New Job

So, I just recieved/accepted a new job offer.

I will be starting part-time employment with H&R Block within the month. It doesn't pay nearly as well as my current full-time position but I'm very excited to get the extra experience working in the financial industry as well as experience with taxes/tax deductions. My prior experience with taxes is limited to filing my tax returns using Turbo-tax for a few years so I'm sure that I will learn a lot!

Estimated Hours/wk = 10
Expected Increase income/mth = 7.82%

Hopefully, I'll work a few more hours than that...but its always best to be conservative.

My plan will be to use my income for three goals:
1) Speed up my emergency fund savings.
2) Fully fund my ROTH IRA
3) Pay down debt

I doubt that I will be able to make enough money to cover all of these goals, but I generally don't set goals for myself that are easily achieved.

Until next year,
Thor

Payday Breakdown

I got paid today!!! CELEBRATE!!!


Ok, now that I've had my fun, it is time to show a breakdown of my paycheck.

I get paid X/hr...I work 40 hours/wk...my paycheck = 40* X = 40X

Wow ,that was easy!

If Visa, Master Card, American Express, USAA, Wachovia, Bank of Amaerica, and roughly 10,000 other banking institutions in the US of A didn't exist...calculating my paycheck amount sure would be easy. PS: Don't forget that big bully Uncle Sam...That guy has been beating me up for my lunch money since the first jon I got when I was 15.

So now the real breakdown.

My '40X' paycheck is representative of 86.47% of my income before any tax/pretax deductions.

First...I'll run through my pre-tax deductions. (all actual amounts are bi-weekly so I took the liberty of calculating the monthly payments)

Pre-Tax Deductions
Medical Plan: 0.5% of my income (not bad...if something bad happens...I'm taken care of)
Dental: 0.12% of income (needs my teeth)
Life Insurance: 0.04% of my income (100% of my annual salary goes to my brother if I
die...Bro,please don't get any ideas...they don't pay me that much anyhow.)
Long Term Disability: 0.45% of my income
401IK: 9.51% of my income (this is more than likely one of the best decisions that I've ever
made...it was also really esay...the best ideas are easy...but it it the
slightly more difficult ideas that really help you in the long run )
Vision: 0.10% (also a great investment...the annual cost of this is only 1.23% of one months
income but it ends up saving me roughly 10% of one months income if I get one
new pair of glasses and contacts each year)


TOTAL PRE-TAX DEDUCTIONS: 10.72% of my monthly income

Salary income left to account for 73%
Relative amount of income left to account for:75.50%

Tax Time!

Tax deductions:
Federal Income Tax: 7.14% (he takes almost as much as I save for retirement...gee, thanks)
Social Security: 5.29% (and of course...I'll never see any of that again)
Federal Medicare: 1.24% (can't say much about that...I support giving medicine to the sick)
VA Income Tax: 3.45% (could be worse...California charges 7.25% income tax!...then again..All
states except Alaska, Delaware, Montana, New Hampshire and Oregon,
collect sales taxes. http://www.retirementliving.com/RLtaxes.html )

TOTAL TAXES: 17.12% of income


So, I had 86.47% of my relative income before any tax/pretax deductions.

Income: 86.47%
Pre-tax deductions: 10.72%
Taxes: 17.12%
Remaining Income: 72.16%
Percent of Paycheck remaining: 58.63%

Not too shabby!
I am somewhat frustrated with the fact that the Government seems to be getting more money than I save for retirement...I plan on upping my 401K contribution at the end of the year when I perform my annual review of my retirment investments. (this should occur Wednesday)

In case I don't post again today. (likely that I will)
I hope everyone has a GREAT WEEKEND AND A HAPPY NEW YEAR!

Until next time,
THOR

It isn't just about me

I've recieved quite a few e-mails with budget questions etc and would like to open the floor for others to contribute to this site. If you currently have a financial goal, send it in. I'd be happy to post it on the site and would plan on updating goals every month or so to show the financial progress of other individuals along with my progress.

I look forward to the mail!

Until next time,
Thor

My Housing Fund

I am currently living in a great location. I walk to work, there is a mall right up the street, a grocery store...plenty of nice places to eat...but I rent.

Renting isn't a bad deal... but when 18/04% of your income just...disappears every year as opposed to building equity in a house, it is a little frustrating.

Interest rates are high, it is a buyers market, and housing prices are on the decline. The general rule is that if you are going to be in one location for more than 2 years, you should go ahead and buy (if you can afford to) becuase chances are that you will come out on top.

My biggest problem has been:
A) Finding a place that is affordable (the house I'm renting in would costs ~$750,000)
B) Finding a place that is still close to work (a secondary issue...some commuting is ok)
C) A place that I will be happy living in
D) The chance that I might not be employed in my current position for 2 years

I went ahead and put some of my portfolio into real estate stocks recently. I figure that if I'm not buying myself...at least I can own some shares of a company that is buying. I think I may even jsut keep putting money into those stocks and eventually cash them out to use for the downpayment of a place.

GGP: 47.34% of one months income
BXP 25.12% of one months income
RWR: 79.17% of one months income
Total Housing Fund: 151.63% of one months income

Goal: 901.92% of one months income (if I were to put down 20% of the property value range I'm looking in.

Progress:

<<17%>><<<<<<<<<<<<<<<<<<<<<83%>>>>>>>>>>>>>>>>>>>>>

The Emergency Fund Stock

Since my immediate goal has been the establishment of an emergency fund, I thought it best to analyze a few dividend paying stocks for the piece of my emergency fund that I will hold in my investment account.

My criteria are as follows.
1) Large Cap Stock (market cap of over $5 billion)
http://en.wikipedia.org/wiki/Large_cap

2) A high volume stock (Classified by me as a stock that trades at least 1 million shares/day on average. This is important because if I ever had do, I'd want to sell quickly)

3) Pays a dividend of at least 2%. (All dividends will be reinvested to grow my emergency fund)

The companies that I came up with are as follows:

1) Altria Group (Symbol: MO)
"Altria Group, Inc., through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products worldwide. It sells its tobacco products principally to wholesalers; retail organizations, including chain stores; and the armed services. The company also engages in the manufacture and sale of packaged foods and beverages. Its food products comprise snacks, beverages, cheese and dairy, grocery, and convenient meals. The company sells food products to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, and other retail food outlets. In addition, Altria Group provides finance leasing services. The company was founded in 1919 and is based in New York City."
http://finance.yahoo.com/q/pr?s=MO

$180 billion market cap; Average volume of ~9.5 million; 4% dividend
People smoke, it is addicting, they will smoke in both good times and bad. Very recession resistent stock!

"Altria in January 1970 initially acquired 277 shares, a stake that would have started by paying out a mere $69 per quarter at the time.
That wasn't much then, but after 37 years of stock splits, our hypothetical investor now has 26,592 shares of Altria -- worth $2.26 million today. Perhaps more importantly, our investor is receiving $91,476 each year in dividends. (It should also be noted that these figures would be even larger if the investor reinvested dividends over the years.)"
http://aol.fool.com/investing/dividends-income/2006/12/22/stocks-that-pay-you-back.aspx

I don't know about you...but I sure could use a multi-million dollar emergency fund!

2) General Growth Properties (Symbol GGP)
"Owns, operates, manages, leases, acquires, develops, expands and finances operating properties located primarily throughout the United States and develops and sells land for residential, commercial and other uses primarily in master-planned communities."
http://caps.fool.com/Ticker.aspx?source=icaedilnk9950012&ticker=GGP

$12.69 billion market cap; Average volume of ~1.2million; 3.5% dividend
Buy land...god isn't making any more of it.

I decided to shift a little of my investment money into Altria. It seems to fit my style more and I think that it is a great investment as well as a safe place to store come cash while allowing it to accumulate interest via dividends!

Total Invested in Altria: 77.79% one one months income.

Compounding interest. Again.

I've mentioned it before, but I decided to come up with another example of compounding interest.

"The most powerful force in the universe is compound interest" -Albert Einstein

If you invested just $10.00/wk starting Jan. 1st, 2007 into a savings account yeilding 5% interest and kept putting in $10.00/wk for 100 years. At the beginning of 2108, you would have $117,655,116.93. That's $113,129.92/wk in interest... $16,161.42/day in interest!

You may not live another 100 years...more than likely, you won't. But what if you started putting in $10.00/wk today?

At 10 years: $13,498
At 20 years: $35,747
At 30 years: $72,422
At 40 years: $132,872
And for those of you reading this at ago 20...CONGRATS!!!
At 45 years: $176,514

That's at 5% interest. If you looked at the average performance of the stock market(10%)...you'd be looking at quite a bit more money.

At 10 years: $17,877
At 20 years: $66,426
At 30 years: $198,269
At 40 years: $556,312
And for those of you reading this at ago 20...CONGRATS!!!
At 45 years: $923,514 (almost $1 million dollars...just from $10/wk...$1.43/day)

All from $10.00/wk. Also, remember that having credit card debt at 10% interest works the exact same way...only against you instead of for you.

Start a savings account today!!! (if you don't have one, check out www.emigrantdirect.com )
Open a savings account and set up an automatic payment for $10.00/wk. I bet you won't even notice the difference...after a month, push it up to $11.00/wk...I bet you won't even notice the difference...after a month, push it up to $12.00/wk. You get the point.

"It's not the will to win, but the will to prepare to win that makes the difference." -Paul "Bear" Bryant

Prosper Update

I'm nearing the end of my money crunch (payday tomorrow) which was mainly caused by overpaying debt (is there such a thing) and also because I made a few too many Prosper loans.

Prosper Loans are a great way to sock away some emergency funds at a healthy interest rate. The catch? Your money is tied up in each loan for 36 months. Each loan COULD be paid off early, but most loans will simply return back a small amount of interest and principal each month for 36 payments. The postitive? There are extremely safe loans towards low/almost no risk individuals at 8-12% interest! I'm willing to bet that beats the interet rate of your current savings account. You can also make higher risk loans, but for any money you are counting on, I wouldn't recommend it.

I have set to goal of contributing ~$100/mth to Prosper in order to FORCE myself to save. My short term goal is 3 months worth of expenses in loans at at least 12% interest. My long term goal is to have 2 years worth of income lent out on Prosper at an interest rate of at least 12%. It may take me 20 years...but I don't usually set easy goals for myself...I am for the sun.

Every dollar I put in a loan is essentially locked in a safe where I can't touch it for 3 years. And every $1000 that I lend out (at an assumed interest rate of 8.5%, I get back ~$31. Of that payment, roughly $28 is principal and roughly $3 of it is interest. It may not seem like a lot, but I prefer to have several eggs in every basket.

Currently, I have lent out 71.97% of one months income in loans at an average interest rate of 16.05.% I have 19.32% of one months income in loans that are waiting to be processed and 2.44% of one months income sitting in cash waiting to be lent out. That brings me to a total of 93.73% of one months income tied up in Prosper. I may only be 4.16% towards my goal...but if I give it time...I'll get there.

Short term goal: 3 months expenses

<<<<<31.24%>>>>><<<<<<<<<<<<<<<68.76% Incomplete>>>>>>>>>>>>>>>


Long Term Goal: 2 years expenses

<4.16%><<<<<<<<<<<<<<<<<<<68.76%>>>>>>>>>>>>>>>>>>>>>


I'd highly recommend checking out the site and opening and account. Even if you only up in $50 every once in a while, its still an asset that you didn't have before...and if you let it sit there...it will compound without you doing a single thing!



If you are interested in reading more about prosper loans and specifically, finding information about loan repayment etc. I recommend checking out http://www.ericscc.com/ . It is a great site and the writer seems to have really done his homework! (it is also where I got the above data from my loans.)

Why an emergency fund?

An emergency fund is absolutely essential. It may take several years to build (my time horizon is 2 years) but the best part is...once you build it once, you never need to build it again. That money can sit in your savings account (earning interest) for your entire professional career where you will hopefully never have to touch it. But, if you ever need it...it is there.

Recession causes you to lose your job? Hunt patiently for the right job because you aren't taking on extra debt during your unemployment, you are drawing from your emergency fund. Car needs immediate work? Tap the fund. You are prepared for things that would send many into debt. You are prepared for what may worry many people. Your answer: "I made a few short term sacrifices for the long term security of being able to say: "Its not a problem" in the future"

My emergency fund had recently been defined as "money that I can easily get my hands on in an emergency." I had previously thought that I could simply margin out my investment accounts at 10.5% interest and repay the funds once my emergency fund was over.

Raising funds via margining an investment account is a pretty simple concept. Basically, if you hold $10,000 worth of stocks, bonds, etc…your brokerage firm will allow you to take out a certain amount of cash based on their margin requirement. (Say 50%) You can borrow up to that amount in cash, in this case $5,000 ($50% of $10,000) at a specified interest rate (usually around 10.5%. The issue is whether or not your investments continue to grow in value. If the investment grows, you can borrow money, if the investment lessens in value, you can actually end up owing money to the brokerage. If your $10,000 investment decreased to $9,000 in value, you are only allowed to borrow $4,500. If you had already borrowed $5,000, you would have to pay back the owed amount (this is called a margin call) or the brokerage will sell some of the stocks, bonds, etc…that you own. The reason that the brokerage does this is because the can.
1) Receive a good interest rate on the loan
2) They hold your investments as collateral on the loan until you can pay them back.

The problem with this was pretty simple: "What if there was a recession and my margin ability was not sufficient?" What if I wanted to margin my account to put a down payment on a house? What I needed those funds for any reason?I'm young, most of my money should be in stocks...simply put, I can afford to take more risks than a 70 year old retiree...but everyone should have some cash sitting around for a rainy day...everyone! My definition of my emergency fund changed. That's the best part about definitions and ideas...they can easily change once a new level of understanding is met.

The endgame for me is pretty simple.
1) 3 months of expenses in cash savings in 3 separate accounts. (Available in less than 3 business days. IMMEDIATE GOAL!!!)
2) 3 months of expenses in a taxable account that pays a dividend that is equal/comparable to the interest rate in my savings account (this money is considered less available, but I would be able to continue collecting interest via dividends while also taking advantage of the stock market in general. Basically, there will be one single stock in my taxable investment account that I will invest money in for my savings. I will not use this money for anything but an emergency fund. (Longer term goal.)
3) 1 month of expenses in COLD HARD CASH. (In my safe where it is immediately available. Endgame!)

I'm contemplating taking some money out of my long term investments to fund my emergency fund but I'm hesitant because I want my emergency fund to be something that I work for because it is important...not something that I can solve with a few clicks to initialize an account transfer.

Edit: I added a description for what margining an account is. There were a few questions about what this was and how it was done.

Emergency Fund

My goal of having an initial 3 months in cash reserves is become more and more realized.

I want to have 1 month of expenses in each account and have a time goal of the end of 2008. If I were starting from scratch, I would have to save $16.81/day to reach my goal by the end of 2008 if I were to start January 1st 2007. Luckily, I have managed to already save some money.

My progress so far:

Paypal: 5.37% of monthly income

Emigrant Direct: 7.72% of monthly income

ING: 10.16% of monthly income

Total Savings in Emergency Fund = 24.26% of ONE months income. (all I need for my goal is commitment and time)

Goal: 3 months income

Progress: (<7.75%><<<<<<<<<<<<<<<<<<86%>>>>>>>>>>>>>>>>>>)

Amount needed to reach goal by end of 2008 = $16.81/day

My current rate of savings for emergency account = $6.58/day

Based on my current rate of savings, I should reach my goal by the end of 2009 assuming no emergencies. Long story short, I need to either save more or adjust my timeline, I think I'll adjust my savings levels a little and keep in mind that I have set a rather short time horizon.

Slight setback

As usual, I overestimated my ability to stretch funds until payday. I am understanding my desire to move quickly in my quest to pay down debt and acquire assets, but my zealous nature for paying down debt led my checking account to overdraft. Cost = $10.00

On the plus side, most of this was due to paying down credit card debt and made by lendig out money to individuals (at a decent return) on Prosper (www.prosper.com) which is a little better than having bought a 42 inch plasma.

The Importance of Investing Early

INVEST EARLY! INVEST TODAY!

That's the best advice you'll ever get...that and not to eat yellow snow, but that is a different category... The earlier you start investing, the longer your investment has to grow.

Think of your nest egg as an apple orchard. If you had only one seed today and you had a goal of creating an apple orchard...when would you plant your first seed?

The longer your 'seeds' have to grow...the more time they have to become larger 'trees' that will produce 'apples'....each containing their own 'seeds'....the point is that you wouldn't wait until you had a huge bag of seeds to start planting, you would want to start today...

https://flagship.vanguard.com/VGApp/hnw/content/SiteWide/FlashPgs/SWFlshPwrOfCompContent.jsp

This site shows the importance of starting early rather well. It runs a scenerio of two individuals, one who invests $2,000/yr for 10 years (starting out at age 25 ) the second starts investing $2,000/yr from age 35 until age 35 ($60,000)...the restults, when compounded at 8% interest are rather staggering. It isn't hard to open up an investment account...

https://www.sharebuilder.com/sharebuilder/Setup/Default.aspx

This is a great site for investors that are just starting out; you can start investing with as little as $1.00. If you don't have one dollar, start saving!!! The earlier you start, the better!!!


INVEST EARLY! INVEST TODAY!

That's the best advice you'll ever get...that and not to eat yellow snow, but that is a different category...

The earlier you start investing, the longer your investment has to grow.

Think of your nest egg as an apple orchard. If you had only one seed today and you had a goal of creating an apple orchard...when would you plant your first seed?

The longer your 'seeds' have to grow...the more time they have to become larger 'trees' that will produce 'apples'....each containing their own 'seeds'....the point is that you wouldn't wait until you had a huge bag of seeds to start planting, you would want to start today...

https://flagship.vanguard.com/VGApp/hnw/content/SiteWide/FlashPgs/SWFlshPwrOfCompContent.jsp

This site shows the importance of starting early rather well. It runs a scenerio of two individuals, one who invests $2,000/yr for 10 years (starting out at age 25 ) the second starts investing $2,000/yr from age 35 until age 35 ($60,000)...the restults, when compounded at 8% interest are rather staggering.

It isn't hard to open up an investment account...

https://www.sharebuilder.com/sharebuilder/Setup/Default.aspx

This is a great site for investors that are just starting out

'Christmas' presents for parents

I had already purchased gifts for my parents for Christmas, but after coming back from home last week, I decided to do something extra for my parents.

My parents have done quite a bit for me over the past 24 years and this past Christmas wasn't an exception. I received a bunch of professional looking clothes for work as well as several books. (all I really need :)

I decided to spend some of the money I had been saving for a rainy day on Rod Stewart tickets just to show my appreciation. My mom was so excited when I told her tat it was more than worth forgoing a Wii or a few extra sushi dinners...plus, I'm sure I'll have a blast at the concert!!! (even though I'm not the largest fan of Rod Stewart)

Anyhow, the real point of this posting was that you "Save/invest to live, you don't live to save/invest..." Basically, we aren't here just to improve the bottom line of our balance sheets...at least I'm not. I'm just here to have a fun time...and being financially able to do nice things for the people I love is pretty much the only reason I ever started reading about finance to begin with.

If you've saved a little money, you should allow yourself to spend some of it...take in a movie with loved ones (or buy some concert tickets) because last time I checked, my money has never smiled at me...but it can help provide smiles...which a main reason why I expect many of you are reading this.

Christmas!

Christmas was a blast!

Not only did I have a great time at my Finance's for Christmas, I managed to do it well under budget.
Budget= $350
______

Train Ticket to New Jersey: $154
Train Ticket to New York City: $18
Mid-Morning Coffee: $2
Spur of the moment present for Fiance in NYC: $30
Present for Fiance's brother: $20
Lunch for 3 in NYC: $19
Dinner for 3 in NYC: $30
Snacks for movie at home: $20

Total Expenditures: $313

Under Budget by $37

I hope that everyone had a great Christmas/all other assorted holidays!

A good holiday practice

Unused Gift Cards Are The New Billion-$Dollar Business
The most-popular gift for 2006 holiday season, favored by 73% of shoppers, is clothing, closely followed by gift cards favored by 60% of shoppers, according to The Consumer Reports' Holiday Shopping poll. About 23.3 million Americans have unused gift cards from last year's holidays--that's at least $972 million in unredeemed cards. Indeed, 54% of respondents received gift cards for the 2005 holidays. Nearly a year later, 19% of the gift-card recipients have not used one or more of the cards received.

http://www.metrics2.com/blog/2006/11/03/unused_gift_cards_are_the_new_billiondollar_busine.html

If you get a gift card. Use it. If someone gave you a $20 bills, would you just tuck it in your closet for 10 years until it 'expired?' I dont' think so. It makes no sense to let the hard earned money of the gift bearer to go to waste.

How to Track your Accounts

Many of the people that I've talk to have trouble keeping track of all their accounts.

The 'old' way of waiting for snail mail to come to your house and manually writing out checks to pay your bills is more or less a thing of the past.

I all of my finances electronic and most of them are automatic in making sure that the bill is paid on time and that my savings accounts are funded. I still go in manually whenever I feel like making an extra transaction or two, but even then, it is as simple as clicking "transfer" or "Pay Bill" and selecting which accounts to transfer between and the amount.

I track my finances in several ways.
1) My Smith Barney investment account offers the service of tracking all of my credit cards and other accounts
2) I am still learning how to use Quicken...and I sometimes get rather frustrated with it
3) I manually track account levels on a high level in an excel sheet that calculated my networth and general budget.

And then, there is yoddle.

I just signed up for it to day (its free) and it looks like it is the total package.
I simply entered in all of institutions where my accounts are held and provided them with logon/password information. All of the account activity is brought into the site and even classifed by transaction type!
The system allows you to create your own budget (suggestions are made on your historical activity) and all of this has come to light after just two hours! I highly recommend checking out the site!

https://moneycenter.yodlee.com/


Until next time,
Thor

Other Finance Blogs

Obviously, my idea of a personal finance blog is nothing new.

Yahoo featured a story today talking about other personal finance blogs.

" Many of them say that blogs are merely a creative outlet for them to write about their experiences and share what they've learned so others won't make the same mistakes, such as using credit cards for everyday expenses."

http://biz.yahoo.com/special/pf082206_article1.html

That pretty much hits the nail on the head for why I'm doing this blog.

Check out the story, it actually provides some links to some rather interesting blogs!

My Net Worth Tracker

I decided to post my net worth tracker from my personal budget tool. As you can see, I'm headed up if you track my historical performance. Hopefully, this trend will continue and I will see a little less volitility in my net worth as I make more financially responsible decisions.
I obviously haven't made the best decisions in the world...but there certainly is a learning curve when it comes to making investments.

Why Banks Make Money - The Federal Reserve Requirement

Ever wonder why banks are able to make so much money?

If you put $1000 in a bank checking account, the bank is only required by law to keep a certain amount of that money within the bank. If the reserve requirement was

"If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81."

Below shows the historical reserve requirements of several countries.

Country 1968 1978 1988 1998
United Kingdom: 20.5 15.9 5.0 3.1
Turkey: 58.3 62.7 30.8 18.0
Germany: 19.0 19.3 17.2 11.9
United States: 12.3 10.1 8.5 10.3

http://en.wikipedia.org/wiki/Reserve_requirement

"Reserve requirements affect the potential of the banking system to create transaction deposits. If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As this fractional-reserve banking process continues, the banks can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000). In contrast, with a 20% reserve requirement, the banking system would be able to expand the initial $100 deposit into a maximum of $500 ($100+$80+$64+$51.20+...=$500). Thus, higher reserve requirements should result in reduced money creation and, in turn, in reduced economic activity."

Essentially, each dollar in a bank can compound by a factor of (Amount/Reserve Requirement)

You can do this too! With credit cards!!!

Why is it that the banks get the advantage and the little guy gets stiffed?

Because that is the way the system works.

The key is to understand the system so that you can make responsible decisions (no credit card debt) to avoid problems and smart decisions (ROTH IRA) to help you use the system to your advantage.

Until next time,
Thor

Prosper Lending - Peer to Peer Lending

Prosper is a peer to peer lending institution.

www.prosper.com

Essentially, one can transfer money to Prosper and bid on individuals who have applied for loans.

You can enter search criteria to find loans that you are looking for whether it be the individuals credit rating (based on their FICO Score), whether or not the individual is a homeowner (verified by Prosper), Loan amount ($1,000-$25,000), their payment history, and even on the interest rate that they are offering.

For example, you could choose to lend only to an individual with an AA credit rating that was seeking to borrow $5,000 at an interest rate of 9% for the purpose of buying a wedding ring or you could choose to lend to an individual with a D credit rating that was seeking $12,000 at an interest rate of 22% for the purpose of credit card consolidation. You can choose the criteria you want based on the level of risk that you are willing to take. All loans are on a three year time horizon with monthly payments. There is no penalty to individuals for early repayment.

The concept behind this is very interesting as it allows individuals to become micro-lending institutions. I personally have lent out $2,641.84 so far at an average rate of return of 15.78%
I began using this institution as an investment site, bidding on individuals posing a moderate risk at higher interest rates but have since put some money from my savings accounts into Prosper to invest in individuals with excellent credit ratings (A &AA) at interest rates from 9%-12%. I figure that this is a much better savings vehicle at a much higher interest rate than my current savings accounts. (~5% vs 9%-12%=4%-7% better)

I have even taken this method of investment to a new level. I placed a loan listing for $1,000 and received the loan at 8.25% interest. I then immediately relent the loan to individuals with low levels of risk for an average rate of 16%. I am not actually pulling 6% interest out of the air; there are service fees (very reasonable) and I must pay taxes on my return. My basis of this test was that I have more than enough capital to cover the loan even if there are 100% defaults on the loan...and $1,000 for an interesting educational class is a lot less money than I paid for college classes. (~$5,000/class)

Anyhow, I've been lending on Prosper for the past few months and ave 0% of my loans in default. If there is a default, Prosper covers a small amount of the loan for that monthly payment and if the individual is unable to pay, you can even choose which debt collection agency you want to go after the individual to get your money back.

The basis of this model is that you can lend out your capital (say...$1,000) in amounts of $50 to 20 individuals while sharing the risk with others who are also lending in small amounts. The risk is spread over all the lenders and you can choose your own method for selecting lenders. I personally will be sticking with the AA,A,B lenders although I do have a few loans to C individuals and one loan to a D. I will not, however, be placing loaned on any HR or NC individuals...they either have no credit, or their credit is so bad that it is essentially non-existent...investing in them simply wouldn't be financially responsible.

Anyhow, I highly recommend doing your own due diligence before opening an account, but the economic impact of peer to peer lending institutions could have quite a large impact if it ever reaches the mainstream lending world. I highly recommend checking out Prosper as a potential investment vehicle.

Until next time,
Thor

A New Direction

My next posting will be in the format I hope this blog will eventually be in.

My intentions of this blog are to:
1) Track my path to financial success
2) Explain why I make certain financial decisions (risk/reward)
3) To discuss my ideas about business and investing to better understand the system

Any of my friends would tell you that I'm passionate about success. Whether it is explaining the importance of investing early, the concept of compounding interest, the effect that changes in interest rates has on the economy, why it is bad to flush a retirement account to pay down credit card debt, or how to open up a 529 college savings plan for their children. I really like finance.

Next posting, I will be talking about Prosper lending.

Until next time,
Thor

The Budget - Overview

OK, I am looking at being in the hole $165/mth...every month...that's $1980 every year.

Normally, this would be bad. Scrath that, it is bad...but I've overestimated every cost...the difference is less than $165/mth...but I have currently been withdrawing money from my investment accounts to cover bills. I have also been overpaying for my debt payments...once I am able to ELIMINATE BAD DEBT, I will be looking at a positive cashflow.

Now, Remember, I'm also Saving $996/mth (Emigrant Direct, ING, 401K)...so I'm actually cash flow positive for the amount of ($-165)+($996) = $831/mth. I have actually been tapping my savings some when I need a little extra money to pay the bills (bad), and flushing my savings accounts every couple of months to pay down debt (right intention...wrong concept) which partially explains why my savings accounts are too low...

So with the full intention of eliminating debt, I should be able to free up those payments within 6 months to a year...which frees up...

Credit Cards:
Providian: $50
Quicken: $80
USAA: $100
Credit Card Total: $230

Personal Loans:
USAA: $140
Prosper: $32
Personal Loan Total: $172

Grand Total: $402/mth

The 'extra' $402/mth will be immediately applied towards my savings accounts/prosper loans/investment accounts.

My goal of eliminating debt, building an initial 6 months cash cushion, and becoming fully financially independent isn't going to be easy...AT ALL...but the good things aren't suspossed to be easy...they are meant to take effort, planning, and commitment...

I DO have time, I DO have the hunger, I DO have the commitment...and that's all you really need for success...

Until next time,
Thor

The Budget - Variable Expenses

I've included Income minus taxes and pre-tax deductions, savings, and fixed costs; now, I can include my final input in my budget for variable costs.

Remaining Income= [Income ($3300)] - [Taxes and Pre-tax deductions($783+$202)]-[Savings($611)]-[Fixed Costs ($2524)] = $78

Variable Expenses (monthly basis)

Gas: $50 (I walk to work...very reduced cost)
Coffee: $43 (twice a day, mon-fri, $2/visit)
Eating Out: $50
Entertainment: $100

Total Variable costs: $243


Remaining Income= [Income ($3300)] - [Taxes and Pre-tax deductions($783+$202)]-[Savings($611)]-[Fixed Costs ($2524)]-[Variable Costs ($243)] = $-165

Until next time,
Thor

The Budget - Fixed Expenses

Now, I'm going to factor in all of my fixed expenses...that is, expenses that I can project with reasonable accuracy over a period of at least one year.

Remaining Income to account for= [Income (100% of income)] - [Taxes and Pre-tax deductions(8.12%+17.66%)]-[Savings(4.51%)] = 69.70% of income left to account for.

Renters Insurance: 0.10%
Booksfree (is like netflicks for books): 0.32%
Netflicks: 0.38%
Pet Insurance: 0.45%
Pet Training: 0.45%
Prosper Loan: 0.72%
Providian Credit Card: 1.13%
Pet Food: 1.35%
Quicken Credit Card: 1.69%
Gym Membership: 1.80%
Car Insurance : 1.98%
Cell Phone: 2.03%
USAA Credit Card: 2.59%
USAA Personal Loan: 3.16%
Misc Expenses (Cash withdrawl): 3.91%
Food: 4.51%
College Loan A: 5.86%
College Loan B: 6.54%
Rent: 18.04%

Total Fixed Costs = 39.06%

Remaining Income to account for= [Income (100% of income)] - [Taxes and Pre-tax deductions(8.12%+17.66%)]-[Savings(4.51%)]-[Fixed Costs (39.09%)] = 30.61% of income left to account for.


Until next time,
Thor

Edit: I decided not to include dollar amounts and instead include figures as a percentage of monthly income.

The Budget - Savings

I already included my 401K contribution in the pre-tax/tax section…but a 401K does count as saving…


Remaining income to account for = [Income (100% of income)] - [Taxes and Pre-tax deductions(8.12%+17.66%)] = 74.22% of income left to account for


Additional Savings (to be deducted from remaining payon a monthly basis)

ING Direct= 2.25% of income

Emigrant Direct = 2.25% of income

Additional Savings = 4.51% of income

Total Income left = [Income (100% of income)] - [Taxes and Pre-tax deductions(8.12%+17.66%)]-[Savings(4.51%)] = 69.70% of income left to account for.

In the next posting, I will list all fixed expenses. Fixed expenses are bills that I can expect to be roughly the same amount each month such as rent or my cell phone bills. Fixed expenses are also bills that are likely to occur for at least one year.

Until next time,
Thor

Edit: I decided not to include dollar amounts and instead include a representation of monthly income.

The Budget - Pre-tax and Tax Deductions

I’ve listed all assets and liabilities. I’ve also listed all sources of income.

Remaining Income to account for= 100% of monthly income

Now, its time to list all pre tax and tax expenses.

First, the pre-tax deductions

Medical, dental, company life insurance, long term disability, and Vision = 1.63%/mth

I’m currently putting 10% of my salary into my 401K plan. My company provides a 6% match (starting in Jan 2007) and I plan to take full advantage of this match.

10% of my salary comes to 6.92 %/mth

Total Pre-Tax Deductions = 8.12%/mth

Then comes the tax man.

Taxes per month (this breakdown is listed on my paystubs)
Federal Income Tax = 7.53%/mth
Social Security = 5.30%/mth
Federal Medicare = 0.56%/mth
VA Income Tax = 1.67%/mth

Total Taxes = 17.66%/mth

After Pre-tax deductions and taxes…
I’m left with a monthly income of….

[Income (100% of income)] - [Taxes and Pre-tax deductions(8.12%+17.66%)] = 74.22% of income left to account for

In the next posting, I will list all savings. Savings take away from my “income” but are added to my bottom line.

Until next time,
Thor

Edit: I decided not to include monetary vlaues but a percentage of monthly income instead.
PS: I just recalculated everything due to what I thought was an error...turned out I was double counting my taxes and my 401K contributions. Basically, I was doing % of income based on a post-tax amount when I should have been doing it on a pre-tax amount.

The Budget - Income

Now that I have made a listing of all my liabilities and assets, it is time for me to create a budget. This will allow for me to project future savings, investments, and costs as well as provide an overall view of where I stand.

First, I’m going to list my income.

Primary Income

Primary Income = ~$X/mth

If you are luck enough:

Secondary Income = $Y/mth

I am lucky enough to recieve help from my parents each month to assist me in paying my college loans.

Total Income = ~$Z/mth (X+Y+any other income...)

Minor income from savings accounts is not included in this budget due to the fact that all interest remains in these accounts and isn't really enough to include in my budget as 'income'...yet.


In my next posting, I will list all pre tax and tax expenses.

Until next time,
Thor

Why Blog?

Why am I tracking my financial progress in a blog?

Its just too easy to put things off. Going to the gym, finding a new job, finishing a book you haven't even looked at in a year...by tracking my path in a blog, I have a written record of my progress.

Also, the illusion that people might actually read this blog gives me cause to stick to my plan because hopefully, if I start to stray, someone will ping me with a "idiot, you are making a bad decision" comment.

S0, I'm making the committment...today, to maintain this blog on a regular basis, to track my financial progress, and also to provide my thoughts towards investment vehicles and overall economic conditions.

Until next time,
Thor

Growing Net Worth

The steps to increase one's net worth are simple. Simply make sure that all inflows exceed outflows. The concept is very simple, the practice, and more importantly, the practice in an accelerated time environment, is rather difficult.

Some experts maintain that the best way to increase a financial picture is to do it slowly. Contribute to your 401K enough to get the company match. Own a home. Identify places in your budget that you can cut down upon to save an extra $2/day which, compounded at 8% will leave you with more than enough to retire.

Other experts will send you mass e-mails maintaining that the best way to get rich is to invest your money in XYZ stock where you are guranteed a 2,000% return in less than four months...that flipping properties and bootstrapping is the best way to get there.

I would prefer to take a rather balance approach. I desire to increase my networth by following the proven plan of slow growth as well as to take calculated risks with my investments to help myself retire well before I am 60 years in age.

The best way to do this? Education. Plain and simple. Read A LOT. Talk about ideas A LOT. BE CURIOUS...A LOT. The concept is easy. Desire to learn. But, like increasing your net worth...the concept is simple...the practice is a little more difficult.

Until next time,
Thor

The Big Picture

Assets: 51.983 months of income

Liabilities: 36.723 months of income

Net Worth: 15.26 mths worth of income (Assets minus liabilities)

Immediate Goals:
Assets: I have given the goal of building up a cash reserve equal to 6 months living expenses
Liabilities: I have given the goal of eliminating credit card debt, starting with my USAA Credit Card.
Big Picture goal: To build up my networth to a value of greater than 30 months worth of income by then end of 2009.

Until next time,
Thor

Edit: Decided to replace account values with amount as a representation of monthly income.

List of Liabilities

A list of my liabilities (Current 12/18/2006)

Car & Renters Insurance: 0.096 mths of income
Providian Credit Card: 0.181
American Express Card: 0.205
Prosper Loan: 0.277
USAA Credit Card: 0.332
Macys Credit Card: 0.608
Quicken Credit Card: 1.259
USAA Personal Loan: 1.322
College Loan B: 5.172
Taxable Investment Account # 1 Margin: 5.522
College Loan A: 8.329
Taxable Investment Account 2: 13.420

Total Liabilities: 36.723 mths of income (or 3.060 years)


Immediate Plans: My immediate goal is to eliminate all of my credit card debt. It just doesn't make sense to pay an unreasonable amount of interest on debt when I have the goal of financial success. I have already liquidated some of my assets in order to pay down some of the debt but I'm also interested in paying down this debt through my hard work...not through the liquidation of assets.

Until next time,
Thor

Edit: Removed account values and replaced with representation of mths of income.

List of Assets

A list of my Assets (Current 12/18/2006)
(All asset amounts listed as a representation of monthly income)

USAA Checking: 0.015 mths of income
USAA Saving: 0.015
Emigrant Direct: 0.053
Paypal: 0.072
ING Direct: 0.136
Prosper Lending Cash Value: 0.181
Company 401K: 0.479
Wachovia Checking: 0.617
Prosper Lending: 0.737
Roth IRA: 4.362
Taxable Investment Account: #1 11.586
Taxable Investment Account: #2 33.729

Total Assets: 51.983 mths of income (or4.3 years worth of income)

Immediate Plans: My immediate goal is to increase my savings accounts to equal ~6 months of cash reserves. While I have enough assets in my investment accounts to fulfill this goal immediately, I would prefer to accomplish this goal through my own hard work rather than through a simple account transfer.

Edit: I decided not to include account values in my blog and instead focus on percentages as opposed to amounts.

The Beginning

I am creating this financial blog to track my path towards financial success.