Tao of Scott

Update Time

2007-03-05T14:28:00.000-06:00

Well, I know that I don't have a lot of content on here...but I don't have many visitors either, so I'm just going to use this for my own tracking purposes.

Here is the latest Networth Snapshot:

Stock market wobbles, depreciation and repair to vehicles, as well as the purchase of the new entertainment center, while partially offset by a large tax refund check, basically reset us back to January as far as progress towards becoming debt free...but progress continues, one slow step at a time.

And, for you Prosper-junkies:

As you can see, Prosper is working! I feel like a mad scientist, rubbing his hands together in glee. :-) I've made over $50 so far...less when you subtract out my costs for carrying the Prosper loan, but still profitable. I'm earning about 23% on my money, while being charged less than 8%, so I'm clearing 15% on the difference. I did pull a little bit of money out when I had a bit of a budget crunch last month, as well as a scare where a couple of my loans ticked over into "Late <=15 Days" status, but as you can see, all of them are current now, and humming along nicely. I should have a little over $50 with which to make a new loan either today or tomorrow...so until something else happens to change my mind, I'm going to try to reinvest all Prosper money back into loans while slowly paying back the borrowed money.

Oh, and Elissa is unemployed right now, so all progress that is made is done so with just my income again, until she can find another job. But she is dilligently looking for gainful employment as I type this, so there is hope that this situation will get better soon.

~Peace

One Giant Leap Backwards

2007-02-01T21:24:00.000-06:00

Well, as is my sporadic custom, I have decided to update you all on the state of my Networth and my Prosper Experiment.

Without further ado,

click picture to view full size

And Prosper:

click picture to view full size

On the positive side...

1. Prosper is humming along nicely. I have successfully deployed all of the available cash from the loan into higher yielding loans, at an average interest rate of over 23%.

2. My TSP, Roth IRA and FolioFN balances are doing well, thanks to regular contributions and a phenominal stock market right now.

3. Regular payments to mortgage, car loan and credit cards continue to reduce the balance due on those loans, and additional principal payments are helping to pay down these balances at an ever increasing rate.

On the negative side...

1. Balances on the "main" credit card have significantly increased since my last post, due to scheduled maintenance on Elissa's car (prevention being theoretically cheaper than a future cure) and the purchase of some large ticket items. Specifically, the 42" Plasma screen TV that we purchased because:

a. We (and by we I mean I) have always wanted a big screen TV.
b. Our current TV did not have the necessary inputs/outputs to work with the surround sound system properly (close-out deal on display model at Sears, last years model, marked down from $700 to $150).
c. It was a phenominal deal. Retail price for the TV was $1300. Bought a returned/opened item for $1170. Recieved 10% discount for using first purchase on a military star card (reducing price to $1052). Recieved CREDIT to star card of an additional 10% for no apparent reason (reducing price further to $945). Military star card also running promotion of 6 months, 0% interest on all electronics. I can totally pay off $945 in 6 months.

2. Account balances at TFCU have dropped to dangerously low levels (at least as far as my peace of mind is concerned). This is primarily due to the purchase of a new entertainment center and armoire to house the new (and old) TV's, as the existing entertainment center was inadequate to the new TV, and inappropriate for the old TV (now relocated). Still, this was a one-time purchase that will not have to be repeated any time soon. This furniture was also bought on clearance from Wal-mart for $440.

3. Elissa's savings accounts have dropped due to her birthday trip to visit her family. She bought lots of things for herself and generally had a great time...which is the purpose of saving up for vacations, so I'm not going to complain on this one. She did, however, spend $155 on an area rug for the new entertainment area of our living room, so I will choose to add that into the overall cost.

In the end, we got a 42" TV with all the bells and whistles, a 5.1 stereo surround sound system with 5 disk DVD player, HDMI cable, huge area rug, TV table, two media towers, an end table and an armoire which combined retails for about $2630 plus tax for only $1700.

I couldn't pass up that kind of deal...not when it's some things that I have wanted for 4 or 5 years now. So...even though it wiped out the last 4 months worth of progress towards becoming debt free....I still think it was worth it, because I got great VALUE for my purchases.

~A Reading from the Tao of Scott

Pondering Retirement

2007-01-30T10:03:00.000-06:00

Everyone in the PF blogging community thinks about retirement at least some of the time. Heck, I'd even go so far as to say that MOST people think about retirement sometime, even if they don't actually have a plan in place yet on how to get there. Well, for me, retirement planning is different than it is for most people.

For starters, I have a TSP account instead of a 401(k). The TSP has ZERO matching contributions. So basically, all the money that is in there is MY contributions and earnings from those contributions (compound interest). Now, I would bitch about this except for difference number two which is...

I can get a military retirement from the federal government after 20 years of service. Believe me, I think about this A LOT. I mean, how nice would it be to be in your early 40's and be able to retire with a pension check and medical benefits for life? Every year that I spend in the military equals 2.5% that they add to my retirement benefit up to 75% for 30 years of service.

Still, it does make "retirement planning" kind of difficult. Why? Because I don't know if I'll endure the full 20 years in the military for one. Secondly, how much would I have to save up in order to provide for a comfortable retirement from my second career? I mean...I can't touch the money that I've put into the TSP until I'm 60 without paying an early withdrawl penalty...but I'm not sure that I want to work until I'm 60 either. (I'm just going to go out on a limb and assume that Social Security will be a non-factor)

*sigh*

I want to retire NOW! I want to have money NOW! What good is it going to be for me to be "wealthy" when I'm 60? I'll be too old to really enjoy it!

10 years and a million miles away

2007-01-12T14:20:00.000-06:00

Well, my last post didn't prompt any responses whatsoever...but since I plan to be at least relatively active in the PF Blogging community, I'd better whip something up for the latest carnival. Truthfully, I don't really know what I'm doing with this whole blogging thing...but maybe I'll pick it up along the way.

So, without further ado...

10 years from now, I will be living in a four bedroom, three bathroom house in Indiana with a large fenced in yard where my dogs and children can run around.

10 years from now, have just sold my current townhouse, after having lived in it for three years and rented it out for another five. After all, the best way to become wealthy is to leverage YOUR money and use SOMEONE ELSE'S to pay for it. ;-)

10 years from now, I will be managing an appartment complex (or tri-plex) that I bought with the profits from the sale of my current home in my spare time.

10 years from now, I will be four years away from collecting a military retirement check for the rest of my life.

10 years from now, I will have approximately $170,000 in my TSP account at the ripe old age of 38.

10 years from now, the Roth IRA I started as an emergency fund and for the sake of tax diversification will be worth about $20,000...or about 6 months worth of paychecks.

10 years from now, I will finally trade in the car I'm driving now for a hybrid replacement vehicle...and I'll buy it cash from my "Car Fund".

10 years from now, my ING Account will be a fully funded emergency fund as well, with a full 6 months of pay socked away.

10 years from now, my children will be age 7 (Rhys - boy) and 6 (Alana - girl).

10 years from now, I will have finished both my Bachelor's and Master's degrees in Business Management...and I will have learned how to play guitar too. ;-)

10 years from now, my children will have college funds in place for when they graduate high school.

10 years from now...I'll be 38. 10 years will pass whether I achieve these goals or not. Nothing can stop the passage of time. No matter whether you strive to fulfill your dreams for 10 years or spend the whole time complaining about how your dreams are impossible to reach, 10 years will pass.

Strive anyway.

Your goals may be big or small, and they may be out of reach today, tomorrow and the next day...but unless you take that first step towards them, they will never get any closer.

Dream anyway.

10 years or 10 days...a journey of a million miles begins with a single step. No matter how long the trip or how many roadblocks are in the way, you can get there.

Begin today.

~A Reading from the Tao of Scott

What I would do if I won the lottery

2007-01-05T09:33:00.000-06:00

I was thinking about this today, and I think that this question has less to do with what I would spend the money on and more to do with how I would choose to live my life if money were no object.

I think that after I did all of the obligatory things (pay off debt, max out retirement contributions for the year, go on a spending spree, etc, etc) that I would take a lot of time for myself to enjoy life for awhile by playing video games and traveling...and then I would start teaching.

Not teaching for a paycheck (although that might happen anyway) but teaching for the sake of teaching. I want to educate young people on personal finance matters, and help them prepare for life after they leave the nest and enter the real world. I could be a great teacher, and there is quite simply a TON of things that I could teach young people that would be more useful to them in their everyday lives than say...basic chemistry or calculus.

The other option that I might consider doing is "fee based financial planner". I ENJOY managing money, creating budgets and calculating expected returns. It's fun for me. :-) If I didn't have to spend any time worrying about my own financial situation, then I think I would like to take the time to help other people with theirs.

The only reason that I'm not pursuing either of these careers right now is because being in the military doesn't allow me to change career paths like that, and because I would be very uncomfortable either creating a basic finance class or financial planning business without significant funds to rely on for basic bills. In other words, my financial security has not yet been secured enough to where I would feel comfortable taking that risk.

What about you? What would you do if money were no object? What would you occupy your time with if you didn't HAVE to have a job to pay the bills?

Prosper January Update

2007-01-04T12:56:00.000-06:00

Well, here we are...about a month after I first requested a Prosper loan for $1500.

As you can see, I've been doing my best to get the money deployed and earning interest. It hasn't been easy though. There aren't many quality loan requests out there, and even if I find good ones, it is taking FOREVER it seems to get a loan to go from "Winning" to "Pending Review" to the "Current" and earning interest category.

Still, it's nice to see that all 16 of my loans are "Current" right now. I've only had one hiccup so far, and she not only fixed the problem with her account, but made an early payment to make up for it. :-)

I'm still trying to stick to the $50 per loan guideline...but when you have $11 extra dollars left in your account from payments, waiting for another $39 to accrue isn't much fun. So, that's why I have one loan out there that is $53.86, and another bid on one that is $61.86...because I didn't want to wait for additional funds to be available.

I'll keep you posted!
~Scott

January Networth And Goals for 2007

2007-01-03T15:11:00.000-06:00

I am back from my long holiday with family with an update. I know that the two or three of you that occasionally wander through my blog have missed my horribly boring financial posts terribly. ;-) Here is the latest picture of my networth:

As you can see, things are going well. Or at least, well enough. Progress is being made. My networth has actually increased by $8770 since my first post here on Blogger. Most of that is from three simple things.

1) Automatic deductions from my paycheck to go into the TSP (retirement) account.

2) Paying all of my bills on time automatically through online bill-pay and other such forms of money handling.

3) Lastly, through Elissa having a job.

That last one is HUGE, btw. With Elissa working, we have made significant inroads towards paying off her car (currently charged to the MBNA Mastercard) as well as saved a lot of money on the other side of the equation in the form of extra savings accounts scattered over the globe. These savings accounts are earmarked for things like....new computers when our current ones no longer work...car repairs...car upgrades...etc, etc. Basically, all of the things that I have been denying myself for the past few years because of my obsessive desire to get out of debt and live frugally to do so.

On the other hand...if Elissa wasn't part of the equation, it's entirely possible that the liabilities side of the equation wouldn't be quite so out of whack...but I'm trying to think positively here. Plus, she can only do so much damage on that side of the equation, which is more than balanced out if she continues to work past the time when we get all of that crap paid off.

So, that being said...this is as good of a point as any to put down a goal for 2007.

My goal for our family for 2007 is to more than double our current networth from $23,725 to approximately $50,000.

Think that goal is too ambitious? I don't. And here is how I plan to do it.
Note: all amounts rounded to nearest $25

Regular contributions to retirement accounts for 2007 (TSP and Roth) = $4100
Regular bi-weekly payments to mortgage principle + extra payments = $3850
Regular Ford payments to principle, plus extra principle payments = $4000
Regular Prosper Loan payments to principle = $550
Regular Contributions to Emergency fund (minus Prosper payments) = $725
Regular Investment in the Stock Market = $1050
Regular Additions to "Car Fund" = $775
Regular payments to principle on USAA Mastercard balance = $1450

For a grand total increase in Networth of (drum roll please......) =$16500

Now, that's just my portion of the puzzle. Elissa is also kicking in $300 per paycheck to help reduce the balance on the MBNA Mastercard, which, when lumped together with my $225 allotment from my paycheck towards that balance equals an additional $10,500.

So.

If Elissa continues to work, and I continue to put my money where I've been putting it, and Elissa does the same....and if we can somehow avoid the majority of the financial traps that come up in a year, we could theoretically increase our current networth by $27,000, bringing us to a grand total networth of $50,000.

Of course...I'm counting on the stock market to help us offset the depreciation of our vehicles. I'm also assuming that our house will either stay level or increase in price. But, considering that all of the numbers listed above represent just what I currently pay out each month, I don't think that it is unreasonable to think that I could double my networth this year.

The real challenge is going to be trying to double it AGAIN next year! *lol*

I'll keep you posted on how that goes.

~Scott

Establishing a self-sustaining Prosper loan ladder

2006-12-15T22:25:00.000-06:00

Well, it's official. I've gotten the $1500 Prosper loan applied to my account, and I've managed to deploy about $900 of it so far on bids. Time will tell how many of them become winning bids, but for now, my screening criteria seems to be providing me with at least a few quality loans to bid on.

Right now, everyone is getting a bid of $50. This is going to be the default amount bid until I reach a point where I can't find enough loans to bid on for all of the income that is coming in from payments. I'm thinking I'll probably have a flurry of bids for the next two or three months until I get all of the money into play, and then it will settle down back to one or two bids per month again. The other consequence of bidding as much as I am now is that my average rate of return will probably drop. On the other hand, my risk adjusted rate of return will most likely rise, as I am now able to bid on a slightly more diverse range of credit grades. For example, I would bid on a "C" credit grade all the way down to 15%...but I'll probably get the loan at around 20%. That gives me a risk adjusted rate of 16%...4% more than my required minimum, and approximately 8% higher than the loan I took out from Prosper to re-lend.

I'd consider that to be pretty damn good. :-)

How to deal with a pay raise

2006-12-14T16:01:00.000-06:00

I know I've read an article with the same title of this post on MSN Money, but who cares. I'm going to cover the topic here, because I just found out that I am getting a $136 per month bump in my Basic Allowance for Housing next year! Whoo-hoo!

For those of you unfamiliar with the military, our pay is taxable, but our allowances (BAS and BAH) are not. In other words, this money represents an ACTUAL $136 raise in pay, versus a before tax raise like a COLA (cost of living adjustment) raise.

The reason that BAH went up here at Tyndall AFB is because rents and utility costs increased pretty dramatically in this area last year. As a homeowner, however, I am partially insulated from this phenomenon. My homeowner's exemption kicked in finally, so my monthly required mortgage payment actually WENT DOWN. :-D This had no effect on my monthly budget, other than to increase the amount of additional principle that I am paying towards my mortgage. I am on a bi-weekly payment program that I have set up where I send exactly $450 every two weeks. Since my mortgage required payment actually decreased, the additional amount applied towards principle will increase from $87.78 to $119.97.

With the additional $136 coming in...I've decided that I am going to bump up all of my savings pots, and try to stick to my stated goal of keeping expenses the same.

So, I'll divvy it up like this:
$25 - credit card principle payment increase
$18 - emergency fund
$20 - car principle payment increase
$13 - retirement savings increase
$60 - COLA adjustment.

See, I figure that I have to keep at least SOME of it, in order to offset the rise in prices that neccesitated this increase in the first place...maybe give me a little more elbow room from month to month...but my primary objectives haven't changed. Ridding myself of this debt load and saving money for retirement are my biggest goals...and nothing will give me the peace of mind and "elbow room" that paying off my debts will.

Once the credit cards and the car is paid for, that's going to be roughly $830 per month that is freed up for reallocation towards either spending, savings or going after the mortgage. At that point, I probably won't want to aggressively pursue the mortgage...I expect interest rates for savings accounts like ING will continue to rise and at 5.875%, I'm barely paying anything in the way of interest costs...but at least I'll have the OPTION. It wouldn't make sense to pay extra on towards the house if I can get a better rate of return in my savings account, you know? *sigh* I'm really looking forward to having those kinds of options.

Anyway...long story short...when you get a pay raise...don't just figure out ways to increase your lifestyle...figure out a way to save a portion of it, and with whatever is left over, THEN increase your lifestyle. Always pay yourself first.

Opportunity Cost (Part 2)

2006-12-12T09:12:00.000-06:00

I've been thinking a bit more about my last post, and I think I should qualify some of what I was saying with regards to the interest rate I am willing to accept.

There are some people out there that are on Prosper with the primary goal of helping people achieve their financial goals. If they achieve a decent interest rate on their money in the process, then they consider that a bonus.

I share this goal, but I don't rank it with the same priority. For me, achieving a risk adjusted interest rate of greater than 11% is the higher priority. And the reason that I don't feel bad about this is because there are an unlimited number of loans to bid on.

Think about it. There are thousands of loan requests out there right now on Prosper. Hundreds more are added every day. From these multitudes, I use screening criteria that I have established to whittle down the pile of thousands to a mere two dozen or so. I am then able to read these requests, and pick from them the ones that I wish to bid on at an interest rate I consider "fair". If I am subsequently underbid by someone else then I move on to the next request. The person I was bidding on has achieved a lower interest rate that would not be considered unfair to those lending the money, and someone else who ALSO has a need gets the benefit of my funds to work with.

This does create more work for me. I have to spend more time reading requests and placing bids if/when I get underbid. The thing is...it's business. You can't "fall in love" with a particular requester. You have to do the math and make a judgement call. Much like doctors in combat, you have to perform triage, and separate those that need your help (funding), those that can survive on their own (funded but lower than my interest rate floor) and those that have no chance of survival (the multitudes that don't get bid on).

So you see, I don't feel bad for getting a high interest rate on my money. The borrower said that they were willing to accept a high interest rate, the market determined what that interest rate will be, and they either get funded or they don't. Either way, I still feel like I am helping people, because there are MANY more borrowers than there are lenders with funds to bid. My bidding helps the overall process.

Comments?

Goals and Opportunity Cost

2006-12-01T12:21:00.000-06:00

Okay. Thanks to TiredButHappy, it has come to my attention that what I am doing may (in fact) be slightly wrong.

Here is my take on Prosper, as a whole. I view Prosper as a chance to earn a specific rate of return on my money with less risk than the stock market. Every stock market investor (and I definately consider myself one of those, even if my portfolio is miniscule) is looking for returns that beat the market average over the long term BECAUSE a 1% or 2% difference in rate of return compounded over 30 or 40 years REALLY adds up. So, basically, I have set up my Prosper screening criteria so that I can earn a minimum risk adjusted rate of 12% or higher on my money.

If I don't do that, then I might as well put my money into an index fund and take my chances with that. The opportunity cost of doing business on Prosper would be too high. Anyone who has taken Economics in college might know what I'm talking about here, but for those that didn't (or don't remember) it works like this.

Given: You have a limited amount of resources (funds) available.
Given: You have nearly unlimited ways to use those resources.
Cost: Whatever you choose to spend your resources on is the COST of doing business.
Opportunity Cost: The DIFFERENCE between what you actually spend your resources on, and what you COULD have spent your resources on.

So....every month, I get a paycheck, and I choose to spend it on paying off bills, buying food, providing shelter for myself, etc, etc....and with whatever is left over, after I have tried to save something for the future, I have the choice of what to buy with my "spending cash".

I have chosen to allocate $50 per month to Prosper, because I think there is a chance that eventually, the interest earnings from Prosper could be enough to supplement or replace my current income. Much like someone investing in stocks, bonds, a savings account, or other retirement vehicle, I view Prosper as a chance to one day escape the rat race.

That being said, I don't want to be a "parasite" on society like the payday lenders out there that prey on people charging usurious rates. I simply want to beat the market average...otherwise, I am incurring an opportunity cost.

Now, I could just lend to people like myself at rates of 15% or so and beat the market...but I think that my screening criteria will allow me to do better than that, AND help some people get out from under payday loan rates of 30-80%. If someone out there has a payday loan on their back at 50% interest, as well as 3 or 4 maxed out credit cards at 29% interest and I am willing to lend them money at 24% interest, then they are right to jump on that offer.

I got into this because my friend Ray was in that situation. He didn't want to declare bankruptcy after his divorce...but he was buried under $45,000 in credit card debt that his wife and he had accumulated during their marriage and he was being charged 29.99% APR on all of it. He only makes $42,000 per year. After paying his rent, utilities, food and car note, he wasn't left with enough money to make all of the minimum payments. Adding child support on top of all of that meant that every month, someone wasn't getting paid, and his credit was getting worse and worse, while his balances were never dropping because late payment fees and finance charges were buring him.

Finally, he was able to consolidate it all into one payment of $700 per month. It's still a lot, but at least he doesn't have to work 2 jobs now to make it, and it will all be paid off in just 4 years.

So, by lending to people like Ray...high character people that are doing their best to pay their bills and get back on their feet, I feel like I am helping their lives a little easier. They, in turn, are helping me accumulate enough money to one day retire. It's a win-win situation. For 3 years, they pay me interest, and at the end of that 3 years, they are better off financially, and so am I.

Just my thoughts....

I welcome feedback.
~Scott

Dreaming of a Giant Nest Egg

2006-11-29T12:30:00.000-06:00

*Copied and edited from TiredButHappy

How much money are you saving, and do you feel that it's enough? Do you ever daydream about being able to save more?I'm always thinking wistfully of how much money I'd LIKE to be saving.

Just for fun, I decided to create a wishlist of each savings category I'd like to have, and how much money I'd like to be saving in each category. Of course, over time, I'd like to save even more, but this is how much I wish I was saving right now. In most categories, I'm already working towards meeting my goal, but for the most part, I'm not even close. Most of the categories are to cover short-term expenses. I'm tired of scrambling to pay for things that I should be able to predict and save for ahead of time. Here's my list.

Category: Workplace retirement accounts
Short or long term: Long
Current savings level: $235/month
Monthly goal: $1000
Annual goal: $12000
Notes: I'm fairly satisfied with my current savings level here. Of course it would be nice to max out my accounts, but that would be almost half my gross income. It's not gonna happen for a long while, at least not until my income increases dramatically.

Category: Roth IRAs
Short or long term: Long
Current savings level: $60
Monthly goal: $650
Annual goal: $7800
Notes: Currently only making a small contribution to my Roth IRA. I am aware that current limits only allow us to put in $8000/year for the wife and I, but Elissa is using all of her income currently to pay down our credit card debt, and putting her savings money into high yield accounts that she can access immediately, rather than when she is 60. Still, it's better than nothing.

Category: College
Short or long term: Long (no children yet)
Current savings level: $0/month
Monthly goal: $100
Annual goal: $1200
Notes: Until I have some children that I have to put through college, this isn't really an issue. I'm counting Elissa's college degree as a bill NOW, rather than a savings plan that we have to put aside for someday in the future.

Category: Irregular bills
Short or long term: Short
Current savings level: $20.37/week
Monthly goal: $150/month
Annual goal: $1800
Notes: I just started doing this and I hope to keep it up. This is meant to cover irregular expenses like contact lenses, appliance replacements or other things that are usually budget busters.

Category: Travel fund
Short or long term: Short
Current savings level: $0
Monthly goal: $250
Annual goal: $3000
Notes: My wife's biggest wish is to travel all over the world learning languages and interacting with different cultures. I could care less, but I do enjoy a vacation every now and again, so I would like to start saving up for this kind of thing.

Category: Car fund
Short or long term: Long
Current savings level: $32
Monthly goal: $300
Annual goal: $3600
Notes: My car is a relatively new Ford Escape. It has 16Kmiles on it. Elissa's car is a '99 VW Cabrio with over 90K miles on it. Both will need to be replaced eventually, but I'm hoping to hold out until we hit at least 180K miles on a car before we replace it. That should give me enough time to save up the necessary funds to buy a new car...CASH. This fund should also (ideally) be able to cover insurance premiums and periodic maintenance (oil changes and such).

Category: Gifts
Short or long term: Short
Current savings level: $25
Monthly goal: $100
Annual goal: $1200
Notes: I am a cheap bastard when it comes to buying gifts for people...but I still end up spending entirely too much. It would be nice to have a clearly set aside amount that I could designate for gifts only. $600 on Xmas, $400 on birthdays throughout the year, and about $100 on things like mother's day and father's day.

Category: Donations
Short or long term: Short
Current savings level: $0
Monthly goal: $50
Annual goal: $600
Notes: This is such a pitifully small percentage of my income but it's a start. I currently don't donate to charity very often right now, because I don't recieve charity, and have only so many causes that I support. HOWEVER...in this fantasy scenario, where I have gobs of money available to save, I would definately want to support lukemia research, homeless shelters and various other causes that are important to me.

Total current saving (monthly): about $435
Total current saving (annually): about $5225
Goal short-term saving (monthly): $550
Goal short-term saving (annually): $6600
Goal long-term saving (monthly): $2050
Goal long-term saving (annually): $24600
Total goal saving (monthly): $2600
Total goal saving (annually): $31200

Given that my gross household income is about $45,800, or $3800/month, this would be a pretty high savings rate. Now, this was just a game. I obviously can't suddenly nearly quadruple my savings rate. More accurately, my family wouldn't be willing to let me quadruple our savings rate. But there are a few areas where the money is already accounted for in my budget. I'm just not saving for most of these expenses ahead of time, so I have to scramble when it's time to come up with the cash. Here are a few ideas for easy steps I could take toward making this happen.

1. When I pay off the loan on the car, I plan to take the $427.81 that I am currently sending off as a car payment and up my other savings amounts.
2. My spouse is paying off the credit cards. When she finishes with that, I imagine that some of her money will start going towards savings goals (like upping that Roth IRA contribution).
3. I am getting a couple pay raises in the next 12 months. Most of that money will automatically go towards increasing our workplace retirement contributions, but at least some of that could go to upping short term savings too.
4. That leaves donations, and travel. I really should donate and travel more, but the funds just aren't there yet....Anyway, it was an interesting exercise.

What's your savings wish list?

Note: I was trying to think like a team player here, so all numbers refer to joint finances, not just my own personal money.

Confidence is growing

2006-11-28T10:32:00.000-06:00

So, as more time passes and Prosper releases more performance data, I am better able to tweak my screening criteria. I think I've finally got it narrowed down to where I feel confident I can take on a borrower role and make money off of the "spread" between the interest rate that I will get for my loan and the interest rate I will get lending to others.

Still, I don't want to risk too much just yet, or put myself into an untenable position...so I have requested just enough money so that my monthly payment will be approximately equal to what I was putting into Prosper on a monthly basis anyway. This commits me to a 3 year plan on Prosper...but I'm feeling pretty good about my choices so far. With the exception of the RIDICULOUS amount of lag-time that Prosper gives you...it's working out well. All of my borrowers have paid on time and I think that they will continue to do so.

:-)

If you want to bid on my loan you can copy and paste this link into your browser window:
https://www.prosper.com/public/lend/listing.aspx?listingID=67395

Or you can just click on the title of this post.

Have a great day!
~Scott

Another source of info on how to write a Prosper loan request.

2006-11-24T16:23:00.000-06:00

For those that are looking for information on how to write a good loan request on Prosper, here is another link that may be useful, in addition to the information I have posted before.

http://www.prosperingloans.com/creatinglisting.html

First Prosper payments recieved

2006-11-21T19:46:00.000-06:00

Well, the experiment is going well so far. 4 loans created, all current. I've even recieved 3 on-time payments. There is a LOT of lag time though in the payments posting to my account. I'm sure once I get this really up and running I won't care quite as much, but right now, I have to continue to gather funds in order to create a self-sustaining Prosper business, and every bit helps.

So, my screening criteria is working well so far. My average interest rate is up to 26.328%, thanks to a winning bid on my 5th loan. If I had more money to loan out, I might diversify more into other credit grades...but right now, it's pretty much just E's and HR's that I am bidding on.

Also, I've started a group! If you click on the title of this post, it will link you to my group page where you can join. I'm still building the page up a bit, but I'm not going to take too much time on it until I get some membership requests.

Also, I found this site today which had some VERY interesting stats on Prosper. Check it out!

~Scott

10 Tips on how to get funded at Prosper

2006-11-10T17:05:00.000-06:00

1.) Begin typing up your loan request off-line. It will do you no good to start and then lose all of your progress after the 20 minute Prosper time limit expires.

2.) Introduce yourself and state why you are requesting a loan. If you have a sad story about why you desperately need this loan, BRIEFLY describe it, but do not beg or go into too much detail, as it will not set you appart from other borrowers who also have sob stories. Instead, take accountability for your situation and focus on how you intend to correct it, with or without this loan. Personal accountability and responsibility are the hallmarks of someone who is taking positive steps towards financial freedom.

3.) Be polite. Say please and thank you, when appropriate.

4.) Include in your listing a COMPLETE budget, with a description of where your monthly paycheck goes now, and how the loan will positively impact your monthly cash flow. Do not exaggerate your income or play down your costs. Lenders recognize when someone fails to include expenses like food, gas for their car, or insurance. List EVERYTHING that you spend money on in a month.

5.) Show the bottom line. There should be a closing statement after all of this where you say something along the lines of, "As you can see, my monthly net income is $2800, and my monthly expenses are $2700. This loan will free up $300 per month, which I can use to easily afford this Prosper payment!"

6.) Provide a way for lenders to contact you, if necessary. This does not have to be your normal email address, or your home phone number...but it must be a way that they can reach you quickly with questions.

7.) Only ask for the amount of money that you NEED. The lower the amount requested, the easier it is to get funded.

8.) Set the terms of the loan at a high enough interest rate to capture the attention and standing bids of lenders. This will vary by Prosper credit grade, but here are some guidelines:
AA=10% or higher, A=11% or higher, B >=13%, C >=15%, D >=18%, E >= 22%, HR >=24%, NC >=24%

9.) Set the loan to run for the longest term that you can, to allow more lenders the opportunity to bid your interest rate down. DO NOT REQUEST AUTOMATIC FUNDING. Yes, automatic funding can theoretically get you funded faster at a definate rate of interest. However, most lenders feel that people requesting automatic funding have higher rates of default than normal, and therefore are higher risk. We are attempting to show that you are in fact a very good credit risk and deserving of a loan, so anything that raises the risk factor in a lender's eyes is bad.

10.) Finally, advertise your loan on the Prosper discussion boards! It never hurt to self-publicize.

I feel a bit like Shakespeare's Shylock

2006-10-18T21:01:00.000-05:00

Well, I've finally managed to get the initial $150 lent out on Prosper. It took awhile to find good listings and then bid on them at interest rates I considered acceptable for each credit grade. It also took a ridiculous amount of time for my deposits to "clear" Prosper's transfer system. My personal threshold for each credit grade looks something like this:

Risk/Return Limits for each Credit Grade
AA - 12% A - 12% B - 13% C - 15% D - 18% E - 22% HR - 24% NC - 24%

So, essentially, even when I found what I would consider a "good" listing, meeting all of my criteria...I wouldn't necessarily get my money into that listing because I got under-bid a couple times. Still, the average interest rate I'm getting on my three loans is a positively usurious 25.21%.

And that is the word of the day folks. Usurious...literally means practicing usury. What is usury, you ask? Usury is the practice of lending money and charging the borrower interest at an exorbitant or illegally high rate. For a practical lesson in usury and the consequences thereof, take the time to read "The Merchant of Venice". A little Shakespeare never hurt anyone. ;-)

Now, what I have done is not illegal. After all, Prosper limits you to the state lending limits on any loan, so I clearly have not broken the law. I also have not charged anyone an interest rate that they were not willing to accept, since they obviously applied for their loans at an even HIGHER rate and got bid down. Still, that being said, a 25.21% rate of return on my investment capital (assuming that they don't default on their loan) seems ridiculously high. The only reason I can fathom that someone would accept an interest rate this high is if they are either A) desperate, or B) being charged something EVEN HIGHER somewhere else. *shudder* Maybe they borrowed money from the Mob at 100% daily interest or something. I don't know.

Still, I think that I'm helping people get their lives back on track. All of the people I lent money to are attempting to rehab their credit and get out of debt. This prosper loan consolidates most of their debt into one payment with a definite (3 year) time-table for pay-off. Some people don't have the discipline to continue paying a set amount towards a credit card each month, and habitually pay the minimum payment...keeping themselves in debt for years longer than necessary.

Worst case scenario, I lose my $150 because no one pays me. Best case scenario, everyone pays me back, and I earn $217.82 (without re-investing) for my trouble over a 3 year period.

If all goes extremely well though, and I can continue to re-invest my principle into other loans, I expect to return no less than 18% annually, which would double my money every 4 years!

At $1500 invested (30 loans) the process becomes self-sustaining (theorectically) and could continue to compound at an incredible rate.

If it were possible to double your money every 4 years, then $1500 could become over $1.5 million in just 40 years, with no additional money invested. Unfortunately, that's not possible....mainly because there are a limited number of "quality" loans out there that you could re-invest your gains into with the expectation that you would not get a significant number of defaults.

Think about it. $1500 is no trouble to invest. Neither is $3K, $6K, $12K or even $24K. Once you start getting up to around $48K though...how do you spread that out and still maintain an 18% annual return? Answer? You don't. Your rate of return (of necessity) drops because you are forced to spread your principle among other credit rates and in larger denominations in order to "keep it in play". Still...even if it drops to 12% or less...that is still pretty damn good.

:-)

I'll keep you posted on my Prosper progress!
~Scott

24 Stock picks for the next 24 months

2006-10-13T10:47:00.000-05:00

An equally balanced portfolio of these 24 stocks (in my educated opinion) has the potential to double in value over the next 24 months.

ALJ CAMD CHINA CMI CX DHI ELN EZPW GRMN HANS HCSG HITT KBH MED NUE PCU PHI RFMD RS TWGP UARM VCP WFR WIRE

It's got enough diversity to protect you in case one of them goes ka-blooey, and they've each got all the fundamental factors in place for a big rise in share price. I would like to point out that if you had invested in these stocks 24 months ago, you would currently be up 116.79% in your portfolio over-all. However, hindsight is 20/20…and past results are no guarantee of future returns…but, that being said…I'm pretty good at this, so if you had some money to bet on the stock market, these stocks would be a good place to put it.

Just my 2 cents.

My Prosper Screening Criteria

2006-10-11T09:38:00.000-05:00

I am going to make my first loans today, but before I did that, I set up quite a few different screens under the advanced search options to see how different factors affected default/late payment rates.

I look for no more than 2 current delinquencies, and no more than 6 serious delinquencies in the past 7 years. I also screen out people that have over 30 open credit accounts, and those that have less than 5 years of credit history (though that one could be scratched, it's just a personal preference). I also don't like to see more than 2 public records for someone I'm going to lend money to, becuase that says to me they've had/have SERIOUS legal problems. Finally, and probably most importantly, I don't like to lend out to anyone with > 30% DTI ratio. Admittedly, the Prosper method of determining DTI is pretty screwed up...but all of these criteria are based on a search of the historical Prosper statistics for default and late payments.

After I get my screened list of people, then I read the listings to see if there is one that I like. I'm looking for something that personally tells me it's a good loan, and I'd also like to see that the Group Leader has bid on it. If it is over 33% funded already, that's a bonus, because it means the rest of the Prosper community agrees with me that it's a pretty good risk.

Finally, I'm a pretty greedy bastard...so I'm looking for the holy grail of investing (% returns that are > average S&P 500 historical returns of 10.5% annually). I used the default rates to adjust my risk/return minimum interest rate based on credit score. So, for example, a guy with a AA rating I would loan money to at 11% (though he probably wouldn't take it at that interest rate) and a guy with an E credit rating I'd loan to at 22% (and he probably would take it). For the record, MY credit rating came back as an "A" when I set up a loan for testing purposes. I withdrew it before my group leader could approve it because the last thing I need right now is more debt. That being said, I imagine that my "portfolio" on Prosper is going to be disproportionately focused towards C credit risks or lower...if only because they have the highest chance of paying me a "holy grail"-type interest rate. I'm counting on my VERY selective screening process to eliminate defaults and late payments. The criteria I set up (supposedly) should result in a less than 1% late payment rate and a 0% default rate. We'll see if that holds up. If it does, then I think a lot of people might copy this screen and we'll get a lot more loans funded in the high risk categories.

I think that Prosper will probably require a minimum of $1500 total to become self-sustaining (the point where monthly payments from loans exceeds the minimum bid requirements). It will probably take me two years of putting $50 per month into Prosper in order to create a self-sustaining system...but by that time, we'll know if the Prosper experiment works or not. If it doesn't, then I'm out at most $1500...if it does...then I may just move a significant portion of my investment money into Prosper, because the opportunity cost of having it elsewhere would be significant. To put it simply...why settle for 4% annual returns (ING) or 10% annual returns (stock market) when you could be getting 22% annual returns (Prosper)?

Oh Happy Day! Oh USAA!

2006-10-10T14:31:00.000-05:00

OUT-FREAKIN'-STANDING! *lol* Man, I am so pumped right now. I just got off the phone with USAA, and let me just say...they totally rock! I originally called to tell them that my wife had gotten an active alarm system installed in her car, so could they please lower my insurance premium...and while I was on the phone with them, I mentioned that they had sent me a pre-approved offer for 7.25% financing on an auto loan...fully 1% lower than what I am currently paying. So I asked them, "Can I just get the 7.25% on my current loan?" And do you know what they told me? They said, "Actually, SSgt Webb, we can go ahead and change your rate to 6.99%!" SWEET! This will save me a month and a half in car payments on what would already have been an accelerated repayment plan. My original loan started 1 Sept 05 and was due to run for a full 72 months. With the way I had been aggressively paying it down, it would have lasted ~40 months. Thanks to USAA lowering the interest rate, we're down to 38 months total! Whoo-hoo! That will be just in time for my wife's 26th birthday, and just after my 30th. *sigh*

I'm thinking of that Tim McGraw song, "My next 30 years." Great song.

Oh, and I'd also like to say how cool it was to get my first comment from TiredButHappy! She made my day. :-) Thank you so much for your response to my post.

~L8r!

Financial Fatigue

2006-10-03T14:21:00.000-05:00

Every so often, there are days when you just want to take the budget that you've been carefully adhering to for so long and just chuck it out the window. Some days are worse than others. Every time my wife mentions something that she wants, I wince inside. I mean, lets be real here...there are things that I want too...NFL Sunday ticket for example...or the chance to go pursue my dreams of playing on the WPT...but I know that those things can wait. Or at least, I keep telling myself that they can wait. Sirius Satellite Radio...window tinting for my car...a PlayStation 3...*sigh*

All pipe-dreams for now. I've been doing this for 5 years now. Admittedly, I haven't been blogging about it...and I've had moments of weakness along the way, times when I pissed away money gambling or drinking that could have been better spent elsewhere...but everytime it seems like I'm getting closer to debt free, another debt rears it's ugly head to be paid. Like a Hydra, I keep whacking them down, only to see them rise up twice as big someplace else.

Now, progress has been made...I can't argue that...I have a positive networth, a steady job, and I am saving (currently) 13.17% of my GROSS pay each month. Considering that I'm an E-5 in the military, that's not too bad. My take home pay is less than $3000 per month, and I feel I'm doing pretty well to save as much as I do.

Still, it irritates me to no end to read stories on other personal finance blogs about people who make anywhere from twice to three times as much as I do whine about their debt load. I gaurantee you, if I got a raise from the 33K per year that I make in take home pay now to about 75K in take home pay (like some of these other bloggers) that I would be debt free (to include my mortgage) in under 5 years. Extrapolating out a bit, that extra 42K of take home pay would have me retired as a millionare in just under 20 years...and that includes a couple serious upgrades to my lifestyle.

The worst part of it all is...it's not like I can just get a better degree and make more money. I can't change jobs any time soon either. I can get promoted, but believe me, that's not as easy in the Air Force as it is in the rest of the branches of the service, and I'm already WAAAAY ahead of the curve in that department anyway. So what am I supposed to do? It would be difficult in the extreme to cut spending any more than I already have...and I already work too many hours as it is to want to think about taking on a second job...so what is the solution here?

*sigh*

I just want to go on a shopping binge and buy some nice toys to play with for awhile.

But what would that accomplish? Nothing. It would put me a few steps backwards on my journey to financial freedom. So...with the discipline of the last few years...I will press on. Hopefully, by May of 2009, the only debt I will have will be my mortgage.

I will be a millionaire one day. All it will take is a paycheck, patience, and time.

Have to start somewhere, I guess

2006-09-28T09:16:00.000-05:00

So, I'm going to start this blog with a little background information.

This is my current state of affairs (if you will):

As you can see...I'm not doing too badly. After 5 years of being in the U.S. military, I've managed to pay off all of the debt that I had when I came into the service. At the time, that included about $8K on a car loan that I had co-signed for, but never driven (long story...but the punchline is, I got stuck with the bill). It also included about $6K in credit card debt, $4K in student loans and another $9K for the car I actually owned.

All of that debt is gone, and subsequently replaced by ENTIRELY NEW DEBT.

*sigh*

So, I feel like I'm back where I started. Why am I back where I started? 3 words for you..."I got married." Marriage = debt, as far as I can tell. The balance on my USAA mastercard? That was the wedding and the honeymoon. The disney cruise was wonderful, but I'm going to be paying for it for quite awhile.

After the car wreck that totaled out my newly paid off '99 Saturn (I had the title in my hands for 2 whole months before the accident), my wife and I decided to consolidate down to one car...but as hers was unsuitable for me and our future children (none on the way, just planning ahead), we traded our cars in for a brand new '06 Ford Escape. Hence the ridiculously large car loan.

Although I didn't want to buy a new car fresh off the lot, I've been trying to rationalize the purchase by reminding myself that I'm going to have this car until the wheels fall off, so at least I'll know that I got my money's worth out of it.

Our "one car" plan was going well for about a year...until Elissa got promoted at work, and decided to go back to school full-time. At that point, she decided that she would need her own car, as juggling the one vehicle was too stressful.

*sigh*

So, we went out and bought a second vehicle, using the MBNA mastercard. Why buy a car with a credit card, you ask? Well...why not? On a car over 6 years old, no one would give us a better interest rate than 9.99%, so we put it on the card and at least got the "rewards points" from the purchase.

Still...I made my last payment on my student loan today...so that's something to celebrate. I'm going to take that $60 per month and add it to my "car fund" at Emigrant Direct so that when little things like oil changes and insurance come due, I'll have money available to pay for it without affecting my regular monthly budget. Eventually, the "car fund" will be a place to put money for a replacement vehicle 10 or 15 years down the road, when my Ford eventually craps out on me...but for now, I'll be happy if I can get it up and running enough to cover basic maintenance.

Welcome!

2006-09-08T23:17:00.000-05:00

This blog has migrated from my old Xanga account. I will be reposting existing entries to this new blog in the near future...but for now, feel free to visit my old site at http://www.xanga.com/SpydrJOAT

It's been awhile since I blogged...but I think it will be good to get back into it.

More to come soon!