It’s been a while since we reported on our personal finance so I thought it might be good to put up a quick posting about what we’ve been doing to build our wealth over the past couple of months. In general, we’ve been doing a lot to increase our bottom line. However, this posting focuses more on smaller things that anyone can do to provide a reliable return.
So here is what we’ve been up to in the past few months.
1. Lending money. Putting about $25 dollars per month into Prosper.com. If you haven’t heard of prosper, it is basically an online moneylending platform. It links borrowers and lenders who want to either borrow or lend money. I’ve been able to get the account up to $950 which is better than the $600 where it was late last year.
2. Buying stock. I’ve been buying about $200 bucks worth of stock monthly using Stockpile. (They offer dollar trades!) I’ve been acquiring shares in three companies: Disney, Microsoft, and Coca Cola. I like these companies because they all pay dividends, have shown good historical growth, and are in favor by consumers. The brilliant thing about Stockpile is that you can buy shares for as little as $5 bucks, which is great because I’ve been cash constrained over the past couple of months and can only afford to make small transactions. Other brokerage firms aren’t geared towards small time investors so Stockpile has been great for us.
3. Paying off our most expensive mortgage debt. The payments on our first and second mortgages are $2,546.61 and $587.34 respectively. We’ve budgeted $3,500 per month to pay these, which leaves $366.05 extra. We recently allocated the extra money towards our second mortgage which is more expensive than the first one (4.25% vs. 7.5%). It is generally good practice to pay off your priciest debt first and it’s great to watch the mortgage get ratcheted down.
4. We’ve also been periodically shaving the fat from our budget. For example, I’m paying something like $180 dollars per month on my cell phone bill. When the contract expires in 5 weeks we’re going to go with a cheaper family plan – $50 bucks a month.
We also called and negotiated a reduction in our cable bill of $60 dollars per month. It’s not a huge savings, but there isn’t any compelling reason to waste money on premium channels we aren’t watching.
We’ve also faced high electricity bills this winter, so we’ve just ordered a programmable thermostat called “the Nest” and hope that this will help shave off our hefty power bill. We’ll keep you posted on how well this works out.
None of this stuff in particular is going to make us rich, but the long term affects – say over 10 years – should have a substantial impact on our bottom line. For example if we keep this up we should have the following:
1. Our $80,000 second mortgage paid off. I used bankrate.com’s mortgage calculator and it looks like if we continue with our second mortgage pay off rate, we should have the thing completely paid off in ten years. This would be over $80,000 in equity.
2. Just under $34,000 in stocks. Also if we keep investing these smaller amounts, after ten years or so we should have $33,076 (assuming 7% return 3% inflation, a 28% tax bracket). That’s not too bad.
3. About $5,000 in loans we’ve made. If we keep investing in prosper.com, and maintain our current rate of investment, the total after 10 years should be $4,990 (also assuming 7% return, 3% inflation and a 28% tax bracket).
So, if we keep this behavior consistently for the next decade we should realize over $119,000, not including the savings on our utility bills. This is enough for a house or 50 acres of land in many parts of the country. Not bad for investing just $600 per month! We’d also recommend trading in your vehicle for a new one. Avoid any car notes. Go for something you can buy in one go. This is especially true if your vehicle isn’t functioning properly & you find yourself repeatedly expending far more than you should.
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