Monthly Archives: May 2006
Our Prosper Bids are In!
As you frequent readers of our blog will know (all three of you), we’ve decided to lend some money on prosper.com. We’ve blogged about this a couple of times previously, but it looks like things are finally coming together
We initially thought about committing $500.00 from part of a family gift we received. We re-evaluated this number as our wedding and honeymoon goals were not fully funded and utimately decided on $400.00. The transfer from my checking account finally cleared prosper last night. Their website says it takes 2-4 business days for the transfer to go through, its more like 4 days.
To hit our goal of making 10 percent return after taxes and expenses, we decided to spread our exposure across as many different loans as possible. Since prosper lets you bid as little as 50 dollars on each loan, we made on eight different loans. The average pre-tax return, provided that each is successful, should be approximately 17 or 18 percent (I can’t get an exact number because one of our bids is pending account verification).
Generally speaking, we made three types of loans.
1) Consolidation and refinance loans
2) Loans for investment real estate
3) Student loans
We had a mix of credit ratings across each of these categories (e.g some had a prosper credit rating of AA, some had ratings as low as D). We did not loan to persons without credit or persons with prospers ratings of HR (high risk). Consolidation, real estate and student loans all generally improve ones financial bottom line, and are thus both good for both borrower and the lender.
Explicit criteria for being rejected for a loan was:
1) Evidence of poor money management or wasteful spending habits: For example, one gentleman wanted to borrow approximately $12,000.00 to refinance some of his debt. However, his reported income was nearly $120,000. One hundred and twenty thousand dollars is kind of a large salary, which brings to mind the question of why he had so much credit card debt in the first place.
2) High debt to assets ratio: If you owe too much, its hard to make the payments on everything. From what my mortgage lender has told me, mortgages and food come first, so credit cards and other loans take a back seat when things get tight. The last thing we need is a late or slow payer.
Stay tuned for more further updates!
-James
James’s grade for Ben Stein: B+
Ben Stein has gotten himself a gig as one of yahoo’s superstars of personal finance. Unlike some of the people yahoo has, I always look forward to reading Ben’s stuff. After much consideration, I have decided to include Ben in our personal finance guru rate and have awarded him the grade of B+.
You frequent readers will note this is better than my grade for Suze Orman or Bob Kiyosaki. Here is why I am awarding Ben this grade.
1) Sound insight. While he didn’t build his reputation on finance, his book on income investing with Phil Demuth is sound and useful. I like income investing and agree with Ben when he says
that stocks that pay dividends are legit and profitable. Even with the Sarbanes Oxley act in effect, there are still plenty of legally questionable practices in corporate finance. All things being equal, the absolute best indicator of a corporation’s profitability is money in the pockets of shareholders, period. Ben, thanks for the insight.
2) Engaged, amusing style. His columns are always fresh, witty and they address real issues pertaining to the health of the nations pocketbook. For example, he’s written about the dangers of excessive executive compensation, Social Security and the importance of the SEC. While these aren’t personal finance issues per say, they are always amusing, insightful and make his columns a pleasure to read.
So, to recap. I am awarding Ben the grade of B+ for 1) good ideas and 2) amusing and skillful delivery. You might ask why I did not give Ben an A. Good question. I didn’t give Ben an A because its not clear to me that Ben is a finance wizard, that is, he’s not like Warren Buffet in that he’s made a great deal of money directly from his investing activities.
Click here for more.
Happy investing!
-James&Miel
The Great Credit Card Debate
James & I have had considerable debate on the issue of credit card use. Here is where we land on the issue:
Miel:
1) It is okay to use credit cards if you already have the money in hand for what you are charging, and you pay off your balance in full without getting dinged for any charges.
2) Playing by the credit rules can work to your advantage with better credit scores.
James:
1) Credit cards are to avoid at all costs.
2) High interest credit can be like heroin. As an ex-card addict, it is best to not tempt thyself.
You can see that James & I don’t exactly see eye to eye on the credit card debate, but we do manage to leave each other alone and don’t harass each other unnecessarily. We both manage to have our philosophies work to our advantage.
James wasn’t too happy to see that when it came time to buy a house, Miel had a better credit score, even though at the time he made more money and had more in the bank. At the same time, he’d rather keep the crack away than to play the credit game.
Miel works to keep her credit rating high and likes the advantages of perks like not having to pay for insurance on rental cars and the like. She enjoys seeing the rewards add up and best yet, beating the credit cards at their own game.
To each their own.
-Miel
Negotiating our Joint Budgets
James & I have spent lots of time discussing financial matters, but we had never actually sat down and done a joint budget. Yesterday we spent some time during our Saturday morning money chat session and hammered out a joint budget.
We did this in a way that is similar the manner we did our joint networth. For each exercise we worked in three tabs of an excel spreadsheet. This means that we each have our own individual page to track better and maintain our autonomy, as well as having a joint budget/networth to look at the big picture.
Aside from the factor of getting married in just over a month, our finances have already become more intertwined with our return to grad school. James started towards his Ph.D. back in the fall and Miel began her Masters in the winter. Managing this within our budget has been compounded by James making the wise choice to resign from his day job and pursue grad school full time. While this has been a great choice for his academic career and our overall sanity levels, it has obviously factored in to our finances.
So, here’s how we budgeted; a simple exercise, but it brought up some important issues.
1) We plugged in all the obvious bills that are recurring.
2) We factored in expenses that come about time to time (clothes, shoes, medical, etc.)
3) We debated about the importance of various areas of the budget.
Number three was where all the fun and debate came into play. While James might see it has matter of self-control to limit movie consumption to $100 a month (including going out and rentals), Miel was quick to remind James that if she spent $100 shopping on clothes or going to the spa, this would be viewed as frivolous by James. This illustrates the different values that we both place on discretionary spending. We believe jointly that for the overall well being of our relationship, it is best to express autonomy in allowing freedom in discretionary spending, but to practice self-control as well.
To give you a better idea, here is what our budgets look like:
Our Joint Budget:
Miel’s Budget:
James’s Budget:
Happy Blogging!
-Miel
Prosper.com: Does it really help?
In anticipation of our prosper account getting set up, we’ve been doing some preliminary cruising to inform the decision about who to lend to.
Some thoughts have occurred to us, so we’re sharing them with you.
It seem a bit unethical to charge people who are in distress high interest rates. What we mean is, a lot of borrowers on prosper are deep into credit card debt, have expensive medical bills to pay, or seem to have bad money management skills. Basically, many of these are people desperate. By charging interest rates north of say, twenty percent, it seems like one is just prolonging these borrowers misery.
But, on the other hand, some borrowers are paying interest rates on payday loans that are as high as 70 percent or credit card rates around 30. So, it would seem that anything less than that would be beneficial to the borrower.
The issue lies in whether or not prosper.com ultimately provides the tools for its clients to escape their indebetedness and learn the financial management tools to help them prosper. For those who are not already in a deep debt crisis, it could possibly allow someone to get in even deeper. These are just some of our thoughts to keep in mind if you decide to lend through prosper.
It’s a bit of a conundrum.
-James&Miel
Our Net Worth – May Update
As part of our quest to become millionaires, we have updated our net worth for May. I am pleased to report the value of our wealth increased by nearly 9 percent over last month. This appeared to be driven by at least three factors:
1) Our wedding savings: As you may have gathered, we’ve been aggressively saving to get married in July. We anticipate that we should be nearly twenty thousand dollars poorer after the wedding. But, its a small price to pay for a lifetime of happiness!
2) HANS: The value of our Hansens Shares has increased by nearly 50 percent since we purchased them. It goes without saying that we’re very happy about this.
3) Expected tax returns: We anticipate getting nearly $14,000 in tax returns back from the DC and Federal governments. While some people don’t think its appropriate to credit money that we don’t actually have in hand, we are fairly confident the government will pay us.
Enjoy!
-James&Miel
ARMs: We Don’t Like Them
Miel and I got an Adjustable Rate Mortgage (ARM) when we bought our place last June. It was great because the lower introductory rate allowed us to borrow enough to put us in the price range of one-bedroom apartments in neighborhoods we liked. 
Now, we are paying the price. Our mortgage is index benchmarked. Now that the Fed has continued to raise rates, we are getting the hit. Not that we regret buying our place, but in retrospect I think we would avoid getting an ARM. The variable rate makes it harder to plan and we’re now vulnerable increased costs for housing.
Rats.
-Miel
Prosper.com Update
As you’ve probably noted Miel and I are doing a bit of an experiment with the on-line moneylending service, prosper.com.
We got our account set up on Saturday, and have just now transferred the money from our checking account to prosper. So far, its taken about 2 business days.
We’ll keep you updated!
-James
The Annoying Problem of Hard Cash
Sometimes I find that I’ll have 25 or 30 dollars cash in my wallet (if I’m lucky!). Being someone who is interested in building wealth, I’ve often puzzled over how to efficiently purchase assets when all I have is this small amount of hard cash on hand.
I’ve come up with two answers, both are unsatisfying.
1) Savings Bonds: The minimum for a series EE is $25.00. This is great because the amounts are small, but the rate on EE bonds barely keeps up with inflation.
2) Small Amounts of Silver: There is a great dealer in DC who sells American Eagles or bullion rounds for a couple of bucks above spot. Again, this is great because silver usually retails for less than $20.00, but the dealers price is retail, so you immediately start off 5 to 10 percent in the hole, depending on the transaction costs.
So, dear reader, if you have an idea of assets that can be purchased with small amounts of cash, feel free to leave a comment. Believe me I’d love to hear it!
Best,
James
p.s The DC dealer is great and I highly recommend him. The name of the place is Capitol Coin & Stamp. The telephone number is (202) 296-0400, 1001 Connecticut Ave. NW # 745, Washington DC, 20009.