money could be sitting in a committed status for a week or more waiting on all of those steps.  Or, you could pay a small premium (you can filter based on the premium) on the FolioFN trading site and have your investment in your portfolio the next day.

After playing with the direct side, I can see myself using it occasionally, but really keep going back to the FolioFN trading site to do my investing.  My thought is that the sooner my money is working for me, the sooner I’m making money with it.

Institutional Investors

I don’t know that this really qualifies as a change, but it’s something that’s been a topic of conversation a lot over the last year. And that’s the idea that there are institutions who are investing in peer-to-peer investments. One of the biggest issues that many seem to have with this is that it’s meant to be peer-to-peer (it’s right in the name!) not institution-to-individual.  That’s how the traditional loan process works, not peer-to-peer!

Ok.  I get that, but I think there’s also an argument that as the peer-to-peer movement grows, there’s going to be an increasing scale of demand for the loans.  And if the individual investing side doesn’t grow as quickly, there will be a lot of loans that won’t get funded.  It’ll look bad for business, plus it will drive away potential borrowers.  I think as investors, we need to recognize that if borrowers are being driven away because of a low funding rate, it means less opportunity to invest.  What we need to hope for at this point, is that the institutional investors are held at bay, and used for filling those funding gaps rather than let run amok and run the individual investors off.

My Peer-to-Peer Investing Going Forward

Much like many of my other updates, which you can read on my Lending Club page which has links to those and other related articles, I just don’t see any good reason to stop or even scale back my investment in peer-to-peer investing. The return remains excellent, and defaults remain low. As I’ve mentioned in other updates, I believe some of that is just plain luck, and some of it is due to scale. I’m only working with a little over $1000 in the account, so it’s pretty easy to be a bit picky when selecting loans to invest in. If I were working with a lot more money in my account, I couldn’t be as picky, and would likely see my rate drop some and my defaults rise.

The whole idea of this experiment (it’s really gone beyond an experiment now) was to let the account organically grow. Invest a bit of seed and reinvest the principle payments and interest so that it’s all working to make more money.  In short, I’m letting the miracle of compounding interest work for me. And so far, it’s working quite well.

What are your experiences with Peer-to-Peer investing?  Is it working for you?  Do you have questions before you dip your toes in?  Let me know in the comments!

Beating Broke Rules: Certificate of Deposit

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What is a Certificate of Deposit?  Certificate of Deposit (commonly called CDs) are basically a savings account that pays a set rate over a set term.  The rate tends to be higher than a normal savings account rate because the money is locked into the CD for a set term. If you choose to withdraw your money before the term ends, you pay a penalty.  The penalty is usually a preset number of months interest on the CD. At the end of the term, you can renew for another term at another set rate or keep your money.

Rules: Certificate of Deposit
Safe and Stable Investments

CDs are a very stable investment. They are also a very liquid investment. As such, they make for rather poor returns on the long term and they carry a penalty for withdrawal before the “maturity”.  However, there are several uses that can make them a valuable part of your financial portfolio.

6 and 12 month CDs can be a great place to keep your emergency fund.  Chances are you won’t need the money, so you might as well invest it.  The key here is that the CD is a safe, stable, and easily accessible form of investment.  You’ll still get the higher interest rates that you would expect from a high-yield savings and, depending on the term length, sometimes better.

As you get older, CDs can play an important role in your retirement accounts as a small percentage of your portfolio.  Again, the stability and reliability of the nature of CDs makes is the key.  As you age, a growing portion of your retirement portfolio should be in stable cash investments.  Many will recommend something like a money market account or a high yield savings, but CDs are in that same group.  And with a retirement account, you can usually tie the money up a little longer and get better returns.  Look for something in the 2-5 year range for maturity.

As I mentioned before, one of the major drawbacks to CDs is the early withdrawal penalty.  In most cases (consult your CD paperwork) the penalty is 3 months interest.  So, if you were to withdrawal the money after only three months, you would only be able to withdrawal the original amount.  If you withdrawal the money at only one month, you would get less than the original amount.  Anytime after 3 months and you get the original amount plus any interest above the three months penalty.

While the penalty can be bad if you need the money early in the term, if you need the money for an emergency, it can be overlooked pretty easily.

Beating Broke Rule: CDs can be an important part of your investment portfolio