August 28th, 2008 — Banking, Income Streams, Money, Personal Finance
For many of us, saving is something that we always plan to do, but never quite get around to it. The bottom line is, if you don’t have a savings account and a regular plan for putting money aside, you may regret it in the future, especially as you get closer to retirement. A savings account can be incredibly useful in an emergency and it can also help increase your odds of getting a loan in the future when you may really need it. So, how can you start putting money aside right now, even if things are tight? Here are some tips to get you started.
First, it’s important to remember that saving money doesn’t necessarily mean putting thousands of dollars away every month. It’s ok to smart small, and in fact, this can help you build up some great saving habits. Even if it is only $5 a week, putting money aside is a great idea. It will add up, especially if you can find a savings account that has a great interest rate. Granted, you’re not going to get rich putting away $5 a week, but it is a start.
Next, you will need to open up a savings account. While it’s perfectly fine to put money in a drawer or just keep it in your checking account, it is simply too easy to access it. By putting that money into an actual account, you’ll be less tempted to pull from it, unless you absolutely need to. Shop around for a savings account before jumping in, since interest rates can vary greatly from bank to bank. If you have a habit of blowing through your money, you can put your savings account book away in a safe deposit box.
Once you’ve gotten into the habit of putting money aside, you can start looking at ways to make more money to add to that account. This can help increase your savings without scrimping. Unless you’ve already got a lot of disposable income, it can be tough to find enough money to save when you are buried in bills. This means that it may be necessary to investigate some money making options.
The most ideal option is to find a way to create another solid stream of income. Once again, you can start small with a little investment that will start returning money every month. Put that extra income directly into your savings account and watch it grow very quickly. The key is to keep making those investments and to keep moving forward. Never get stagnant or rely too heavily on just one income stream.
If you have a hard time finding any money to put aside each month, it may be time to revisit your finances. Whether you just overspend, or you are not making enough to support yourself at your current job, you’ll need to take a hard look at your finances and determine what can be changed to increase your ability to put money aside.
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June 25th, 2008 — Banking, Income Streams, Investing, Money, P2P Lending, Personal Finance, credit score
Peer to Peer lending is quickly becoming one of the hottest new ways to create multiple streams of income. While there is risk involved, there are various methods that can reduce the risks that individual investors face and provide protection against non-payments. If you’re looking for an potential way to make extra cash every month, P2P lending is definitely worth consideration.
If you’re not familiar with how P2P lending works, it’s actually quite simple. Instead of going to a traditional bank for a loan, a person will visit one of the many P2P sites that are in existence right now (Prosper for all loans and Fynanz for student loans are the only one for p2p lenders at the exact moment but Lending Club may reopen soon and Loanio has been in beta for some time…). They’ll post their loan request and the lenders in that P2P community can go over it. Sites will run the credit rating of posters to determine how risky they are, be careful of borrowers with bad credit or even good, but unusual credit. You are looking for very clean borrowers with 5 years of credit history, no public records, 0-2 inquires in the last 6 months, for reasonable loans amounts, with a story that makes financial sense.
After the loan opportunity has been posted, lenders or investors will browse through and see if they want to take that risk. Most of the current P2P sites allow sharing of loans so that the risk is spread around. For example, if someone needs a $9000 loan, instead of one lender offering the whole amount, thirty lenders may each provide $300. The interest rate payments will be equally divided among those lenders based on much of the loan they purchase. As with everything make sure you diversify, ideally you would want AT LEAST 30-50 separate loans.
The claimed returns on the Prosper Select Index as of May 2008 was 7.87%. There is a bunch of fine print that goes along with that number which is why it is essential to diversify and stick to very clean loans. While possible I wouldn’t trust anyone that claimed it was easy to earn out sized returns (15+%) on these marketplaces. Still, 7% is better than most savings accounts, especially since the rates are currently dropping. While it is a bit more risky than a certificate of deposit, it’s a lot nicer to earn two to four times the amount of interest on your investment.
When you’re shopping around for a P2P community it is important to find one that will provide you with the tools that you need to succeed. For example, they need to have a system in place for debt collections if someone defaults on a loan and they need to be able to provide you with an accurate assessment of the risks involved in making that loan. Currently the sites will not allow loan requests from those with credit ratings lower than 540 on Prosper, which can greatly reduce your amount of total risk, but even then you should stick to the higher credit grades (AA-C). Once you get 12 months of experience you might consider expanding beyond that range… personally I am not.
While there is no magic bullet when it comes to easily making money with P2P lending; however, you can easily make a nice little return on a small investment and you’ll have the benefit of being able to create multiple streams of income. If you’ve only got a small amount to invest and you don’t want to tie it up in a CD, consider giving P2P lending a try.
Keep in mind that any venture has its risks, but the benefits of P2P lending might outweigh them. By picking the right kinds of loans, you can reduce your own risks and manage your investments. Start out small and as you start to get larger returns you can invest more money. Overall, P2P lending is fun and lucrative, when managed properly.
I have read that P2P lending is addictive because it is like financial voyeurism. Funny, but true analogy.
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May 27th, 2008 — Banking, Debt, Diversification, Financial Security, Leverage, Money, Personal Finance, Wealth
If you’re interested in leveraging your credit in a safer environment, credit card arbitrage is one of the best ways. In order to succeed, you need to make more interest than your low interest balance transfer offer and for that you need to invest your money in a high interest bearing account. However, there are many different high interest banks out there and it can be difficult to know which one is right for you. Here are some guidelines to help make your choice easier and help you get the best deal for your investment.
1. Are there any fees?
Numerous high interest banks charge account fees that can gradually chip away at your funds. If possible, look for a bank that does not charge these fees so that you won’t be out anything. If you can’t find one that you like, look for the banks that charge minimal fees and guarantee that they won’t go up. There are numerous scams out there that involve getting you in a low fee rate and then suddenly raising the costs.
2. How reliable are they?
Just because a bank sounds good on paper doesn’t mean that they are. You’re going to need to do some due diligence to protect your investment. If you’re dealing with a pretty well known bank than this isn’t such a large concern. Keep in mind however, that even big banks can fold suddenly, as evidenced by the fallout in the current housing markets. While US banks are insured up to $100K, getting access to your money in such an event is a potential issue in the short term and more than likely the high interest paid will convert to a substantially lower amount paid after the closure.
3. What is the minimum amount required to open an account?
If you are only placing a limited amount of funds in a high interest bank you need to be aware that some of them have limits as to how little you’ll be able to put in. For some larger banks, like ING, the minimum is only a dollar. For others, the minimums may be higher than $10,000. This can really help narrow the field, especially if your investment is very limited.
4. How good are the rates?
Although most high interest banks offer similar rates, keep in mind that even a tiny little point or percentage can make a big difference when it comes to the amount of your return. Make sure that you do your homework to find the right bank that not only meets the criteria above but also offers you the best interest rate.
5. Will the rate fluctuate?
It goes without saying that it is much smarter to put your money into a fixed account. Sure, if the rates go up suddenly you may be out a few bucks, or even a lot of bucks. But it’s a lot better than facing the music when the rates plummet down.
It is also a good idea to consider opening more than one high interest bearing account with different banks. Diversity is always key when it comes to smart investments. It’s never a good idea to put all of your eggs into one basket. As we mentioned earlier, even the best banks can fail. You won’t be hit quite as hard if you’ve got your money spread around with different banks.
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